Posted by: Adam Aston on February 23, 2008
First, biofuels were dealt a body blow. A pair of recent studies pointed out that practically any crop -– whether corn, sugar, or oil bearing plants -– grown on newly cleared lands created such a deep carbon deficit that it could take decades or centuries for biofuels generated from those acres to start benefiting the environment. Then this week, a study harshly critical of the cost-effectiveness of solar photovoltaic (PV) energy has put a scare into the industry.
According to a new study by Severin Borenstein, a professor at the University of California, Berkeley’s Haas School of Business and director of the UC Energy Institute, current solar PV technology is not economic: “We are throwing money away by installing the current solar PV technology.” Such criticism are nothing new. In any rank ordering of the cost effectiveness of renewable technologies now being built, solar PV tops out as most expensive. Yet its proponents maintain that government subsidies are justified. The public money will speed the solar PV’s evolution and lower its price. This has happened. Improving economies of scale in manufacturing, lower installation costs, and chips which do a better job of converting more of the sun’s photons in electricity have dramatically solar PV costs.
Yet not by enough, or fast enough, says Borenstein in his January paper, “The Market Value and Cost of Solar Photovoltaic Electricity Product”. Borenstein found that, even after considering that the panels reduce greenhouse gases, their installation and operating costs still far outweigh their economic and social benefits. He asks then whether the subsidies would be better spent on basic R&D to improve solar PV technology rather than paying for more households and businesses to erect more subsidy-choming panels up on their roofs. “We need a major scientific breakthrough, and we won’t get it by putting panels up on houses,” he said in a statement.
Solar PV players are fighting back. “Borenstein’s recent paper on solar policy is predicated on a host of faulty assumptions that are simply out of touch with the success of solar market development in California and around the world,” said Julie Blunden a spokesperson at SunPower, the biggest installer of solar PV in the US, in a written response to the study. The industry has also grenerated millions of jobs and stabilizes the costs of electricity for those who use it. And to make the point, at the PiperJaffray solar investment conference in New York in February, SunPower announced it will cut installed solar system costs to meet equal retail prices by 2012.
For Borenstein, the fact remains that though good for the environment, solar PV just isn’t cutting it economically. His model even gives solar the benefit of the doubt, so to speak, by factoring in solar PV’s penchant to generate more power on hot, sunny afternoons, when the cost of power from the grid is highest. Using actual and simulated data from utilities Borenstein tallied up how such peak pricing can improve the economic case for PV panels. His conclusion: it helps, but not enough. Variable pricing boosts the value of solar PV power by up to 20%. Indeed, he explains, if utilties ran smarter — leaner, by producing less excess power all the time — solar’s incremental value could be even higher, say 30%-50%, making a stronger case for the technology.
All the same, Borenstein continues, a long-term cost analysis, including the net present value of power produced over the multi-decade lifespan of of a PV system, reveals how costly these systems are. Modeling a 10 kilowatt installation, including the cost of installation and operation, he found costs range from $86,000 to $91,000, while the value of the power produced ranges from $19,000 to $51,000. That’s a seriously negative ROI for those keeping score. Under more friendly terms, where power prices rise 5% a year and inflation is a calm 1% per annum, the cost of solar PV is still about 80% more than the value of the power it generates. Under more typical real-world scenarios, with higher interest rates and lower electricity cost increases, the price of a solar PV system today is 3x to 4x more than the benefits of the electricity it will produce over its lifetime.
Ok, then. But once carbon emissions have a price, won’t that make solar PV more competitive by making electricity from coal and gas more costly? Yes, but even then PV is only competitive when carbon is very, very expensive. Borenstein figures that at solar PV’s current prices, the cost of carbon would have to hit somewhere between $150 to $500 per ton to make the technology economic. Today, carbon trades in Europe at around $30 per ton; US policy markers are targeting prices of under $20 per ton.
What are the implications of these findings? For one, Borenstein’s findings may influence election year policy discussions, and could steer more funding to R&D for PVs, and less towards putting more panels up. In energy markets, utilities may continue to increase their interest in more efficient, lower cost thermal solar power plants being built by utilities, like the one recently commissioned by Arizona Public Service and Abengoa, a Spanish green energy giant.
BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.