The Solar Revolution is Here

Back in 2007 and 2008, I wrote a series of articles about the potential for solar power to become an important source of electricity. Those articles are hard to find today, because I switched blogging software and they aren't indexed well. But for reference, they were:

  • July 2007: The Solar Equation, where I discussed the (then) cost of solar systems. At $7 to $11 per watt of installed capacity and the cost of grid power averaging $0.093/kWh for me, at the time solar was far more expensive than grid power. Since solar costs a lot upfront but provides free power for decades, I compared the interest expense on a long-term loan to the money saved from not paying the power company.
  • July 2007: Dreaming of a Solar Future, talking about the impact of an order of magnitude price drop for solar power.
  • July 2007: Solar Approaches, a discussion of several then-promising technologies to drive an order of magnitude price improvement for solar power, and what that would mean.
  • December 2007: Installation Costs, where I wrote about the startup Nanosolar and its claim to be able to manufacture thin-film solar panels for under $1/watt. In my article, I wrote that installation costs would also have to come down a lot in order to solar to become economically competitive. Nanosolar recently went out of business, not because the technology failed, but because the price on traditional silicon solar panels dropped below where Nanosolar could compete.
  • April 2008: The Magic Year, in which I looked at the historical price trends in solar power and predicted that sometime around 2015 solar power would be roughly the same cost as grid power over the life of the system (for me, here in Minnesota).

A lot has changed in the past five years since I last visited this issue. It's time to take another look at solar and see where we are--though the title of this article is something of a spoiler.

Bottom Line: The Solar Revolution is Here

The total amount of solar power generated in the U.S. more than doubled in 2012 from 2011, and 2013 is on track to more than double again (source: US Department of Energy). The average solar power installation in the U.S. was $3.05/watt of capacity, and the cost of solar modules has dropped 60% in a year (source: Solar Energy Industries Association). For my home, I was quoted a (nonbinding) price range of $3.15 to $3.50/watt for a complete system, depending on the size.

At that price and current mortgage interest rates of 4.75%, a new solar system on my home would cost almost exactly the same as the interest on the loan to finance it. If you assume any inflation at all, the system will more than pay for itself over its lifetime, including the cost of financing. Solar power has a lot of nonfinancial benefits, including reduced greenhouse emissions and lower pollution, so anything close to price parity for solar is a very attractive proposition overall.

With solar now the same price as grid power or cheaper, and actual solar generation exploding, I think it's fair to say that the solar revolution has arrived. Solar may still be below most people's radar, but the economic, environmental, and social forces are pretty much overwhelming at this point. Within a few years, it will be obvious to everyone that our electric system is quickly and dramatically shifting to where a huge fraction of our energy needs are being met by solar panels distributed across millions of homes and commercial buildings.

What's Changed since 2008?

I originally pegged 2015 as the year when solar would be the same price as grid power in Minnesota. It looks like I was off by a couple years, and 2013 is the real year. Still, I think that's a pretty good prediction for being six years in advance, and made when a lot of people were asking "whether" solar power would be cheaper and not "when."

What's different today? A bunch of details all conspired to make solar get cheaper faster than I expected:

  1. A bloody price war over the past few years where the price of solar modules dropped to under $1/watt. Even though solar has been on a long-term trend of dropping prices, I don't think anyone predicted this dramatic of a change. Some accuse the Chinese of dumping modules to drive other countries off the market--I'm not so sure. The refined silicon used in silicon cells has gone from shortage to surplus in that time, and the most prominent companies which failed were betting on alternative technologies.
  2. Long-term interest rates are astonishingly low. The relevant interest rate is a 30-year fixed mortgage, which is how a typical homeowner is likely to borrow the cost of the system. It also happens that 30 years is about the expected lifetime of a solar installation. I don't think anyone would have predicted 4.75% mortgages in 2013; I used 7% in my estimates in 2007. Lower interest rates make any long-term capital investment cheaper, and so they make a solar system effectively cheaper.
  3. Grid power has become more expensive. We are now paying about $0.12/kWh for electricity here (including taxes and fees), which is up a lot from $0.093/kWh in 2007. That's about 4.3% annual inflation for electricity, substantially higher than the 1% to 2% inflation since the financial crisis started in 2008. If our power bill had tracked inflation, we would be paying about $0.10/kWh today.

How Will Power Companies Deal?

This explosion in distributed solar power is going to radically change how power companies work. As long as solar is a small piece of the total energy pie, they can manage. But when it hits 5%, 10%, 25%, things will have to change. It's not unrealistic to expect that distributed solar generation could be approaching 25% of power generation by 2020--only seven years from now. Indeed, if solar generation continues to double every year, it'll blow through 25% by 2018--but as the installed base of solar grows, the percentage growth rate will slow.

One of the first things to go will have to be the current net-metering schemes. Under these plans, solar generators can run their meters backwards, getting paid for the power they put on the grid. In Minnesota, small generators get paid full retail. Since the power company has a lot of fixed costs baked into the retail rate, if there's too much net metering going on the power company is guaranteed to lose money. So we will probably see something like a retail/wholesale model where power companies pay only a penny or two per kWh (comparable to their fuel costs in a coal or gas plant) for power put onto the grid. Or we may see power bills changed to have a large, fixed monthly fee for access to the grid, and lower prices per kWh. We are already seeing some noise from the utilities that they need to change net metering laws.

Another change will be the inversion of peak hours. During sunny days, there could be so much power going onto the grid that it actually offsets all the use from air conditioners, leaving the power company with a surplus of power. Night time will be the new peak hour, as all the solar goes offline. This will really mess up power companies' long-term planning (remember, these guys forecast and plan decades in advance).

Finally, if anyone comes up with a cost-effective utility-scale way to store electricity, we could see the power companies go from being in the generation and transmission business to being in the storage business. Imagine giant banks of batteries, big enough to power a whole city for days at a time, and you have a picture of what the power company of the future might be.

Practical Considerations

I've been starting to get serious about researching solar power for my home. Serious as in identifying contractors, getting some cost estimates and site selection, and looking into the nuts and bolts.

My biggest concern was that the roof on our house isn't ideally aligned. Instead of facing South, our roof faces Southwest. It turns out, though, that this won't cost us too much in generation capacity: according to NREL's PVwatts calculator (an excellent resource), we lose less than 10% of the power output by not having a perfectly South-facing roof. That's because over the course of the day and the year the sun is all over the sky, and any fixed solar panel will produce about a third less power than one which tracks the sun. So being a little off from ideal doesn't average out to all that much less power.

We have a fair amount of unshaded area on our house for solar panels, both on the roof and the outside wall facing Southwest. So we could install a fairly large system. No worries there. I expect that Excel Energy will be lobbying hard in 3-5 years to dramatically cut back the net metering laws in Minnesota, so I don't want to install an oversized system designed to make a profit--that strategy probably won't work. Instead, it's probably best to try to offset our own peak usage for now, and leave room for expansion as solar prices drop and it becomes clearer what regulatory changes might come along in 5-10 years.

Right now I'm thinking we'll install solar in 2014 or 2015. It's not clear that we'll see more short-term price drops after the huge declines in the past two years, so there may not be much advantage waiting an extra year.