Pictured above: An industrial powerplant complex. Major transitions from one energy technology to another have historically taken 50 years or more. Our civilization will need fossil fuel and nuclear power plants for several decades to come. But the sooner we start a massive shift to clean, renewable solar power, the sooner we will start to reap the environmental and economic benefits. And solar power is cost-effective today.
While this might have been true 10 years ago, it isn’t true today. Today’s rooftop solar power systems produce electricity that costs about one third less per kilowatt-hour than the typical retail cost of electricity in Florida, when considering the total cost of ownership during the term of the performance warranty on the solar panels. But rather than making sweeping statements, let’s take a look at a specific example system, and see if the “too expensive” claim holds up to scrutiny when using real world numbers.
We’ll consider a 32 panel solar power system with 285 watt panels, installed on a south-facing, Northeast Florida roof. The system’s electricity production would be slightly better in Central Florida.
System price: $32,000. This is a bit higher than our current installed price for a straight-forward 32 panel installation on a one-story fiberglass shingle roof, but we’ve increased the price to make the system an even $1,000 per panel.
Tax credit: $32,000 x 30% = $9,600. This example assumes that the value of the tax credit is used to reduce the portion of the total price that is financed with monthly payments. This is, incidentally, how our solar power financing actually works.1
Monthly payment: $185.32, based upon an installment loan principal of $32,000 − $9,600 = $22,400; at 2.99% interest and a 144 month (12 year) loan term.
Total of payments: 144 months x $185.32 = $26,686.
First year electricity production: 32 285-watt solar panels facing due south, mounted at a 26° tilt angle (about a 5:12 roof pitch) in Northeast Florida will produce an estimated 13,781 kilowatt-hours of net usable electricity during the first year of operation.2
Performance warranty: Solar panel power output falls by a small amount each year, as the panels age. Most leading solar panel manufacturers warrant that this performance loss will not exceed a certain percentage each year, for 25 years. If the warranty maximum performance loss is 0.7% per year, the average power output of the solar panels over the 25 years of the performance warranty will be 94% of the first year power output.
25 year solar electricity production: 25 years x 13,781 kilowatt-hours x 94% = 323,863 kilowatt-hours.
Solar electricity cost per kilowatt-hour: $26,686 ÷ 323,863 kilowatt-hours = 8.2 cents per kilowatt-hour.
Most utility-generated electricity in Florida currently averages around 12 to 13 cents per kilowatt-hour for residential customers, including fuel adjustment charges, taxes and fees. Bills can spike up to around 15 cents per kilowatt-hour during the summer months, when fuel adjustment charges typically increase. So…
At 8.2 cents per kilowatt-hour, is solar power too expensive?
And it’s important to remember that the example above doesn’t consider that (1) the solar panels should continue to produce electricity for at least another two decades after expiration of the 25 year power production warranty; or (2) extra savings that result from the difference between current utility electric rates and any future increases in rates. According to the Energy Information Administration, U.S. residential electric rates increased at an average annual rate of 3.968% over the 45 years between 1970 and 2015.
Incidentally, 3.968% per year may not sound like much. But an electric bill that was $60 per month ($720 per year) in 1970 is:
$359 per month ($4,312 per year) in 2016, and will be
$530 per month ($6,364 per year) in just 10 more years…
when compounded at 3.968% per year. The cold hard fact is that electricity costs almost six times more today than in 1970. How much will rates increase over the next 25 years? No one can predict the future. But it seems like a safe bet that average yearly increases over the next 25 years rates probably won’t be less than for the last 45 years or so.
And if you should decide to sell your home in less than 25 years, independent studies show that your solar power system should help your home sell faster and for a much higher price.
So why isn’t everyone going solar?
Some solar critics ask, “If solar power is cheaper than fossil fuels, why isn’t everyone switching to solar power?” This question uses the logical fallacy of appeal to numbers (argumentum ad numerum), which is trying to prove an argument by citing the number of people who agree with your position. In other words, solar power must not really be cheaper because if it were, everyone would switch to solar power.
Actually, several reasons explain why a mass shift to solar power has not yet occurred:
Lack of awareness. Most people are not aware of the dramatic drop in solar power system prices over the past few years; the availability of zero down, low-interest rate financing; the high predictability and reliability of solar power systems; or the peace of mind offered by 25 year manufacturer solar panel warranties. Market forces like lower costs of ownership do not work efficiently when potential customers have incomplete or inaccurate information.
