Solar Panels

Last updated 1 July 2006

Efficiency

Solar panel technology has improved significantly over the last 20 years. You can now buy panels that have an efficiency of about 17%. That means you can capture up to about 170 Watts per square metre.

Dollars per Watt

The cost of solar technology has also dropped a lot recently, and will probably continue to do so (See a graph here). The cost of solar panels in Australia is now about $9.50 per watt, and is even cheaper in some countries such as the US ($6/watt after currency conversion).

For a house which uses 10 kWh of electricity per day this means that a solar array would cost about $19,000 (but less after govt rebates). Unfortunately electricity usage this low is uncommon. Households which use electricity for cooking, heating, and cooling will generally use twice this much. (My household, for example, uses electricity for cooking and heating and our average daily usage over the year is 16 kWh). For a more realistic case of a house that uses 15 kWh per day, the cost of an array would be about $28,500.

In my opinion, for solar power to really take off the price would need to drop to about 25% of its current value. (Meaning a house that uses 10kWh per day would need an array that cost less than $5000).

Lifetime

Many commerical panels come with a warranty period of 20 years, indicating that they may well last significantly longer than this.

Unfortunately while the price of grid electricity is low (about 12 cents per kWh) and the cost of panels is high, solar electricity is not justifiable using purely economic criteria. With current prices, the pay-back period is around 43 years (assuming an average of 5 hours sunlight on the panel per day). Even with a sun-tracking solar array the payback period is still about 29 years, not including the cost of the tracking hardware.

If solar panel costs come down to 25% of current levels, then the pay back periods will drop to 11 years (non-tracking) or 7 years (tracking) - still quite a long term commitment, but at least its well within the lifetime of the panels.

In Germany households which produce solar electricity are allowed to sell it back to the grid at a premium price rather than at the normal wholesale electricity rate. This has meant about 400,000 household have now installed solar panels. If the Australian government implemented a similar scheme the economics of solar power would change in its favour.

Disadvantages

The biggest problem with solar technology is that it only produces power when its sunny. Grid connected solar technology has meant that this has become less of a problem (excess electricty is fed back into the public grid), but the electricty storage problem still means that solar cannot yet provide a total solution for a country's energy needs.

For remote applications battery banks are appropriate, but these are expensive, and need to be replaced periodically.

Advantages

The most obvious advantage of solar power is that once the panels have been manufactured they can produce electricity for 20-30 years with zero greenhouse gas emissions. Modern panels generate enough electricity to cover the power needed for their manufacture in 1 or 2 years.

Another advantage is that solar power produces output during the day when a lot of power is used (as opposed to at night when people are asleep).

Finally, solar panels are ideal for applications where connection to the electricity grid would be very expensive or impractical.

Conclusions

Unfortunately the use of solar panels cannot be justified on a purely economic basis at current prices. People who install them do so either because it would be too expensive to connect to the electricity grid, or because they want to do their bit towards reducing global climate change (the "feel good" factor). Hopefully over time the economics of solar electricity will change to favour solar panels. As solar panels become more popular economies of scale should push the prices down.

Links

Assumptions

On this page I have assumed that there are 5 mean hours on sunlight per day. This is the yearly average figure for Sydney and takes into account not only the length of days, but also the number of cloudy days. Also I have assumed that a sun-tracking solar array will increase the effective hours of sunlight by 50%.

Formula for pay back period

p = c/h/g

Where: e.g. If panels cost $9.50 per watt, then p = 9.5*1000 = 9500 $/kW. If there are 5 mean hours of sunlight per day then h = 5*365 = 1825 hours/year. If grid electricity costs 12 cents/kWh, then g = 0.12 $/kWh.

So, p = c/h/g = 9500/1825/0.12 = 43.38 years.

If the price of panels halved and the price of grid electricity doubled, then the pay-back period would be p = 4250/1825/0.24 = 9.7 years.

Note that this formula does not take into account the interest forgone on the money invested in the solar panels, and assumes that the solar array is grid connected and excess electricity can be sold back to the grid at the same rate it is purchased. This formula also only considers the cost of the solar panels, not any other equipment which may be required such as inverters.

The lost interest on $19,000 at a rate of 5.5% pa is $1045 per year, so this is something else which certainly needs be considered. Ideally an extra term should be added to the above formula to take this into account. The compound interest formula is A = P * (1 + r ) ^ n, so 43 years of interest on $19,000 is $189,937 !

The other way of looking at this problem is what interest would you need to pay if you took out, say, a 30 year loan on $19,000. At 7% pa the monthly repayments work out at $126.41, or about $1517 per year. The solar array you could buy with this money would generate 10 kWh/day, or 3650 kWh/year. To buy this much power from the grid would only cost $438. So you'd be paying about 3.5 times as much for your electricity if you went the solar route.

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