Economics of Solar

Abstract

Solar energy is readily available just about everywhere. It’s free,
uninterruptible and will be available as long as it is required. To use
solar energy, however, the equipment required for capturing and con-
verting it to useful heat or power must be purchased and installed.
Essentially, with solar systems, you are prepaying for energy at a fixed
rate over the solar system’s lifetime. This requirement to pre-pay energy
presents a difficulty in comparing the economics or effective cost and/or
savings of energy delivered by a solar system to the cost of conventional
energy sources.
The purchase and installation of a solar system to heat water or
generate electric power essentially locks in the cost of the energy at a
fixed price over the life of the solar equipment. Once a solar system is
installed, the price of the energy delivered is locked in at a levelized or
life-cycle cost rate based on the cost of the solar system installation, and
its operating and maintenance costs over the life of the system which is
between 10 and 25 years depending upon the type of system.
This article illustrates a simpli fied approach for developing the ef-
fective cost of solar applications to the cost of conventional alternatives.
The effective cost of solar water heating and photovoltaic (stand-alone
and grid-connected) systems are determined to illustrate the methodol-
ogy.
Given the present uncertainty of the cost of fuel oil, natural gas
and electric power, locking in the price of energy delivered by a solar
system for heating water at two to five cents per kWh or $5.00 to $15.00
per million Btu is a good investment with or without the available tax
credits, State and local incentives and/or environmental bene fits. The
economics of the photovoltaic systems varies significantly with the
system type (stand-alone or grid connected) and utility rates and rate
structure and is not as clear-cut as the solar thermal systems