The National Renewable Energy Laboratory this week said that rooftop solar panels have the potential to generate nearly 40 percent of electricity in the U.S. But what about the cost of going solar?
Many people ask when the cost of producing power from solar photovoltaic (PV) panels will be equal to or less than buying from the grid—a point called “grid parity” that could accelerate solar adoption.
But in asking the question, they often compare apples to oranges and forget that the answer varies from place to place and from one type of installation to another.
For example, electricity from utility-scale solar systems (typically large arrays where panels slowly change tilt and orientation to face the sun all day) usually costs less than electricity produced from solar panels fixed on someone’s home. Also, residential electric rates, on average about 12 cents per kilowatt-hour in in the United States, are much higher than wholesale electric rates—the price utilities pay to power generators—which are usually less than 4 cents per kilowatt-hour.
At the same time, different states have more or less sun—solar power in Florida is typically more economic than in Alaska, for instance. All of these factors make the question more complicated than people might anticipate.
How, then, can we compare the cost of rooftop solar to the cost of buying power from the local electricity grid and thereby find when which states will hit the point of grid parity?
Putting a Number on Solar Cost
The levelized, or average, cost of electricity from a solar PV array is derived from all the money spent to buy, install, finance and maintain the system divided by the total amount of electricity that system is expected to produce over its lifetime. We call this value the Levelized Cost of Electricity (LCOE) and it’s expressed in terms of dollars per kilowatt-hour ($/kWh). The same metric can be used to determine the cost for a coal or natural gas plant. Planners like it because it reduces the cost of a power plant over a span of many decades into a single number.
Despite the strengths of LCOE as a metric—it is easy to understand and widely used—it has some shortcomings, too. Namely, it leaves out geographic variability, changes with seasons and usually ignores the cost of environmental impacts such as the cost of carbon emissions. This metric is a bit too simple when comparing variable wind and solar generators to power plants that you can turn on and off at will, such as those fueled by uranium, coal and natural gas.
