The last couple of blogs have been on policy mechanisms for reducing greenhouse gas emissions. Solar power is often touted as a fundamental part of the solution to reducing emissions and there has been a lot of angst about the profitability of solar power companies. One concern is that the subsidies provided by Australian governments for households to purchase photovoltaic panels ends up going overseas; leaving us with low tech installation jobs and, as the governments clawback the subsidies and feed in tariffs through increased electricity supply costs, inflated electricity bills.
I stumbled across an excellent blog by Ramez Naam that examined the cost of solar power. He writes:
Over the last 30 years, researchers have watched as the price of capturing solar energy has dropped exponentially. There’s now frequent talk of a “Moore’s law” in solar energy. In computing, Moore’s law dictates that the number of components that can be placed on a chip doubles every 18 months. More practically speaking, the amount of computing power you can buy for a dollar has roughly doubled every 18 months, for decades. That’s the reason that the phone in your pocket has thousands of times as much memory and ten times as much processing power as a famed Cray 1 supercomputer, while weighing ounces compared to the Cray’s 10,000 lb bulk, fitting in your pocket rather than a large room, and costing tens or hundreds of dollars rather than tens of millions.
If similar dynamics worked in solar power technology, then we would eventually have the solar equivalent of an iPhone – incredibly cheap, mass distributed energy technology that was many times more effective than the giant and centralized technologies it was born from.
Mr Naam presents graphs showing an exponential decline in the cost of solar power, that can be extrapolated (which is always a risky business) to show that the cost of solar power will reach parity with grid-supplied electricity prices around 2020.
The ABC in their PM programme last week reported that PV costs had reached parity with grid costs but is this really the case?
Here in Australia grid supplied electricity prices are about $0.18 per kilowatt. According to Choice magazine a 1.5 kW system will produce 2500kW of electricity per year i.e. that is $450 worth of grid supplied electricity at today’s prices. The price of a 1.5kW system is about $8000 before subsidies, the value of subsidies varies (and is likely to change over time) can be estimated to average about $5000 making the household purchase price for 1.5kW system about $2000.
If we assume that the system will last for 10 years then:
for a subsidised system, cost of solar electricity, averaged over this time, works out to be $2000/(2500kW x 10) = $0.08/kW
for a non- subsidised system, cost of solar electricity, averaged over this time, works out to be $8000/(2500kW x 10) = $0.32/kW
The conclusion: the cost of solar electricity is not at yet parity with the cost of grid supplied electricity unless you ignore the ‘hidden costs’ of subsidies. However the rapid rate of improvement in efficiency in both of solar panel performance and production suggests that parity is not that far away.