As the solar photovoltaic (PV) matures, the economic feasibility of PV projects is increasingly being evaluated using the levelized cost of electricity (LCOE) generation in order to be compared to other electricity generation technologies. Unfortunately, there is lack of clarity of reporting assumptions, justifications and degree of completeness in LCOE calculations, which produces widely varying and contradictory results. This paper reviews the methodology of properly calculating the LCOE for solar PV, correcting the misconceptions made in the assumptions found throughout the literature. Then a template is provided for better reporting of LCOE results for PV needed to influence policy mandates or make investment decisions. A numerical example is provided with variable ranges to test sensitivity, allowing for conclusions to be drawn on the most important variables. Grid parity is considered when the LCOE of solar PV is comparable with grid electrical prices of conventional technologies and is the industry target for cost-effectiveness.
Given the state of the art in the technology and favourable financing terms it is clear that PV has already obtained grid parity in specific locations and as installed costs continue to decline, grid electricity prices continue to escalate, and industry experience increases, PV will become an increasingly economically advantageous source of electricity over expanding geographical regions.
It should be noted that for utilities calculating the value of a PV system, the value of solar calculation is now a better method than LCOE. See A review of the value of solar methodology with a case study of the U.S. VOS
Background and Major Findings[edit | edit source]
The levelized cost of electricity(LCOE)requires considering the cost of the energy generating system and the energy generated over its lifetime to provide a cost in $/kWh (or $/MWh or cents/kWh).
Recognizing that LCOE is a benchmarking tool, there is high sensitivity to the assumptions made, especially when extrapolated several years into the future. Thus, if used to consider policy initiatives, assumptions should be made as accurately as possible, with respective sensitivity analysis (e.g. Monte Carlo) and justifications. Especially in the case of renewable energy technologies, like solar PV, that are capital intensive with negligible maintenance (like fuel costs), it is important to make the appropriate assumptions when comparing systems for energy management plans. There are many varying estimates as demonstrated in the paper, with varying degrees of reporting detail.
A key recommendation for improving the reporting of the LCOE for Solar PV is the inclusion of assumptions and specifications which make each calculation unique. Thus, when a value is reported, it should also clearly include:
- The Solar PV technology and degradation rate (e.g. c-Si or a-Si:H, and 0.5%/year degradation rate etc.).
- Scale, size and cost of PV project [including cost breakdown] (residential, commercial, utility scale/# kW, # MW, $/Wp).
- Indication of solar resource: capacity factor, solar insolation, geographic location, and shading losses.
- Lifetime of the project and term of financing (these are not necessarily equal).
- Financial terms: financing (interest rate, term, equity/debt ratio, cost of capital), discount rate.
- Additional terms: inflation, incentives, credits, taxes, depreciation,carbon credits, etc. (these need not be in the analysis, but it should be stated whether or not these are included).
Thus, the author would suggest the degree of applicability of their analysis so that sweeping assumptions as to future policies are not incorrectly made.
LCOE Quick Calculator[edit | edit source]
Here, a free simple open source calculator is provided for finding the LCOE of a Solar PV system. The default scenario is for a system in Kingston, Ontario, Canada. The "assumptions and sources" section in the calculator gives guidelines on how to change inputs based on location.
Please note there was an error in the calculator. If you are using a version posted before Jan. 29, 2013 - you should discard it and download the new version below.
Download the calculator formatted for Microsoft Excel here:
Also housed at the http://www.green-its-research.ca/sustainability-calculators/solar-levelized-cost/. For doing detailed calculations we recommend other free tools: RETScreen and NREL Solar Advisor Model (SAM) - for a full list of PV modeling tools see solar photovoltaic software.
Please be aware the calculator is based on the assumption of a 40 year system lifetime. System lifetime can not be changed.
Related Papers[edit | edit source]
- K. Branker, M.J.M. Pathak, J.M. Pearce, A Review of Solar Photovoltaic Levelized Cost of Electricity, Renewable and Sustainable Energy Reviews, 15, pp.4470-4482 (2011). DOI and Open access
Related Research Pages[edit | edit source]
- Levelised Cost of Electricity Literature Review
- Lifespan and Reliability of Solar Photovoltaics - Literature Review
- Emerging economic viability of grid defection in a northern climate using solar hybrid systems
- Economic viability of captive off-grid solar photovoltaic and diesel hybrid energy systems for the Nigerian private sector
See also[edit | edit source]
- Sun Power levelized cost review for solar
- 100GW of demand, and the coming inflection point in the US solar market
- Economic Advantages of Dry-Etched Black Silicon in Passivated Emitter Rear Cell (PERC) Photovoltaic Manufacturing
- Policies to Overcome Barriers for Renewable Energy Distributed Generation: A Case Study of Utility Structure and Regulatory Regimes in Michigan
- The Potential for Grid Defection of Small and Medium Sized Enterprises Using Solar Photovoltaic, Battery and Generator Hybrid Systems
- Decentralized Renewable Hybrid Mini-Grids for Rural Communities: Culmination of the IREP Framework and Scale up to Urban Communities
- A review of the value of solar methodology with a case study of the U.S. VOS
- Economics of Grid-Tied Solar Photovoltaic Systems Coupled to Heat Pumps: The Case of Northern Climates of the U.S. and Canada
- Decarbonizing rural residential buildings in cold climates: A techno-economic analysis of heating electrification
- Can grid-tied solar photovoltaics lead to residential heating electrification? A techno-economic case study in the midwestern U.S.
- Economics of Open-Source Solar Photovoltaic Powered Cryptocurrency Mining
Media Coverage[edit | edit source]
- New Study: Solar Grid Parity Is Here Today Green Tech Media
- Solar energy cheaper than you might think, says researcher The National Post, Star Phoenix, Leader Post, Ottowa Citizen, Canada.com, The Vancouver Province, Edmonton Journal, Nanaimo Daily News, St. John's Telegram, Waterloo Record, and on many websites across Canada.
- Researcher says solar power not so costly Calgary Herald
- Cost of solar falling according to study CTV, City News Toronto, Winnipeg Free Press, MetroNews, TheTyee, 680 News, Brandon Sun, iNews880
- Solar power much cheaper to produce than most analysts realize, study finds Queen's U News, R&D
- Solar Power Much Cheaper to Produce Than Most Analysts Realize, Study Finds Science Daily
- Solar power not as pricey as most believe, professor says The Vancouver Sun
- Affordable Solar: It's Closer Than You Think Michigan Tech News, PHYSORG, Newswise
- Public Kept In Dark About Solar Power Viability, Study Finds News Room America
- Solar power can now be produced for less than $1 a watt, study finds Click Green
- Solar Power Less Expensive than Analysts Purport Cleantechnica
- L'énergie solaire serait beaucoup moins chère à produire Enerzine
- Professor: Cost of solar power dropping Chronicle Herald
- Outdated models overestimate solar energy cost Summit County Citizen's Voice
- Study says solar power now cheaper than what analysts think Ecoseed, REVE
- Is Solar Power About To Go Mainstream?:Study suggests economics are reaching tipping point Consumer Affairs
- Question Answered: Solar Has Already Met the Grid Get Solar
- New Queen's University study: Solar power much cheaper to produce than most analysts realize; PV systems near grid paritySolar Server
- Solar Grid Parity Is Here The Motley Fool
- Study claims solar power is more viable than ever TG Daily
- Solar Power Much Cheaper to Produce Than Most Analysts Realize, Study Finds Think Progress
- Study: Analysts get solar costs wrong UPI