Solar power has a bright future - provided sensible government policy is applied

This morning in the Oil Drum there is an excellent article on pricing of solar power.

Takeaway messages from this article are:

• Solar power prices are now in many markets lower than what consumers pay for electricity on the grid. This is due to dramatically reduced prices of panels and inverters due to economies of scale and technological improvement. This trend will continue; just as computer prices trend down as technology improves, the same thing will happen for solar photovoltaics.

• Due to the above it now pays to install and generate your own power at sunny southern latitudes and the positive-payoff geographical regions will steadily expand (latitude is the biggest factor, but cloud cover is also an issue). Hence more and more people will install such systems, including both private consumers and companies. In the long run this bodes very well for lowering fossil fuel consumption and reducing future climate change.

• The market for producing solar equipment has shifted to low production-cost markets, as happened with other technology products. That is harmful to the production industry in developed countries, but on the other hand the installation industries should continue to experience growth and profits due to demand for installation, and energy-intensive industries will benefit from cheaper power. Ultimately there should be tremendous net gains to economies that encourage installation.

• Governments have been fouling up marketing by suddenly chopping feed-in tariffs. These are fixed rates paid for electricity produced on your rooftop. The problem was that these were set at extremely high levels, and then governments realized that with the dramatically lower costs of solar production, the tariffs were way too high. However, rather than cutting them entirely, they need to be brought down to sensible levels, so it is still possible to sell to the grid. Society will benefit tremendously from having a solar generator on most roofs. But since the sun only shines some of the time, and on sunny summer afternoons such installations make much more electricity than needed in the underlying building, it is necessary to sell excess power to the grid. Without this ability the impetus to install is significantly reduced. Rates should be set at an economically justifiable level that changes over time and that is sufficient to ensure people will install systems, but also ensures no windfall profits.

• Governments also need to set up the right environment for investment in transmission and storage of solar-generated power.

• Even going off-grid entirely (which requires setting up your own storage system) is beginning to become an attractive option, and will become more attractive over time for all consumers. 

• The market for electric cars will be boosted in tandem with in increasing installation of solar photovoltaics, since recharging your own vehicles will result in big cost savings, and also your vehicle, when not in use, serves as a storage.

• Systems installed today can be expected to last 10-20 years with significant maintenance (inverter replacement) at about 10 years. However as with all technology, reliability is likely to improve, so even longer time horizons may be possible, and systems installed today may last longer than expected.

The article has a lot of very interesting equations that can be used by businesses, consumers and economists to properly work out the business case for solar power.