The hidden costs of solar power

In this sluggish economy, you would think that selling expensive electricity to businesses or homeowners would not be a good business. But the solar-power industry is doing exactly that. Solar power is more expensive that making electricity from natural gas, coal, wind or existing nuclear plants, and yet the business is booming. [See: U.S. solar power: doubling in 2010!]

Hardly a day goes by without good news for the solar industry. For example:

BrightSource Energy, Inc. just announced that power generation company NRG Energy will invest up to $300 million to become the biggest owner of the  Ivanpah Solar Electric Generating System, the largest solar thermal system in the world, just beginning construction in California’s Mojave Desert. Gov. Schwarzenegger and Interior Secy Ken Salazar joined in a groundbreaking today. That’s a mock-up of the Ivanpah plant, above.

And:

SunRun, a California-based home solar company, said this week it received an additional commitment of tax equity from an affiliate of U.S. Bancorp to develop 1,900 residential solar installations. Given that the typicalinstallation costs about $35,000, that’s roughly a $65 million investment. SunRun has now raised more than  $300 million in project financing.

Recently, I visited a solar PV manufacturer,  Solyndra, at its headquarters in Fremont, CA. While Solyndra is worried about competition from low-cost manufacturers in China, it is still selling all of the photovoltaic panels it manufacturers. Recently:

It announced deals to installs its cylindrical solar panels on the roof of a Frito-Lay manufacturing plant and on rooftops in the Los Angeles area that will supply 16.2 MW of power to Southern California Edison.

None of this comes cheap, although calculating the cost of solar power is not simple–it depends on the kind of system in place, its location and the costs of financing, since “fuel” from the sun is free. Solarbuzz, a respected source, says that:

Solar Electricity Prices are today, around 30 cents/kWh, which is 2-5 times average Residential electricity tariffs.

According to the Energy Information Administration, the average residential price for electricity in June was 12 cents/kWh, the  average commercial retail price was 10.70 cents/kWh and the  average industrial retail price was 7.31 cents/kWh.

So why do the economics of solar power work for the industry? The answer, you won’t be surprised to learn, is generous government subsidies. [click to continue…]