The trade-off between local and centralized solar electricity deployment in the U.S. has shifted over the last ten years in local deployment’s favor. Costs plummeted across a five order of magnitude project size range. Cost differences among large, medium and small projects have become less important than costs of transporting and storing solar electricity. Impacts of system scale economies and other contributing factors are quantified in the figure below. The cost metric is “installed system cost”, an appropriate measure of cost reduction progress, especially for “utility-scale” projects.
Trends in the Installed Costs of Solar PV Systems in the US. Source: NREL
Installed system productivity varies among solar electricity system sizes and types, (e.g., tracking vs. fixed-tilt utility solar systems). The equipment share of total costs varies over a relatively narrow range. “Soft” costs, notably “customer acquisition” costs for residential and commercial systems, can be high in areas where on-site solar is just beginning to penetrate. Where retail competition is still weak or non-existent, opportunistic pricing of residential and commercial systems also results in higher quoted prices. As installed costs continue to decline in all segments, regions where grid usage charges are set to recover fairly-allocated costs rather than discourage deployment will see faster growth and more cost-efficient deployment.
The unit value (avoided electricity cost per kWh as perceived by the local energy user) of on-site solar electricity depends on the price of grid electricity. This means installed system cost can be a potentially misleading metric for comparisons between on-site solar projects and utility solar projects.
In California, the largest U.S. on-site solar market, non-generation now exceed unit costs of solar electricity generation at any scale. As a result, the end use value of electricity produced on-site may be two to three times its cost of generation in areas where on-site penetration is still limited. Making comparisons even more complicated, financing costs and methods differ greatly from one solar market segment to another. Costs of capital, tax rates and depreciation expenses incurred by electric utilities, solar project developers, and property owners also differ significantly.
Cost Shifts. Just as bulk wind power has become a cost effective choice for electric utilities serving Great Plains states, bulk utility solar power is becoming a cost-effective wholesale electricity procurement choice for utilities in the U.S. “sunbelt” and beyond. As penetration increases, so will the need for additional high voltage transmission capacity and longer duration and therefore more costly centralized energy storage.
In general, renewable energy produced locally for local use is a good deal that gets better each year as grid electricity prices continue to escalate. Property owners in most of northern California now recapture their on-site solar investments in as little as 5-6 years and continue to save money for another 20 years. On-site solar system owners, however, face the risk of net metering rule changes that can radically alter the value of their investment.
Reliability Shifts. Reliable electricity is a benefit. Increasing severity of natural disasters erodes reliability of local services that depend on energy imports. In California, reliability of electricity service has plummeted in recent years for communities and energy users subject to “public safety power shut-offs” during seasons when high winds increase wildfire risks. Few California communities are completely immune. Local renewable and energy storage investments will be foundational to restoring local reliability to former levels.
Electricity Resilience Shifts. Resilient local energy infrastructure is a benefit. Extended energy service disruptions can devastate local economies. The appropriate risk management approach is to increase local energy resilience. Energy resilience is the local capacity to restore energy service quickly and indefinitely. Increased local renewable energy production and judicious renewable fuel use can mitigate local energy service vulnerabilities. Home and business investments in on-site solar heat and electricity production, community renewable gas and electricity production and battery and fuel cell electric vehicles can enable greater energy resilience. The extent to which buildings and vehicles can exchange electricity with local electricity grids will be key to community-wide energy resilience. Once technical and institutional impediments are removed, unrestricted 24/7 energy services can be enabled by smarter local energy transport infrastructure and microgrids.
Energy Equity Shifts. Equitable access to low cost, reliable and secure energy is a benefit. Economically insecure neighborhoods need greater energy security than their economically secure counterparts. Fairness requires that the benefits of local renewable energy supply be available to all. For example, in places where solar energy saves money and backs up traditional energy service for local businesses and homeowners, it can do the same for renters, who, on average, may have greater need for cost savings and energy security. Working with local solar retailers and energy service providers, local governments can plan and implement strategies to bridge local solar divides.
Local Deployment Capacity Shifts. Deployment capacity is key to cost-efficient investment for all solar technologies and project scales. Shifts in industrial policies in many countries are driving expansion of solar project deployment capacities. State-to-state deployment capacity differences are explained in part by political diversity among U.S. states, and by state-to-state differences in retail energy prices offered by state-regulated utilities. Solar deployment capacity shifts in the U.S. have been especially uneven in residential and non-residential segments across the U.S.
States with long-standing, supportive solar policies had local solar deployment capacities in place when Congress approved game-changing Federal solar tax credits more than ten years ago. Solar deployment in states with supportive policies and relatively high grid electricity unit costs expanded much faster than in other states. California counties and cities with mature local solar deployment capacity are seeing sustained double digit annual on-site solar expansion. In general, renewable energy produced locally for local use is a good deal that gets better each year as grid electricity prices continue to escalate. This is happening under most local government radars.
A New Opportunity for California Cities and Counties. Property owners in most of northern California now recapture their on-site solar investments in as little as 5-6 years and continue to save money for another 20 years. Their communities benefit to the extent local governments act to capture reliability, resilience and equity benefits a thriving local solar industry makes possible. California counties and cities with mature local solar deployment capacity are seeing sustained double digit annual on-site solar expansion. It is as if an exceptionally talented and productive player just began playing for the local team – a player with the ability to help lower energy costs, increase energy resilience and enable more equitable access to locally produced zero carbon electricity.
Gerald (Gerry) Braun
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