This is a guest post by Roger Andrews.
In August 2013, at the instigation of President Obama, 6.3kW of solar PV panels were installed on the roof of the White House. A video commemorating the event was recently released in which a number of administration officials waxed lyrical about what a fine example this installation sets and how solar power is now a reality and how it’s going to underpin the US’s transition to green energy and so on and so forth:
[Image: President Obama wonders why the panels are not pointing at the Sun and wonders how they will perform under a yard of snow in winter time.]
With such a buildup one might expect that the White House solar system would be an economic barn-burner, and while the White House doesn’t go quite that far it does claim payback in eight years, which is not too shabby: (“The project …. is estimated to pay for itself in energy savings over the next eight years,” the White House said.) But how good are the economics of the White House solar system, really? Well, they turn out to be an unmitigated disaster.
First I analyzed them on a stand-alone, unsubsidized basis. The White House declines to supply data on system cost or performance, so I based the analysis on the following assumptions for a DC residential installation of comparable size (links to data sources provided below):
- 25- year panel life
- Installed cost, 6.3 kW of panels = $31,500, or $5,000 kW (1, 2)
- Average Washington DC residential electricity price = 11.88 cents (3)
- System load factor = 13.0% (3)
- Panel output decreases by 1% a year (5)
- Replace inverter in years 10 and 20 (best-guess estimate from a number of sources)
- Inverter replacement cost $5,600 (prorated from the quote for my solar system inverter)
(2) How Much Solar Panels Cost
(3) EIA: DISTRICT OF COLUMBIA
(4) Wikipedia: List of monitored photovoltaic power stations
(5) Solar Efficiency Losses Over Time And here are the resulting cash flows:
Without subsidies the system has a rate of return of minus 10.6% and a cumulative cash flow at the end of year 25 of minus $24,000. The system in fact never pays back regardless of how long it stays in operation.
So how does the White House come up with an 8-year payback? By including subsidy payments. Solar systems in Washington DC are eligible for subsidies, rebates and tax credits which when added together are arguably large enough to qualify as charitable donations. Here’s a summary of them, excerpted from reference 1 above:
Installing a typical 5kW solar system should start at about $25,000. Don’t freak – that’s gonna drop fast.
- You start with that big rebate from the city government. You get $4,500 for the first three kws and $1,000 for the last two kws, so subtract $6,500 for a new starting cost of $18,500.
- The feds are smart – they calculate your 30% tax credit on your costs after state rebates. So we take 30% of $18,500 and subtract another $5,550 for a new price of $12,950.
- Don’t forget about those SREC (a solar renewable energy credit for each mWh of electricity delivered to the grid) payments. Using the current $320/SREC average, we estimate your first year SREC sales to bring back $1,872. Subtract that for a new cost of $11,078
- Finally we subtracted your estimated annual electricity savings of $730, giving us a total cost after year 1 of just $10,348. That’s a discount of nearly 60% already.
- With a conservative estimate for the future rise of electricity prices, you can expect your new solar power system to pay for itself in just 5 years!
The summary culminates with the graphic reproduced below, which shows that if you have ~$10,000 to invest then you can’t do better than to invest it in subsidized solar:
It’s not in the least surprising that the economics of a DC solar system show a huge improvement when these subsidies, rebates and tax credits are added in. The rate of return increases to 20% from minus 10.6%, the cumulative cash flow in year 25 to plus $42,000 from minus $24,000 and payback from never to a little over five years. (The White House’s eight-year payback probably reflects an unusually expensive installation. An extra ~$8,000 in installation costs would give an eight-year payback.) The table below shows the cash flows for the subsidized case:
The problem, however, is that the economic gains are contributed entirely by US taxpayers, who over the life of the White House system will fork out $66,000 in subsidies (calculated as the difference between the cumulative year 25 cash flows for the subsidized and unsubsidized cases), which works out to a subsidy of 0.42 cents/kWh – more than three times the DC average residential rate – for each of the 156,000 kWh of electricity the system generates over its lifetime. (The residential rate would in fact have to increase to 38 cents/kWh before the system earned a return of 5% without subsidies and to 27 cents/kWh just to make it break even at the end of year 25.)
Now it wouldn’t be too bad if the US taxpayer was underwriting only the losses incurred by the White House solar system, but according to the video a comparable system is being installed on a US rooftop once every four minutes, which translates into 131,400 White House-sized solar systems and about 800 megawatts of new solar capacity each year. It’s impossible to calculate exactly how much subsidy these systems would be eligible for over their lifetimes without doing a state-by-state analysis, but as Everett Dirksen once famously observed: “A billion here, a billion there, and pretty soon you’re talking real money.” (Hawaii, incidentally, is the only US state where unsubsidized rooftop solar is presently economic, but only because electricity rates there are about three times the national average. And is rooftop solar subsidized in Hawaii? Of course.) Roger Andrews is a British born, naturalised American mining consultant who is now semi-retired and lives on the West coast of Mexico where he spends some of his time sitting under a wavy palm tree blogging and drinking tequila.