Human nature. Without specially designed financing and government subsidies, solar power systems require a larger expenditure in the present to receive benefits in the future. Human nature generally resists worrying about the future until crisis demands it.
Scale of change needed. While the solar industry is growing at an extraordinary rate, transitions from one dominant energy technology to another have historically taken 50 years or more. Speaking on a more practical level, we experience periodic delivery delays as solar panel manufacturers struggle to keep up with rapid growth in demand.
Entrenched interests. The oil, gas, coal, and electric utility industries have billions of dollars invested in fossil fuel energy resources, and production and distribution infrastructure. They are agressively fighting the expansion of solar power through public disinformation campaigns and agressive lobbying of legislatures and utility public service commiissions.
Like the “too expensive” myth above, this one isn’t true either.
With today’s solar equipment prices, the 30% solar tax credit, typical Florida electric rates, and assuming that just the historical average rate of inflation in U.S. residential electric rates for the last 45 years (3.968% per year) continues, the typical payback on a financed solar power system purchase is between 11 and 12 years.
The simple payback for commercial solar power systems is even faster. In addition to the 30% solar tax credit, accelerated depreciation over five years is also available. With accelerated depreciation and a 35% corporate income tax rate, a roof-mounted commercial solar power system pays back its original cost in about six years. If a carport or trellis structures will be constructed for the solar panel array, the payback increases to about nine years.
No, today it really doesn’t make sense. The cost to install solar power has dropped by 73% since 2006. A solar power system for a home or business is more affordable today than ever.
As for improving solar panel efficiencies, current production solar panel efficiencies of 19–20% are approaching the theoretical limit of about 24%. (The actual theoretical efficiency limit is higher but is not achievable in real world operating conditions.) Stories about solar cell efficiencies of 30–40% or higher refer to concentrating solar cell assemblies that would not be either cost-effective, spatially practical, or sufficiently attractive for residential rooftop installation.
Now is the best time to install solar power.
Solar energy systems can work well in a wide variety of places, including foggy and cold climates, and on overcast days. Germany, a Northern European country not exactly known for sunny weather, leads the world in installed rooftop solar power capacity.
Actually, the opposite is true. Several independent studies have shown that a solar power system increases a home’s resale value. The reason is really pretty simple: Homes with solar power systems have significantly lower electric bills. The electric bill is the largest monthly cost of home ownership after the mortgage payment, so buyers are willing to pay more to obtain lower electric bills.
The largest independent study to date on resale values for homes with rooftop solar power systems found that homeowners typically recovered the entire net cost of their solar power systems when they sold their homes. (“Net” cost just means the cost after the 30% solar tax credit.) Another study found that homes with rooftop solar power systems also sell faster; as much as 2.5 times faster than similar homes without solar power in the same area.
While we (and the most credible scientific evidence) don’t agree with these statements, agreement or disagreement is really beside the point. Governments and individuals must base their decisions on the precautionary principle. That is, they must follow the common sense axiom, “better safe than sorry.” Put another way, when uncertainty exists about a future event with potentially extreme negative impacts, it’s smart to prepare for the worst.
This is why the insurance industry exists. This is why nations pay to maintain expensive military forces during peacetime. And this is why solar power is a vital part of our future. Solar power is a common sense response to electric rate increases that averaged 3.968% per year over the 45 year period from 1970 to 2015. A solar power system is an insurance policy against the very real risks of increasing fossil fuel shortages and extreme carbon emissions controls and taxes… either of which alone will inevitably drive future electric rates much higher.
The idea here, pushed by critics of sustainability initiatives and renewable energy technology, is that the amount of energy needed to manufacture solar panels is greater than the amount of energy they produce. This idea is silly on its face.
Why? Because raw material refiners, product manufacturers and wholesale distributors in the solar power industry must include their energy costs in the prices they charge for their products in order to earn a profit. And their customers, in turn, won’t buy those products—solar panels—if the prices are too high in relation to the energy savings the solar panels produce.
