Solar farm in Masdar City, Abu Dhabi, UAE. Image Credit: Marika Shahan / CleanTechnica

What $0.36/W Solar Means (Reader Post)

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After we published the GTM Research projection that the cost of photovoltaic solar panels would drop to 36 cents per watt by 2017, I of course shared the article on Google+. I received the following comment from Per Siden, which I thought was very interesting and worth a share here on CleanTechnica (image added):

Solar farm in Masdar City, Abu Dhabi, UAE.  Image Credit: Marika Krakowiak / CleanTechnica
Solar PV farm in Masdar City, Abu Dhabi, UAE.
Image Credit: Marika Krakowiak / CleanTechnica

I calculated a plausible cost of generating electricity from PV panels this cheap and the result surprised me.

At $0.36/W the manufacturing cost is $360,000/MW nominal capacity ($0.36 times 1,000,000). With an additional 50% cost to get the panels on site and in operation, which I think is plausible for a system this big, the total cost amounts to $540,000/MW.

Assuming a capacity factor of 18% and an expected lifetime of 30 years, the system will produce a total of 47,336 MWh/MW (18% of 24 times 365.25 times 30). Electricity production cost would be around $11/MWh ($540,000/47,336 MWh). That’s less than half of what CitiGroup predicted!

For comparison, the average (base) spot price on the major European wholesale market, EEX, the European Energy Exchange, was €42.6/MWh, or $55.4/MWh, in 2012. $11/MWh is only 1/5 of the EEX average price!

At EEX average prices, ROI for a 1 MW PV system would be 6 years ($540,000 in costs divided by $87,420 revenue per year based on 1578 MWh produced per year times the average EEX price of $55.4). After that follows 24 years of practically no costs and pure profit.

I know I have left some parameters out, but still, PV is becoming astonishingly cheap!

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Zachary Shahan

Zach is tryin' to help society help itself one word at a time. He spends most of his time here on CleanTechnica as its director, chief editor, and CEO. Zach is recognized globally as an electric vehicle, solar energy, and energy storage expert. He has presented about cleantech at conferences in India, the UAE, Ukraine, Poland, Germany, the Netherlands, the USA, Canada, and Curaçao. Zach has long-term investments in Tesla [TSLA], NIO [NIO], Xpeng [XPEV], Ford [F], ChargePoint [CHPT], Amazon [AMZN], Piedmont Lithium [PLL], Lithium Americas [LAC], Albemarle Corporation [ALB], Nouveau Monde Graphite [NMGRF], Talon Metals [TLOFF], Arclight Clean Transition Corp [ACTC], and Starbucks [SBUX]. But he does not offer (explicitly or implicitly) investment advice of any sort.

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24 thoughts on “What $0.36/W Solar Means (Reader Post)

  • Good morning.

    Very interesting arithmetic, Do you have a similar exercise
    for a i MW wind turbine?

    Chrys Fountoulis

  • You have to include insurance, maintenance and degradation over time.

    • Thanks Bob!

      You’re numbers for solar in the Northeast USA are:
      “$1.50/W is roughly 8c/kWh. $2/W is roughly 11c/kWh.”

      Southern California clearly has more insolation. So I’m probably not too far off with: “$1.50/W => 6c/kWh. $2/W => 8c/kWh.”
      Either way these costs are well below the average cost for end-of-grid electricity in Southern California. This was 18c/kWh the last time I checked. (Cheaper in Northern California, but very expensive in Southern California.)
      Thanks again, mike

  • You are way too optimistic in this computation. First $.36 is the estimated marginal cost to manufacture a panel, sales prices are likely to be higher. $.18 per watt installation cost is also very low, I wouldn’t expect installation to go down in price as fast as panels, and its currently about half of the total system cost. Then there is the time value of money/capital, that cash spent on the PV plant could have been earning income doing something else. That is the basis of the net present value method of accounting, future revenues are discounted by several percent per year.

    Over all, the plant is still a good, deal. But you’ve underestimated the effective cost by at least a factor of two.

    • Solar PV is so good because it can be placed on land that wouldn’t be good for building or agriculture and it requires almost no water to function. You’re also assuming your money/capital would automatically be gaining, which might not be true.

