Photovoltaic (PV) solar electric systems (“photo-voltaics” means electricity from light, especially sunlight) have been around since the 1950s and have been used extensively in world’s space programs to power satellites, the International Space Station and other spacecraft needing power for operations. Using semiconductor-grade silicon, solar cells convert the energy in sunlight to electricity, typically at efficiencies of 5% to 12%, or with power output of about 5 to 12 watts per square foot. Sunlight is a very diffuse energy, falling on the Earth at the rate of about one kilowatt (the input for ten 100­watt bulbs) per square meter. Electricity is a very concentrated form of energy, so it’s not surprising that it takes considerable collection area to make any sizable amount of electricity from the sun.

Nevertheless, solar electricity is rapidly gaining popularity around the world. For many years, solar power in the US has been used by thousands of homes to become “grid-independent” and by larger projects to make a quite visible statement about their use of solar energy. Despite our abundant solar resources, especially in the Sunbelt states and the West, the US government has never put much of a priority on commercializing photovoltaics.

To celebrate its 25th anniversary, Kettle Foods partnered with the Energy Trust of Oregon to install one of the largest solar energy arrays in the Pacific North­west. Using more than 600 solar panels set on roof­-mounted racks, the plant now generates 120,000 kWh of electricity per year. That’s enough power to make 250,000 bags of chips and reduce annual carbon dioxide emissions by 65 tons. (Photo courtesy of Kettle Foods)

The 2005 Energy Policy Act (EPACT) created a 30% federal tax credit (residential credit limit is $2,000, commercial is unlimited) for solar electric installations, currently set to expire at the end of 2008. Many utilities also have solar electric promotional programs, and some state governments such as Oregon and Arizona have additional tax credits. In 2007 the California Public Utilities Commission enacted a $2.2 billion “million solar roofs” program that requires the state’s investor-owned electric utili­ties to offer incentives in the range of $2,800 per kilowatt for photovoltaics.

The largest drawback to increased use of photovoltaics has been cost. Today’s large commercial systems install at about $6,000 to $7,500 per kilowatt, while consumer systems can cost $7,500 to $10,000 per kilowatt. What does this mean in terms of delivered value for electricity? Assuming that PV systems last 15 years (which they do), a simple amortization would mean an annual cost of $400 to $500 per kilowatt. PV systems will produce 1,200 to 1,800 kilowatt-hours per year, per installed kilowatt. So, to get 1,200 to 1,800 kilowatt-hours per year, you would have to spend $400 to $500. Even at retail rates (a program known as “net metering” or “running your meter backward”) of 8 to 10 cents per kilowatt-hour, you would earn $96 to $180 per year, at a cost of $400 to $500,not exactly a paying proposition. If electric rates are 15 cents per kilowatt-hour, then the annual return would be $180 to $270.

But now assume that government incentives lower the cost of PV systems by 50%, so that your annual cost is only $200 to $250. You’re still not making money. Are there still reasons to do this? Yes, there may be. For example, what is it worth to have a supply of electricity that is independent of the electrical grid? Or that is fixed in price today, no matter what future utility prices may be? Or that allows you to make a statement that you are producing domestic renewable energy without any environmental impacts (except those from manufacturing semiconductor-grade silicon)? What if your roof could be made from PV-powered shingles or tiles, so that when you had to replace your roof, you could combine it with a PV system at a lower total cost? What if a partnership wanted to lease your roof (for $1 per year), install the system, take the various tax benefits and you only had to pay for the electricity produced? Here’s how to calculate the cost of PV-generated power:

1. Cost of installation, less the value of all incentives, expressed as $ per kilowatt-peak (power rating).
2. Power generated: the typical US range is 1,200 to 1,800 kilowatt-hours per year, per kilowatt-peak power rating.
3. Value of power generated: typically your retail rate, 8 cents to 12 cents per kilowatt-hour.
4. System lifetime: assume 20 years.
5. Net Present Value (NPV) Factor: you’ll have to figure a way to discount the value of future electricity, but figure a 5% discount rate (like a 20-year government bond); over 20 years, the value of getting $1 each year at 5% is worth $12.46 today.  ....read more