In discussions, regarding the merits of distributed solar power too little focus has been given to the many important benefits that result from increasing the use of distributed solar power. These benefits accrue to both the utilities and presumably their rate payers as well and to society (and the tax payers) at large. This post summarizes a recent paper “Solar Power Generation in the US: Too expensive, or a bargain?” that attempts to give these benefits a tangible quantified value in order that the debate on the merits of solar power also begin to include this side of the cost / benefit analysis. A side that is all too often glossed over and largely overlooked.
Ask most people about the cost of solar power and they will tell you that it costs much more than electricity from the grid. Even people who support the idea of renewable energy and understand why it is important to wean our society off of its addiction to fossil energy will “admit” that solar energy is still much more costly than the average cost for electric energy on the national grid. They may follow on by pointing out how rapidly it is coming down in cost – especially solar PV – in order to focus on the future price trend perspective, but even ardent solar advocates will admit that as things stand today it still costs quite a bit more than cheaper fossil energy alternatives.
The skeptics and those who, for whatever reason motivates them, are downright hostile towards the very notion of renewable energy – these people do exist – will use this to argue that solar energy remains a remote niche energy supplier that is not ready for prime time and will not be ready for many years.
A related post “Solar Price Parity Achievable by Streamlining Cost of Permitting“, explores streamlining the building code process for solar installation could help rooftop solar reach price parity with the grid.
And at first glance, by looking at the average unit cost of grid connected solar power this argument seems to hold water. Even though, I count myself as a pretty vocal supporter of solar power and renewable energy in general, and I am one of those who often points out how rapidly the cost structures for solar power (and especially for solar PV) have been falling the fact remains that in most areas solar still costs quite a bit more per unit of energy than the average unit price on the grid.
But is this grid parity gap as large as it seems at first glance. When the total value that solar power deliver to utilities’ rate payers and society’s tax payers is calculated it adds up to a pretty significant number, and one that is currently being left off of the table in the debate over the merits or non-merits of renewable energy versus continued reliance on fossil energy sources. For example in the state of New York these benefits, to ratepayers and taxpayers add up to between 15 to 40 cents per kWh.
Factoring in these indirect benefits, such as prevention of environmental harm that would have resulted from say an equivalent energy produced from coal, fuel price mitigation, outage risk protection, and so forth and helping a wider audience of people develop an appreciation of them provides a good economic justification for the existence of payment structures (often referred to as incentives) that transfer value from those who benefit from solar electric generation to those who invest in solar electric generation.
A new paper “Solar Power Generation in the US: Too expensive, or a bargain?”, by Richard Perez, ASRC at the University of Albany; Ken Zweibel, GW Solar Institute, George Washington University; and Thomas E. Hoff, Clean Power Research makes this argument quantifying these values for the New York region, which is not exactly the sunniest part of the country. Even though the paper is focused on the New York regional market and its cost benefit analysis is based on data from that region its conclusions are more generally applicable and similar arguments can be made elsewhere in other regional markets.
The paper begins by noting that the potential capacity of solar energy is vast and that solar power tends to be a load following energy source, which means that it tends to produce most when energy is most needed. For example peak electrical demand is often driven by commercial daytime air conditioning (A/C) in much of the US, which is also when most solar energy is available. This is especially evident during summer heat waves, which produce the most extreme peak demand conditions the grid needs to handle and have led to spectacular large regional blackouts.
The fact that solar power works best precisely when distributed power is most needed has huge implications. For example the August 2003 Northeast blackout that lasted several days and that caused nearly $8 billion in economic damages was indirectly caused by a peak in demand for AC, fueled by an oppressive regional heat wave. It has been estimated that as little as 500 MW of distributed PV region‐wide would have kept every single cascading failure from feeding into one another and precipitating the historic blackout, saving the region’s economies the $8 billion in economic losses that they instead had to endure. A post mortem analysis of a similar subcontinent sized blackout in the Western US a few years before led to nearly identical conclusions.
Performing a Cost Benefit Analysis for Distributed Solar Power Generation
The relevant parties in this analysis are:
2) The utility and its ratepayers who purchase the energy produced by the plant;
3) The society at large and its taxpayers who contribute via public R&D and tax‐based incentives and receive benefits from the plant.
It is a mistake to view this energy cost/value transaction as a one‐sided affair that only benefits the investor/developer whose return on investment – e.g., the necessary 20‐30 cents breakeven cash flow‐equivalent for distributed PV ‐‐ is forced upon the two other parties by various incentives and subsidies. In reality the other parties, the utilities and rate payers and society at large also are beneficiaries who also receive tangible and measurable value from distributed solar electric generation.
What Are the Benefits of Solar Power that are not being counted in the Cost Benefit Equations?
Following are some of the quantifiable benefits provided by distributed solar to rate payers and utilities:
• Transmission capacity, 0‐5 ¢/kWh: PV installations can deliver the equivalent of capacity, displacing the need to purchase this capacity elsewhere. The paper notes that the effective capacity credit of low penetration PV in metropolitan New York can reliably displace an annual demand response expense of $60 per installed solar kW, i.e., amounting to 4.5 cents per produced solar KWh.
• Distribution energy (loss savings), 0‐1 ¢/kWh: Because distributed solar plants can be sited very close to the load within the distribution system — as close as the roof in many cases, they displace electrical losses incurred when energy transits from power plants; losses that are in addition to transmission energy losses.
• Distribution capacity, 0‐3 ¢/kWh: Distributed solar generation that is situated close to centers of load can also reduce the wear and tear of the utility’s equipment – e.g., transformers ‐‐ as well as allowing the them to defer upgrades.
• Fuel price mitigation, 3‐5 ¢/kWh: Distributed solar power once installed requires no fuel in order to keep running. Its fuel is the sun. PV generation is a hedge against fluctuating fossil energy prices, which can and has been quantified.
In addition to these benefits accruing to utilities (and indirectly to rate payers, if these savings are in fact passed on) there are additional benefits that distributed solar power delivers to the society at large and to its tax payers:
• Environment/health, 3‐6 ¢/kWh: It is well established that the environmental footprint of solar generation – both PV and CSP — is very much smaller than that of the fossil fuel or nuclear technologies.
• Long Term Societal Value, 3‐4 ¢/kWh: A measure of the long term finite fuel hedge value of solar generation from a societal point of view.
• Economic growth, 3+ ¢/kWh: Experience in Germany and Ontario — regions experiencing rapid growth in new solar power capacity — shows that solar energy sustains more jobs per kWh than conventional energy does. Growing the local employment base leads to increased local tax revenues, lower unemployment and better business and social conditions in general.
The paper this post summarizes goes into much greater detail and more depth; I suggest that interested people follow the link to “Solar Power Generation in the US: Too expensive, or a bargain?”. It is intuitively clear to many people that distributed solar power brings many benefits to society; that it is more sustainable and environmentally sound than fossil or nuclear alternatives. This paper attempts to enumerate and quantify these benefits and in so doing provides a powerful argument for why many of us feel so good about solar power.
Our related post “DOE SunShot Initiative Aims for Cost Competitive Solar Energy by 2020“, looks at this DOE program that aims to spur innovations and rationalizations that will together slash the total system cost of solar photovoltaic systems by three quarters within this decade.
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