      The market right now is looking for safe investments. You’re heavily undervaluing safety. I can’t think of many safer bets than people needing electricity and the sun coming up tomorrow.

      You also didn’t talk about simplicity and speed. Solar pv plants are the simplest and fastest to build of any energy production method. It’s putting a panel on a rack and running some wires…that’s really about it for the general labor. Did you factor in the time it takes to build a nuclear power plant vs. a solar power plant and put that into your accounting?

      • You get me wrong. I’m as big a PV booster as anyone. I just think we need to set realistic expectations. Otherwise when people discover its not an inexpensive as they were led to believe…..

    • The total cost of installation will be more than $1/watt for the next 10 years unless clever installers found ways for rapid deployment at less cost. Let us hope that there will be very competitive installers that are very innovative. For example, you can have solar panels deliver directly to rooftops like they do with tile bricks. As the panels are unloaded the laborers mount them and by the time the last panel is unloaded, it would take just a couple of hours for electrician to test and turn on the system.

      • A colleague of mine has just ordered a 4.5 kW roof mounted system for less than € 1,40 per W, turnkey price. Subtracting the 21% VAT and converting to US dollar, you end up with about $ 1.50. And that is a small installation, high up on a roof. With the very high Dutch labor costs (‘socialist’ Europe, remember ;).

        It is certain that installation costs for large installations can be much lower than $1.00/W. Simple efficiencies of scale (extra large PV panels that are unpractical for residential use).

        I don’t think your prediction will stand the test of time. But we’ll have to wait and see.

        • That’s a price without the assistance of subsidies?

          If possible, would you post a copy of the statement/contract? Block out name and street address.

          Icing on the cake would be a picture of the finished project.

          Some hard evidence of hitting $1.50/W for a residential installation would be a fine thing to have.

          We need to make Americans more aware of how inexpensive rooftop is getting in other parts of the world. That could help drive down our costs faster.

  • Unfortunately I agree with Omega Centauri: I think your cost estimates are a bit too enthusiastic. Current manufacturer gate prices of $0.70 have left retail prices hanging around $1.10. $0.36 manufacturing costs should mean that $1/Wp installation is possible though, and that’s still an incredible breakthrough.

    We have to include the cost of capital as well, because it costs money to borrow money to fund a power station. At 3% a year, that means your estimate needs to go up by 50%. But at more typical capital costs like the ~7% for the Green Deal in the UK, them your estimated price per MWh over 30 years has to go up by 140%.

    At $1 mil per 1 MW, then the cost per MWh (ignoring the cost of maintenance, grid balancing and decommissioning/recycling at the end) would be about 4.5 times as big as your estimate, at about $50/MWh.

    And that’s great news, since that means in sunny places it’s much cheaper than the grid. But I don’t think Europe’s an ideal comparison for grid electricity. Capacity factors of domestic systems in Munich are around 10% and even if you go all the way down to Palermo they’re hovering around 15-16%. We’re probably looking at much less than 18% on average.

    • Current retail prices are lower. Average silicon panel prices are 70c/W and thin-film average prices are 62c/W.

      We’re seeing utility scale installed prices around $1.50/W. The UK installed a system at $1.59/W. Spain has one going in at $1.43/W and India has one at $1.55/W. Of course there are many solar farms that don’t report their costs, but these few tell us what is possible right now. (No subsidies in those numbers.)

      Manufacturing costs for panels is apparently around 50c/W at the moment with expectations that they will drop to around 30c/W over the next few years. I think that, along with cuts in BoS costs will move us down to about $1/W. Getting lower would be wonderful, but seems unlikely. I wouldn’t rule it out, but it would take something quite clever to break down to 50c/W installed.

      Capacity in Germany may not be as high as Saudi Arabia, but Germany saved 5 billion euros in 2012 by having solar on their grid.

      At this point solar is not competing against the 24 hour wholesale price of electricity. It’s competing against the most expensive sources of electricity in the middle of the day, and that’s generally gas peaker plants.

      • $55.4/MWh, is 5.5c/kWh for “average (base) spot price on the major European wholesale market” in 2012. $11/MWh is 1.1c/kWh for the calculations in from the article. (Sorry, but I like to know the cost per kWh so I can relate to home use, retail cost.) He’s saying $0.36/W cost of panels with 50% of this for installation, so a fully installed cost of $0.54/W.

