Weather at the Frozen North
This is my personal blog. My professional blog is The Customer Service Survey I've written a book called Gourmet Customer Service. You can buy it on Amazon. (in)Frequently Asked Questions AIM Screen Name: DFNfrozenNorth
Categories
Statistics
Last Updated: Apr 27, 2008 02:35 PM

Sun  April 27, 2008 at 02:32 PM inThe Magic YearIt's always dangerous to extrapolate current
trends far into the future, but I've been doing it anyway for solar energy. I
got my hands on a data set of the average price of photovoltaic modules over the
past 25+ years (in constant 2006 dollars), thanks to Robert Margolis at
NREL.
Keeping in mind that the data shows the prices of
the PV modules only (not installation), the trend is remarkable: on average, the
real price per watt of photovoltaic modules over the past 25 years has tracked
almost perfectly to a curve which drops by half every 10.5 years (or about 6%
per year). There are a few blips here and therecorresponding to supply and
demand fluctuationsbut the simple 6% annual drop in prices explains 96% of the
variation in PV module cost over two and a half
decades.
Given recent advances in photovoltaic technology, there's no reason to believe the trend won't continue for a while longer. It may even accelerate at some point. At this point, it's natural to ask when solar panels will be cheaper than power from the electric company. You have to make some assumptions about the long term interest rate, how long the modules will last, and the relative cost of installation, and I came up with the answer that solar and grid power will be at parity somewhere between 2020 and 2025. That's not the whole story, though, since it's reasonable to assume that the cost of electricity will increase faster than inflation for the foreseeable future. That means that while the cost of solar power is going down every year, the savings will go upand the savings will continue to increase even after the solar panels are bought and paid for. So in reality, it makes financial sense to install a photovoltaic system while it's still somewhat more expensive than grid power, since over the life of the system the savings will continue to increase. The Magic Yearthe year when a brandnew photovoltaic system will pay for itself over its lifetimedepends on the assumptions you use about the inflation rate for electricity, the real interest rate, the life of the system, and so forth. The Magic Year is 2015 The Magic Year is 2015 using these assumptions: * The installed price of a photovoltaic system will be twice the price of the modules alone * The price of the modules will continue to follow the historical curve * Grid power today costs $0.10/kWh (about the price I'm paying now) * The real inflation rate for grid power will be 3% (i.e. grid power will increase on average by 3% more than the inflation rate) * The longterm real interest rate will be 3.5% (i.e. the interest rate will be 3.5 percentage points above the inflation rate) * One watt of PV capacity will generate one kilowatthour of electricity per year (about the factor for Minnesota) * The system will last 30 years * After 30 years, the photovoltaic system will have no residual value (i.e. it will need to be completely replaced) I used a Net Present Value (NPV) calculation, the standard way to figure the current value of future cash flow or savings. If the NPV is negative, then the system costs more to install than it saves over its lifetime; conversely, a positive NPV means the system pays for itself. The breakeven point (NPV = 0) is the Magic Year. Your Magic Year may be different than mine. For example, in the California desert where grid power is more expensive and a photovoltaic system produces more power over a year, the Magic Year could be as early as 2007 (using the same interest rate and inflation assumptions). In Seattle, where hydro power is still cheap and it's cloudy all the time, the Magic Year could be 2025 or later. Saving for the Magic Year There are a lot of assumptions and an uncomfortable amount of extrapolation which go into calculating the Magic Year, but it seems reasonable to assume that 2015 will be the year to install a photovoltaic system here in Minnesota (give or take a couple years). She Who Puts Up With Me and I have decided to run with this assumption, and start putting aside some money every month with the idea of saving enough by 2015 to install a PV system big enough to bring our net electrical consumption to zero. We're also putting aside enough to pay for a major upgrade of our heating and air conditioning system at the same timewhich might include switching to a geothermal heat pump. In the meanwhile, we'll keep burning firewood in the winterthe stove has now paid for itself with gas savingsand doing smaller energy upgrades along the way like windows and lighting. 2015 is only seven years away, and by then we hope to have our net home energy use down to zero. Posted at 02:32 PM  Permalink    