Germany’s prestigious Fraunhofer Solar Energy Research Institute studied this issue. The Fraunhofer institute found that solar panels installed in northern latitudes (areas like Northern Europe and New England in North America) need around 2-1/2 years to produce the same amount of energy as the amount needed for their manufacture. Solar panels installed in middle latitiudes (areas like the Mediterranean region and the U.S. sunbelt states) need about 1-1/2 years or less. A good quality solar panel should produce at least 20 times the energy required for its manufacture during its 25 year power production warranty period. And today’s production solar power panels should produce electricity for 40 to 50 years.
Solar power critics also argue that solar power is not environmentally friendly because of toxic wastes produced during the manufacture of photovoltaic solar cells.
It is true that acids and toxic metal wastes are produced during the manufacture of solar photovoltaic cells. In North America and Europe, these wastes are buried—just like the toxic byproducts of computer chip manufacturing—in specially designed waste management sites.3
In stark contrast, the toxic wastes produced by electric utility powerplants—arsenic, mercury, chromium, cadmium and chlorine—are dumped into sludge ponds and spewed out of smokestacks into the sky. As for the amount of waste, the toxic waste produced to generate one megawatt of solar electricity is an order of magnitude less than the toxic waste produced during the generation of one megawatt of electrical energy by a fossil fuel-fired industrial powerplant.
The environmental criticism of solar power is also disingenuous. The vast majority of solar photovoltaic cells manufactured today are made by the same process used to produce computer chips. And yet, solar power critics are not arguing that we should do without computers, cell phones, smart TVs, automobiles, or appliances, all of which rely upon the same silica-based wafer manufacturing technology as solar panels.4
It is true that subsidies like the solar tax credit (and accelerated depreciation for commercial solar power projects) are vital to widespread adoption of clean and renewable energy technologies. But it is not true that these subsidies give an unfair advantage to solar power.
According to an independent research study, government subsidies worldwide for oil, gas and coal production exceed $452 billion a year.5 The same research study puts total U.S. government subsidies for oil, gas and coal production at $20 billion a year. By comparison, according to a U.S. Energy Information Administration report, U.S. government subsidies for solar and wind energy in 2013 were $5.33 billion and $5.94 billion, respectively. The same EIA report put all other U.S. government subsidies for energy in 2013 at $17.99 billion.6
Critics do acknowledge that subsidies for solar and wind are less than subsidies for fossil fuels. But they argue that solar and wind subsidies are still excessive, when compared with fossil fuel subsidies, on the basis of energy produced per dollar of subsidy. The problem with this argument is that the critics compare only the energy produced during the year a subsidy is received. This method of comparison is grossly misleading when applied to solar and wind energy. Why? Because it ignores the fundamental advantage of renewable technologies: 40–50 years or more of fuel-free energy production following a one-time investment and subsidy.
- The most popular solar loan purchase financing is structured as two separate loans. The first loan, for 30% of the purchase price (the same amount as the tax credit), is a 12 months “same as cash,” or zero interest, loan. The homeowner has a year to pay off the same as cash loan, using the extra income received as a result of the 30% solar tax credit. The second loan, for the remaining 70% of the purchase price, is a conventional unsecured installment loan.
- This electricity production is based upon a typical year’s weather for the area, a DC to AC power ratio of 1.14 and normal system performance losses.
- It may be true that you can reduce your environmental footprint by purchasing solar panels manufactured in North America or Europe, rather than China. China leads the world in solar panel production but lags in environmental protection standards, including enforcement of waste disposal regulations.
- Incidentally, the primary raw ingredient for silicon solar cells, silica, is found in sand. Literally the stuff at the beach.
- Bast, E., Doukas, A., Pickard, S., van der Burg, L. and Whitley, S. (2015). “Empty promises: G20 subsidies to oil, gas and coal production.” Overseas Development Institute, London and Oil Change International, Washington, DC. November 2015. Available online at https://www.odi.org/publications/10058-production-subsidies-oil-gas-coal-fossil-fuels-g20-broken-promises.
- “Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2013.” U.S. Energy Information Administration, U.S. Department of Energy, Washington, DC. March 2015. Available online at http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf. Subsidies include funds for research, direct grants, loan guarantees and tax expenditures. “Tax expenditures” are subsidies delivered through the tax code in the form of credits, deductions and income exclusions that reduce the amount of tax households and businesses owe.