        You’re saying we’re already at an installed cost of about $1.50/W, with several real world examples. This is three times as much or about $33/MWh, or 3.3c/kWh using the above calculations.
        Clearly panel prices and installation prices are still dropping and we will reach installed costs of $1.00/W in the next few years as you say. This is only twice as much or about $22/MWh, or 2.2c/kWh using the above calculations.

        MieScatter has a valid point about 18% availability being high for Germany and much of Europe, but for areas South of Palermo, Italy and for many large areas in the rest of the world, that 18% is good or low. Insurance, maintenance and degradation are going to be fairly small cost effects. How much effect does the cost of borrowing money add to this?

        Years ago I had the cost for Southern California insolation worked out to about 1c/kWh for each $0.25/W of installed cost, at I think 7% financing cost. This would be:
        $1.50/W -> $60/MWh = 6c/kWh
        $1.25/W -> $50/MWh = 5c/kWh
        $1.00/W -> $40/MWh = 4c/kWh
        $0.75/W -> $30/MWh = 3c/kWh
        $0.50/W -> $20/MWh = 2c/kWh
        Not far from the calculations in the article actually. These calculations apply equally for wholesale (source-of-grid power) and retail (end-of-grid power). Obviously, the margin of cost savings is much greater for distributed, end-of-grid installations (rooftops, parking lots, or local fields). Those end-of-grid installations will clearly take-off and bypass large central installations at some point. This is already happening in Australia and is starting to happen in the USA.

        We’re already below $2.00/W for residential installations in Germany and Australia. They are headed for $1.50/W.
        We were at $4.00/W in the USA for 2012. There is no reason we can’t get down to $1.50/W in the USA.
        We’re already at $1.50/W installed for large utility installations.
        We’re clearly going to get to $1.00/W installed for both utility and residential, easily by the end of this decade, if not within the next few years.

        Anyone care to improve on my numbers above, or provide the calculation methodology?

        I do think $0.50/W installed is possible for both utility and residential. A multilayer thin-film approach using nanotechnology could double conversion efficiency to over 40% with low production cost and without much increase in installation/BOS cost. Robotic installation of PV panels could radically reduce utility installation and maintenance costs, potentially without disturbing the desert environment nearly as much. Integration of solar PV in roofing materials could reduce residential PV installation costs to a minimal increase over normal roofing costs. Of course this is all speculative at this point. I’m just saying I don’t think we’ll be done with lowering PV cost at $1.00/W installed. It may be hard to see now but 10, 20, 30 years out the cost will probably be much lower.

        If I went back in time by 20 years and told you people all over the world, even in the 3rd world, would have cell phones with cameras, video, and internet access… what would you have thought? If I went back 40 years, you’d ask me what the internet was.

        If I went back 30 years and told you the EV1 sucked, but we’d have a burgeoning EV/PHEV industry, with every major car company producing them and all of them having performance, reliability and cost orders of magnitude better than the EV1… what would you have thought?
        Be prepared to be amazed.

        • When Secretary Chu talked about solar at $1/W I found that hard to believe. With utility scale solar now hitting $1.50/W and residential solar hitting $2/W I’m starting to believe $1/W might be possible.

          Half that? I don’t see a route unless it’s built into windows and roofing and we tease out the window/roof part of the costs and charge the installation (aside from wiring) to the windows and roofing.

          But if we can go below $1/W, why would I complain?

          Actually I think the world will be fine at $1.50/W and $2/W. I’m going to work off the solar isolation map at the end of this post. If someone has a “solar hours per location” for the world, please share.

          From the map it looks to me like northern Europe gets about the same amount of sunlight as the US Northeast which receives an average of 4.2 solar hours per day. So what would $1.50/W and $2/W get us in those rather poor solar resource areas?

          $1.50/W is roughly 8c/kWh. $2/W is roughly 11c/kWh.

          Those are numbers we can live with. Wind will be cheaper but not if we have to store it for daytime use.

          Take it down to $1/W and $1.50/W and it’s 6c and 8c/kWh.

