Energy Solutions - 2017: The End of Solar or Just the Beginning?

The prevailing theory is that solar energy is not financially feasible without local, state, or federal incentives. For the most part, that theory has been easily proved as accurate. The Business Energy Investment Tax Credit, ITC for short, certainly has been a major driver of solar projects in the last few years. The ITC makes projects that would not “pencil” on their own cost savings more palatable with the application of tax credits as part of the funding mechanism. Surely, many projects simply got done when the Feds instituted the now cancelled Section 1603 Tax Grant in lieu of Tax Credit program. With the impending reduction of the ITC at the end of 2016, does 2017 spell the end of solar in this country?

Many people would have you believe that there is impending doom on the horizon. The reduction in the ITC will significantly reduce the number of projects that get developed. However, I am here to tell you that 2017 should be just the beginning of the solar revolution, and here is why. Around 2016 to 2017 it will become cheaper to generate your own electricity from solar than it will be to buy from the utility. Don’t believe me?  Let’s take a cue from Discovery Channel’s Mythbusters and take a closer look at the trends and see if we can bust the solar myth. 

The first thing we need to understand is that the cost of utility supplied electricity continues to go up. From 2007 through 2013 electricity all-in costs (that is the total cost divided by kWh consumption) have increased on average 7.4% per year. Projecting that out we go from a low of $0.063 per kWh in 2007 to an estimated $0.153 per kWh in 2020.

 

The next thing we need to investigate is the relationship between the cost to install a solar generating array and how that affects the net price per kWh of energy that is produced. Typically in the solar industry a project is priced in a $/Watt format. The following chart shows the relationship in construction cost in $/Watt and the subsequent $/kWh of energy produced. For those solar enthusiasts out there, the following were used as constants in the calculations; insolation rate 1350 kWh/kW, 25% cash equity, 5% finance rate, 20 year note term, 40% tax rate. Also note that “NO” ITC tax credits were used in the calculations. Looking at the chart we can see that at $2.50/Watt of construction cost we experience a cost of $0.14/kWh for the energy consumed. If the construction price drops to $1.50/Watt, we then see a cost of $0.095/kWh for the electricity.

The last piece to the puzzle is understanding the trend in solar construction costs. A key component of this cost is the price paid for materials, the largest such being the photovoltaic panels. As the price of panels has dropped, we have seen a corresponding reduction in construction costs. Since 2009 the average construction cost has decreased on average 17% per year as evidenced in the chart below.

 

So what does this all mean? The trend analysis below suggests that 2016 and 2017 is just the beginning of solar. This is the time when the cost per kWh to produce your own energy is going to be cheaper than purchasing from the utility. Remember, this analysis is void of the ITC and other incentives needed in the past to make projects viable. This is a true cost-to-cost comparison. So is 2017 the end of solar?  To me it looks like that myth is busted.  

 

-Mike Morley

Energy Solutions Engineer 

Telamon Corporation