CalBusiness

 

Spring/Summer 2008

Power of Ideas

Cloudy Outlook for Solar

Costs of solar panels eclipse benefits, Prof. Severin Borenstein concludes

 

By Ronna Kelly


Severin Borenstein, a Haas School professor and director of the UC Energy Institute, drives a hybrid car with a license plate that reads "TAX GAS." Although a strong believer in reducing the burning of fossil fuels, Borenstein took some heat recently for a working paper that was critical of solar photovoltaic panels. Borenstein's research found that the costs of solar photovoltaic panels substantially eclipse the benefits -- even after incorporating arguments of the technology's proponents.


"Solar photovoltaic (PV) is a very exciting technology, but the current technology is not economical," says Borenstein, the E.T. Grether Professor of Business Administration and Public Policy. "We are throwing money away by installing the current solar panel technology, which is very expensive."


In a recent working paper, "The Market Value and Cost of Solar Photovoltaic Electricity Product," Borenstein also finds that, even after considering that the panels reduce greenhouse gases, their costs still far outweigh their social benefits.


Solar photovoltaic panels generate more power on summer afternoons when the sun is shining most intensely, which is also when the value of electricity is higher for most US electricity systems, Borenstein notes in his paper. The technology's proponents have pointed out that most previous analyses fail to address that fact. Borenstein uses actual wholesale electricity prices and simulated data to calculate how much that timing enhances the value of solar photovoltaic panels.


He finds that the favorable timing of solar PV production increases its value by up to 20 percent. However, the premium value of solar PV could be from 30 percent to 50 percent higher if US systems were run with less excess capacity and prices were allowed to rise as demand increases at different times of the day, says Borenstein, who has long advocated for such variable time pricing. He notes that US systems typically operate with excess capacity and consumers pay the same price for electricity at all times of the day.


"Basically, the benefits of solar PV are undermined by the way most grids are run today," Borenstein says.


Borenstein also deconstructs the argument that solar panels produce power at the location of the end-user and therefore can reduce the costs of transmission and distribution infrastructure investments. Examining 26,522 solar PV systems in California, Borenstein found they are not concentrated in locations where they would reduce transmission congestion and reduce the need for investment in transmission infrastructure.


"Solar PV is not clustered in the most valuable locations," he concludes.


Borenstein goes a step farther by calculating the discounted net present value of power produced by a 10 kilowatt solar photovoltaic system and then comparing that to the cost of installing and operating the system over its lifetime. (Net present value is a financial tool to calculate the value of a dollar in the future compared to its value now.) He finds that the cost for an installation ranges from nearly $86,000 to $91,000, while the value of the power produced ranges from $19,000 to $51,000.


Under the most favorable assumptions of electricity cost increases and interest rates, the cost of solar PV is about 80 percent greater than the value of the electricity it will produce, Borenstein finds. Under more likely scenarios, the cost of a solar PV installation today is three to four times greater than the benefits of the electricity it will produce, he says.


Borenstein also estimates that the value of greenhouse gas reductions would have to range from about $150 to $500 per ton of greenhouse gases to make the current solar PV technology a worthwhile investment.


But policymakers are considering a far lower price - $20 per ton of greenhouse gases - as the maximum that industry could be charged in proposed tradable emissions permit programs, Borenstein notes.


The bottom line, he argues, is that solar PV panels are not ready for widespread installation. Rather than subsidizing residential solar PV installations, as many states do, he favors more funding for research and development and an across-the-board production tax credit that applies equally to all renewable energy sources.


"We need a major scientific breakthrough, and we won't get it by putting panels up on houses," Borenstein says. "It is going to come in the labs."


To read Borenstein's article online, visit www.ucei.berkeley.edu/PDF/csemwp176.pdf.


 

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Prof. Severin Borenstein

"We need a major scientific breakthrough, and we won't get it by putting panels up on houses."
- Professor Severin Borenstein