          Furthermore, put Europe’s panels further south. I might be cheaper to ship from Greece/Italy or Spain/Portugal than to home brew it. Send northern Europe wind and hydro back down south in return.

          • [Sorry wrong spot below]

            Thanks Bob!

            You’re numbers for solar in the Northeast USA are:
            “$1.50/W is roughly 8c/kWh. $2/W is roughly 11c/kWh.”

            Southern California clearly has more insolation. So I’m probably not too far off with: “$1.50/W => 6c/kWh. $2/W => 8c/kWh.”
            Either way these costs are well below the average cost for end-of-grid electricity in Southern California. This was 18c/kWh the last time I checked. (Cheaper in Northern California, but very expensive in Southern California.)
            Thanks again, mike

            see more

        • I calculated net present value by discounting each future year’s production by multiplying it by (1-r)^n where r is the fractional discount rate and n is the number of years. I artificially reduced the production to an estimated ‘present value of production’ in kWh before doing the numbers.

      • Hi Bob,

        Those PVinsights numbers are the spot prices, which I think pretty much means factory gate. I used PVinsight’s retail price figures here:

        I just checked the GTM graph, they’re talking about a drop in estimated manufacturer costs from $0.50 to $0.36. Even if we assume that manufacturer and retailer margins are halved from today’s values, then you’re still looking at retail prices of ~$0.70.

        $1/Wp would be great and is probably achievable, but I am skeptical about the claims of it going much lower any time soon.

        That’s still a big enough story to rock the power world and it would make solar pretty easy to sell on a big scale. But building up expectations too high hardly ever works out!

        • You’re linking retail prices. Large installations aren’t paying retail.

          Furthermore, did you look at those prices? The highest price they are averaging is $4.71/watt. That suggests that they are including small/boutique panels in their average.

          Here’s what “spot prices” means:

          “The current price at which a particular security can be bought or sold at a specified time and place. A security’s spot price is regarded as the explicit value of the security at any given time in the marketplace.”

          As far as margins of 100% for solar manufacturing, that is not going to happen. We’re right now in the process of cutting margins to much lower levels and going forward manufacturers will sell at low margins, making their profits on volume.

          That’s exactly what the current shakeout is all about. Companies that can’t produce efficiency are unable to operate at today’s lower margins and are failing.

  • With increasing demand land prices and costs for hardwear like mounting and wiring will go up.

    • Sorry, I don’t believe that.

      The cost of rooftops will not increase. Federal land leases will not increase (unless Republicans get in charge and attempt to kill solar). There are no competing uses for burned out farm lands or the tops of landfills.

      The cost of racking is likely to drop, at worst stay the same. As we invent better racking/ballast systems prices will drop.

      Solar farms don’t use enough wire to have an impact on world wire prices.

  • Will there be a company that will install solar panels at a total cost of $0.50/Watt by 2017? Not even at $1/watt!!! Even if the cost of production of solar PV is zero, the total cost including installation would be higher than $1/Watt even after 2025!

  • The installers are the last bottleneck that prevents mass adoption of solar PV. Right now, the cost of installation is 400% to 600% more than the price of solar PV. Show me a report that there is a solar company in existence in the US that are installing solar panels at 50% of the cost the panels when the panels are at sub $/watt. Not for the foreseeable future unless we turn the R&D money to bring cost of installation way down. This is the last frontier. There is no profit margin to be made by bringing cost of production down, so we have to shift focus to cost of installation before the installers form a lobbyist group and like greedy parasites, they cant be removed from fleecing out the taxpayers by passing legislations protecting their interests.

  • Just needs to get to $3.60 per watt installed to work in the US.

  • Some of the people posting didn’t look at the end cost. $11 per mWh is ONE PENNY per kWh people. I pay 25 PENNIES per kWh in So Cal for utility elec. Even if it takes 20 years to get to under $1 per watt installed, we get to parity much sooner.

    • Rooftop installations in Germany and Australia are about $1/W now. We’ll get there soon in the USA, certainly before 2020. The profit incentive will drive it there. Germany had subsidies for many years, Australia has good insolation and high end-of-grid prices, just give the USA a few more years and it will catch fire here too. Southern California will be first because of higher end-of-grid prices and good solar support. It has already started there. Hawaii is farther along because their electricity prices are even higher.

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