Residential PV Costs Within Crashing Distance Of $1 In California

July 1st, 2018 by Eric Kosak

On Wednesday, May 9, 2018, history was made. The California Energy Commission unanimously approved the requirement that all new homes and low-rise apartments built from 2020 onwards include solar panels. The approval was supported by builders, utilities, and solar manufacturers. Now, say it with me — hip hip hooray! 😀

The commission provided an example solar panel system. A photovoltaic solar roof installation of 3,015 watts with nine modules rated at 335 watts each will produce about 133,630 kWh ~(3.015)(365)(30)(4.7) / (1 + (0.5%)^(30)) over a period of 30 years. The cost of such a system is estimated at $3,381 ($1.12)(3,015). This means that the cost per kilowatt will be $0.025 ($3,381 / 133,630). The daily energy production was averaged throughout California with an annual solar panel degradation of 0.5%, and it is estimated to produce 12.2 kWh (133,630) / (30)(365) daily per roof. This is approximately two thirds of the daily electricity demand of an average California residence.

The average electricity cost per kWh in California is $0.193. This means expected savings of $0.168 ($0.193 – $0.025) per kWh produced on site or $22,410 ($0.168)(133,620) saved over 30 years at a fixed energy price. Moreover, it is estimated that each installation will save $9,500 in electricity expenses per building over 30 years, which is in line with my own estimate (see table below).

The monthly mortgage payments will add $24.81 per month to the cost of each building. This will add $8,931 ($24.81)(360) in mortgage expenses (principal and interest) to the building’s mortgage. However, it will save $62.25 per month in energy expenses, or $22,410 in energy cost savings over 30 years. The result is a net savings of $37.44 per month or $13,479 after paying for the energy producing equipment.

Below is a table showing the same equipment financed out of pocket. It provides the possibility of saving an additional $5,550 ($19,029 – $13,479) in interest expenses over 30 years. Either type of purchase will provide a real savings to the owner of the building.

The California Energy Commission estimates that 117,000 new single-family homes and 48,000 multi-family units will be built in 2020. I estimate that this will add almost 735 gigawatts of additional electricity in 2020. This is equivalent in size to two one gigawatt utility plants (735 / 365).

The reason that the cost is so low for the solar system discussed before is due to the expected system cost reductions by installing it at the time of construction. Additional savings are expected from the large number of installations. A summary of some of the reasons for this decrease in costs is discussed below. Nearly every category of costs is expected to decrease with the new requirement.

1. A 20% reduction in the cost of photovoltaic panels is possible when the shipping volume is doubled. The new mandate will certainly increase the demand of solar panels to the tune of 1,485,000.

2. Efficiencies of extra features are built into a new home. The costs of the residential retrofit solar power industry are too high and unable to compete with these efficiencies.

¤ An 80% ($0.81 per watt) reduction in net profits, overhead expenses, and sales and marketing is expected.

¤ An 83.5% ($0.08 per watt) reduction in permitting, inspecting, and interconnection costs are expected for using the required, existing house paperwork process, including an interconnection application.

¤ A 57% ($0.19 per watt) reduction in installation labor costs is expected by building at time of construction.

¤ A 79.3% ($0.34 per watt) reduction in supply chain costs is expected due to efficiencies in the supply chain. National home builders pay a standard 15% markup for shipping and storage compared to local installers, which buy from local distributors. A local installer buys the equipment from local distributors. This requires them to pay several different markups as the equipment moves through the chain.

¤ A 75% ($0.18 per watt) reduction in electrical balance of system costs is expected by building at the time of construction. There is no need to plan for new electrical panels, extra costs for cable conduit, or inspecting and repairing for code infractions. The only costs are the materials needed.

¤ A 51.8% ($0.06 per watt) reduction in structural balance of system costs or racking is expected due to efficiencies in purchasing and installation.

¤ A 31.6% ($0.06 per watt) reduction in inverter costs is expected to standardization of inverters.

¤ A 61.3% ($1.78 per watt) reduction in the total system cost of a residential roof solar system is expected due to all of the above.

In addition, to the above there are a number of incentives available. The federal tax incentive is expected to expire in 2022, and the state of California does not provide any incentives for solar systems.

The thing to keep in mind with residential roof solar systems is that electricity is consumed where it is generated. There is no specialized energy distribution system involved such as the transmission and distribution grid. This new California requirement will finally be able to make use of very large economies of scale at the point of use.

If you think the above is not feasible in terms of current photovoltaic costs, I invite you to look at the table below. What is interesting of this table are the actual costs per watt, and the price trend of the same. This site, for instance, shows module prices in Europe within the last month, and the price trend since January. It show four different main types of solar photovoltaic modules:

Notice the low cost per watt ranging from $0.28 to $0.50 per peak (at optimal conditions) watt. Moreover, notice that at this very low relative level of prices, the prices have decreased from the beginning of the year between 2.1% to 10.4%. This is in keeping up with the historic downward trend of decreasing prices. Well, it is certainly nice to see that, for now, things have not changed that much.









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