The True Cost of Photovoltaics

There is an excellent website on the business of photovoltaics, SolarBuzz ( which provides information on corporations, products, and people associated with the photovoltaic industry. On their home page they have a perpetually updated report on the price per kilowatt-hour (kWh) of photovoltaic electricity. Currently they show the price for photovoltaic electricity to be 21.7 cents per kWh.

If you compare this price to the cost of electricity from many conventional sources, especially coal, but even natural gas and oil burning power plants – even at today’s higher energy prices – at 21.6 cents per kWh, photovoltaic electricity isn’t even close. Coal generated electric power can be sold retail for $.04 per kWh, if not less.

As shown by the table in “Photovoltaics, the Ultimate Renewable,” however, it may be a fallacy to base kWh prices of photovoltaic electricity on the installation price. This is because the installation price might be compared to the externalities associated with other forms of electric power. What is the cost of transmission lines, which photovoltaics don’t need? What is the cost of actually building the coal mines, and the railroads, to serve coal-fired power plants? What is the cost to build a dam for hydroelectric power, or a facility to store nuclear waste?

The installation price of photovoltaics, similarly, is an externality. Moreover, the high initial installation cost is a sunk cost, not an ongoing cost like many externalities. Does anyone take into account the cost of building the entire drilling, shipping, storage and refining infrastructure for crude oil, when analysing the price of gasoline? These costs are long-ago amortized, and are no longer reflected in the price we pay at the pump. The economic problem with photovoltaics isn’t their ongoing replacement cost, which is minimal, it is the cost of building the entire photovoltaic infrastructure – the installed base – from scratch.

On a replacement basis, photovoltaic power is dirt cheap. Once you’ve installed a photovoltaic array, assume you replace 5% of the array each year. That would mean every twenty years the entire array would be replaced. Such a program would guarantee level electrical output forever. And what would the cost be in this scenario? Only 5% of installation costs, or less than one cent per kWh! That is why photovoltaic electricity is a compelling long-term investment, and the reason they are being purchased faster than manufacturers can make them.

Finally, look for production of photovoltaics to ramp up significantly in the next few years. As we discuss in “The Coming Boom in Photovoltaic Power,” the supply bottleneck of polysilicon raw material is about to be broken.

5 Responses to “The True Cost of Photovoltaics”
  1. David says:

    I don’t know, 21.7 cents per kwh installed is coming pretty close to cost effective. I currently pay 16 cents per kwh in Houston, TX. If I can get my own PV electricity at 22 cents per kwh, I only need another 8 cents to make it worth my while.

  2. embutler says:

    yes it is nice to avoid the long line electical grid charges in your home solar roof installation cost…unfortunately you still need the grid connection
    unless you are gonna put in a huge battery backup for those cloudy days..
    and some of the costs are offloaded onto the grid when the electric co is forced to pay a price for your contribution to the grid..

  3. dean says:

    21 cents per kWh is a comprehensive model — you basically calcualte all the energy generated over the lifetime of the asset(s) you purchase, calculate costs (initial cost and ongoing maintenance/replacement). subtract out rebates or other incentives. add cost of financing (or opportunity cost of sinking your cash on day #1).

    then divide.

    and you get 21 cents per kWh.

    the logic in the article regarding externalities is a bit off-the mark.

    if a coal-fired plant, can generate GW’s of power for 50 years or longer on a shoestring operating budget, and if the utility bill includes fees for distribution, transmission, and servicing, then you have the relvant comparsion already.

    the externalities that are not accounted for are the environmental and societal impacts of coal (of which there are many above and beyond greenhouse gases).

    bringing these externalities into the cost of coal may make the difference…. so, what is the true “cost” of a ton of CO2? how many tons of CO2 are produced per kWh from a coal plant?

  4. Pete Turner says:

    The argument made is an apples and oranges argument. What’s the cost of an “n” megawatt coal, oil or gas plant vs the cost of the same size solar plant. Amortize this cost over a given period of time. Add to that cost the cost of fuel, maintenance and operating each type of plant for a year. This will give you the “true” cost of one type vs another.

    Social costs are very difficult to quantify, however one might argue that the subsidy paid to the plant type by the government might equal the social cost. Add that in and see which is less expensive.

  5. Iain Cockhill says:

    The cost implication is of course vitally important to the future of our energy needs, but this does not only include financial costs, think of the implications of the oil/natural gas ‘conflicts’!
    Photovoltaic offers the most important future implications for our environment and could significantly reduce the world conflicts and its inherent financial drain on our economy. There is more at stake here than obvious pence/cents. Once finally accepted by the world ‘elite’ as a viable opportunity to replace our reliance on oil, the ploughing of investment with then reduce the costs significantly.


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