The Power of Solar Energy

Lesson 8: Are PV Systems Cost-Effective?

Objectives

Background

Activity 1: What Is the "Real" Value of Your PV System?

Activity 2: Are Financial Incentives Available in Your Area?

Wrap-up

Objectives

• Students will analyze costs related to PV
• Students will calculate the environmental cost savings of PV compared to fossil fuels
• Students will investigate tax incentives or rebates that would help make PV systems more affordable

Background

PV systems are more cost-effective in some situations than in others, depending on the size and nature of the load, the availability of the solar resource, and the cost of alternative sources of power. In many situations, PV can be more cost-effective than many alternatives.

For example, PV is often the cheapest source of electricity for a remote home that is located far from the existing utility grid. In these instances, extending the utility grid is often not feasible or very expensive, making PV a good choice. However, in situations where utility-supplied electricity is readily available and inexpensive, PV systems become less cost-effective.

When we think about whether a PV system is cost-effective, we must consider both financial costs and environmental costs. Financial costs can include system and component costs, design costs, installation, structural support for the modules, site preparation, and more. Today in Montana, a 2- to 4- kilowatt (kW) grid-intertied PV system will have an installed cost between $9 and $16 per watt, with the electricity produced over the life of the system costing 25 to 30 cents per kilowatt-hour. In comparison, residential electricity purchased from the utility grid costs about 7 cents per kilowatt-hour.

We must also consider hidden environmental costs, called external costs. While the above information suggests that fossil fuels are much cheaper than renewable energy, consider these facts:

• Extracting fossil fuels causes environmental damage from the extraction equipment and from the pollution that is a by-product of burning those fossil fuels.
  
• Fossil fuels are not free. They cost money to bring out of the ground. This means that as fossil fuels run out, their price will increase.
  
• Fossil fuels give off gases when they are burned. Most of these gases—sulfur oxides, nitrous oxides, and carbon dioxide, for example—can cause environmental problems, such as acid rain. Others, particularly carbon dioxide, may be causing a change in the global climate, sometimes called the greenhouse effect, climate change, or global warming.

If these external costs were included in the price we pay for fuels, the price of those fuels would increase considerably.

Activity 1: What is the "Real" Value of your PV System?

Calculating the value of a PV system requires an analysis of both economic and environmental factors. Analyze your PV system’s value.

Method:

1. First calculate the "economic value" of your PV system. Go to the PV Watts calculator at:  http://rredc.nrel.gov/solar/codes_algs/PVWATTS/
   
2. Click on Montana and then choose a city nearest to your location that has similar topography.
   
3. To get an accurate assessment of the system installed on your school, use these values:

• AC Rating (kW): 2.0
• Array Type: Fixed Tilt
• Array Tilt (degrees): 45
• Array Azimuth (degrees): 180
• Cost of Electricity (cents/kWh): State Average

1. Click on Calculate to see how much your school will save in energy costs.
   
2. Assuming that your system cost $25,000 and the cost of electricity stays the same, calculate the simple payback, or how long it would take for this energy savings to pay for the system.
   
3. Next, determine the "environmental value" of your PV system by calculating how much pollutions is prevented at: http://www.ase.org/greenschools/spirit/calculator.htm. Take the 
   total number of kilowatt hours produced by your PV system (determined in Step 4) and calculate how much your system will reduce carbon dioxide, sulfur dioxide, and nitrous oxide omissions.

Extension for Sun4Schools Participants Your students can gather exact electricity production data on your school through a link at http://www.montanagreenpower.com. Ask students to collect this data over a certain period of time, say one or two months, and then determine the corresponding reduction in pollution. This process is basically the same as the activity above, but is based on school-specific information, rather than nearest location and average electricity production.

Activity 2: Are Financial Incentives Available in Your Area?

Many states offer financial incentives to encourage the use of renewable energy systems. Investigate whether there are any such incentives in your area.

Method:

1. Have students investigate whether there are any rebates or tax incentives for solar systems in Montana. (Hint: see the website at: http://www.homepower.com/stateincentives.htm for a full list of incentives in your state.

Wrap-up

Lead a class discussion about whether your students would be willing to pay more for a PV system versus utility electricity. Students should demonstrate an understanding of the financial and environmental factors that go into this.

Return to the top of the page

Next Section: Lesson 9 – How Other Solar Schools Compare to Ours