Monday, February 06, 2006

Eureka! The price of solar: closer to utility retail than you think

Attention solarDwellers: please see a post I just made (here) subsequent to this one to correct the way in which I calculated the scenario of a hypothetical cost of a family's "2 kW" system below in this post. I got my AC mixed up with my DC, meaning this solarDweller must have been "out of it" that day! My goal is to use objective data, and argue the merits of solar not based on what some might wish, but on the reality of economics combined with its environmental benefit!! Thanks for reading!!!

To determine if the crown was pure gold, all Archimedes had to do was find a piece of pure gold that displaced the same amount of water as the crown and compare the weights of the two. If the crown was pure gold they should weigh the same.

It is this revelation, the story goes, that prompted Archimedes to leap from his tub and run naked through Syracuse shouting
"Eureka! Eureka!"(from California State Website)

Dear solarDwellers:

In a previous post about the psychology/economics of solar power, I claimed that since purchasing solar power isn't nearly as common as comparison shopping for a car, it's predictably more difficult to compare the "value" of electricity that comes from fossil fuels vs solar-based, than it is to compare the "value" of, say, a Pinto to a hybrid Prius. In car buying, people quickly understand why they pay more for one car or another: quality, reputation, status. I'm obviously saying the traditional, fossil fuel-based power is the "Pinto" of electricity. So, if solar, clean energy is the "Prius" of electricity, what's the price comparison between the two? Specifically, let's compare traditional vs. solar electricity in terms of dollars and cents, and you can judge if it's "worth it" to you.

Traditionally, critics have claimed solar is too expensive; but they come at it from the wrong perspective: the perspective of the utility company, not the small consumer/prouducer of solar power. They say that solar electricity costs about 20-25 cents/kWh for the utilities to produce wholesale(which is accurate these days); whereas, they can make electricity from coal, gas and even wind for 4-9 cents/kWh. So, the market argument goes, without huge subsidies, utilities shouldn't try to produce solar, since they can produce other forms of electricity much more cheaply and charge consumers less. The market from the "supplier" side says solar is too expensive to sell for a profit.

But let's look at it from the consumer/small solar prouducer's perspective. We have to look not at wholesale, but the RETAIL price of electricity or what the utility charges on your bill. Remember, we want to know if it makes sense for a small consumer to produce solar electricity, even if the utility says solar is "too expensive" for them to produce and resell to consumers. When we the consumers make the comparison we should start with how much fossil or traditional electricity costs us at home first: in California, its about 14 cents/kWh. So, using THAT price, we can compare it to how much it will cost us to produce our own solar electricity.

[The following paragraph is the main point I have corrected, here, in a subsequent post]

[So, how to calculate how much a solar power system will cost you to install, and the important part . . . PER kWh, so we can compare it to the 14 cents/kWh electricity currently costs us at home? To make it easy, lets say a 2 kW solar-panel system (I should have said "AC" here) will meet all your electricity needs. The final cost would be about $10,900 after rebates. ($18,500 -$5,600(CA rebate) - $2000(fed tax credit).]
Well, maybe it's too expensive for utilities to centralize it and make a profit off it, but its not too expensive in the long term for we little consumers to install our own distributed power stations on the roof, and sell it back to the utility. We, today, can be producer/consumers of solar electricity.

And I understand the problem of putting 20 years' worth of solar energy on your roof, and then selling your house 5 years later. It's not a problem: you could easily demonstrate to the new buyer the "value" left in those solar panels you're going to sell them, and build that in to the resale value of the house. They'll be happy to pay a locked-in 22 cents/kWh for the next 15 years as their neighbors' utility rates continue up at 6% per year!!! And that's being conservative: you could increase the selling price more if you include the 6% per year increase in electricity prices in the resale price of the panels' electricity, because down the line, the new owners will be selling their solar power back to the utility at these increasingly higher retail rates.

Solar is not as expensive as we are lead to believe, especially in these days of increasing gas and oil prices, decreasing solar prices and increasing solar rebates. I think we're in a sweet spot for solar.

Please send me your criticisms comments via the "comments" link below, or to

--the solarDweller
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Anonymous said...

Do you have any idea if Texas has an solar system rebate? I noticed in your article that CA had a rebate as well as the $2K from the Feds. I would like to get one here in Texas where my light bill is about 15 cents/KWH but I cant seem to find out if Texas has the rebate offere. My email address is

Jason C. said...

I'll email you this as well, but just in case others are curious:

1) Check out; it lists the benefits available for renewable energy state by state. The link for Texas is:

2) When you look there, looks like you have to be a customer of Austin Energy, a municipal-owned electricity utility, for a great rebate of $4.00/watt for PV

3) You still will get the $2,000 fed tax credit and up to 30% of installation costs if it's for a business.

4) In Texas, when your property value goes up after the solar installation, the increased value is not subject to property tax.

Hope this helps and hope you live in Austin Energy's area. If not, solar for a business still works great in Texas financially.

--the solarDweller