See also:

• Photovoltaics History and Timeline


• Solar Cell


• Solar Panel


• Photovoltaic System


• Solar Vehicle


• Economics of PV


• PV Environmental Impacts


• Photovoltaics Pros & Cons


• PV Companies, Industry Associations, Research Institutes

US average daily solar energy insolation received by a latitude tilt photovoltaic cell.

Power costs

The PV industry is beginning to adopt levelized cost of energy (LCOE) as the unit of cost. The results of a sample calculation can be found on pp. 52, 53 of the 2007 DOE report describing the plans for solar power 2007-2011 [1]. For a 10 MW plant in Phoenix, AZ, the LCOE is estimated at $0.15 to 0.22/kWh.

The table below is a pure mathematical calculation. It illustrates the calculated total cost in US cents per kilowatt-hour of electricity generated by a photovoltaic system as function of the investment cost and the efficiency, assuming some accounting parameters such as cost of capital and depreciation period. The row headings on the left show the total cost, per peak kilowatt (kWp), of a photovoltaic installation. The column headings across the top refer to the annual energy output in kilowatt-hours expected from each installed peak kilowatt. This varies by geographic region because the average insolation depends on the average cloudiness and the thickness of atmosphere traversed by the sunlight. It also depends on the path of the sun relative to the panel and the horizon.

Panels can be mounted at an angle based on latitude, which can add to total energy output.^[68] Solar tracking can also be utilized to access even more perpendicular sunlight, thereby raising the total energy output. The calculated values in the table reflect the total cost in cents per kilowatt-hour produced. They assume a 10% total capital cost (for instance 4% interest rate, 1% operating and maintenance cost, and depreciation of the capital outlay over 20 years).

Grid parity

Grid parity, the point at which photovoltaic electricity is equal to or cheaper than grid power, is achieved first in areas with abundant sun and high costs for electricity such as in California and Japan.^[69] Grid parity has been reached in Hawaii and other islands that otherwise use diesel fuel to produce electricity. George W. Bush has set 2015 as the date for grid parity in the USA.^[70][71] General Electric's Chief Engineer predicts grid parity without subsidies in sunny parts of the United States by around 2015. Other companies predict an earlier date.^[72]

In Italy, PV power has been cheaper than retail grid electricity since 2006. One kWh in Italy costs 21.08  €-cents.^[73] Italy has an average of 1,600 kWh/m² sun power per year (Sicily has even more, at 1,800 kWh/m²).

Financial incentives

The political purpose of incentive policies for PV is to grow the industry even where the cost of PV is significantly above grid parity, to allow it to achieve the economies of scale necessary to reach grid parity. The policies are implemented to promote national energy independence, high tech job creation and reduction of CO₂ emissions.

Three incentive mechanisms are used (often in combination):

• investment subsidies: the authorities refund part of the cost of installation of the system,
• Feed-in Tariffs (FIT)/Net metering: the electricity utility buys PV electricity from the producer under a multiyear contract at a guaranteed rate.
• Renewable Energy Certificates ("RECs")

With investment subsidies, the financial burden falls upon the taxpayer, while with feed-in tariffs the extra cost is distributed across the utilities' customer bases. While the investment subsidy may be simpler to administer, the main argument in favour of feed-in tariffs is the encouragement of quality. Investment subsidies are paid out as a function of the nameplate capacity of the installed system and are independent of its actual power yield over time, thus rewarding the overstatement of power and tolerating poor durability and maintenance. Some electric companies offer rebates to their customers, such as Austin Energy in Texas, which offers $4.50/watt installed up to $13,500.^[74]

With feed-in tariffs, the financial burden falls upon the consumer. They reward the number of kilowatt-hours produced over a long period of time, but because the rate is set by the authorities, it may result in perceived overpayment. The price paid per kilowatt-hour under a feed-in tariff exceeds the price of grid electricity. Net metering" refers to the case where the price paid by the utility is the same as the price charged.

Where price setting by supply and demand is preferred, RECs can be used. In this mechanism, a renewable energy production or consumption target is set, and the consumer or producer is obliged to purchase renewable energy from whoever provides it the most competitively. The producer is paid via an REC. In principle this system delivers the cheapest renewable energy, since the lowest bidder will win. However uncertainties about the future value of energy produced are a brake on investment in capacity, and the higher risk increases the cost of capital borrowed.

The Japanese government through its Ministry of International Trade and Industry ran a successful programme of subsidies from 1994 to 2003. By the end of 2004, Japan led the world in installed PV capacity with over 1.1 GW.^[75]

In 2004, the German government introduced the first large-scale feed-in tariff system, under a law known as the 'EEG' (Erneuerbare Energien Gesetz) which resulted in explosive growth of PV installations in Germany. At the outset the FIT was over 3x the retail price or 8x the industrial price. The principle behind the German system is a 20 year flat rate contract. The value of new contracts is programmed to decrease each year, in order to encourage the industry to pass on lower costs to the end users. The programme has been more successful than expected with over 1GW installed in 2006, and political pressure is mounting to decrease the tariff to lessen the future burden on consumers.

Subsequently Spain, Italy, Greece and France introduced feed-in tariffs. None have replicated the programmed decrease of FIT in new contracts though, making the German incentive relatively less and less attractive compared to other countries. The French FIT offers a uniquely high premium (EUR 0.55/kWh) for building integrated systems. California, Greece, France and Italy have 30-50% more insolation than Germany making them financially more attractive.

In 2006 California approved the 'California Solar Initiative', offering a choice of investment subsidies or FIT for small and medium systems and a FIT for large systems. The small-system FIT of $0.39 per kWh (far less than EU countries) expires in just 5 years, and the alternate "EPBB" residential investment incentive is modest, averaging perhaps 20% of cost. All California incentives are scheduled to decrease in the future depending as a function of the amount of PV capacity installed.

At the end of 2006, the Ontario Power Authority (Canada) began its Standard Offer Program, the first in North America for small renewable projects (10MW or less). This guarantees a fixed price of $0.42 CDN per kWh over a period of twenty years. Unlike net metering, all the electricity produced is sold to the OPA at the SOP rate. The generator then purchases any needed electricity at the current prevailing rate (e.g., $0.055 per kWh). The difference should cover all the costs of installation and operation over the life of the contract.

The price per kilowatt hour or per peak kilowatt of the FIT or investment subsidies is only one of three factors that stimulate the installation of PV. The other two factors are insolation (the more sunshine, the less capital is needed for a given power output) and administrative ease of obtaining permits and contracts.

Unfortunately the complexity of approvals in California, Spain and Italy has prevented comparable growth to Germany even though the return on investment is better.

In some countries, additional incentives are offered for BIPV compared to stand alone PV.

• France + EUR 0.25/kWh (EUR 0.30 + 0.25 = 0.55/kWh total)
• Italy + EUR 0.04-0.09 kWh
• Germany + EUR 0.05/kWh (facades only)

References