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.


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.

Take that Ivanpah solar-thermal plant. It’s big: 392MW, enough to power 140,000 homes. “That’s greater than all of the solar in the U.S. that was constructed last year,” said Brightsource CEO John  Woolard, on a call with reporters today.

Getting the project off the ground required a$1.375 billion in loan guarantees from the U.S. Department of Energy as well as a cash grant of $500 to $600 million under a Treasury Department program that has replaced, temporarily, an investment tax credits for solar. Put another way, the government is investing twice as much in the plant as NRG, which will own 40 to 60% of the equity. [NOTE: A early version of this blog was incorrect on this point.]

What’s more, California has an aggressive Renewables Portfolio Standard, requiring utilities to buy 20% (soon likely to be lifted to 33%) of their power from renewable sources by 2030, which helped create demand for the Ivanpah plant. That law permits Pacific Gas and Electric (PG&E) and Southern California Edison (SCE), which have contracted to buy the electricity, to charge ratepayers for the higher costs of renewable energy.

SunRun and its investor, U.S. Bancorp, also benefit from the Treasury Department grant program (known as 1603, and part of the 2009 stimulus package) and from the California Solar Intitiative, a state program that offers homeowners and businesses cash rebates if they install solar power. Rebates can cover as much as one-third of the cost of a home system; the $3 billion, 10-year estimated cost is shared by all ratepayers.  Solyndra, meanwhile, also won approval for a $535 million DOE loan so it could build a cool new factory (see photos below) to make its innovative cylindrical CIGS thin film solar modules.

Good arguments can be made on behalf of all these projects, and their subsidies. First, they displace fossil fuels, which for now (and for the foreseeable future in the U.S.) can emit global warming pollutants into the air without paying a price. Second, they can help the still-new solar industry get bigger and bring down its costs, through economies of scale and learned efficiencies.

“We’re striving to get a point where the global demand is no longer metered by the political incentives,” said Mike Grunow, vice president of marketing for Solyndra. The company also has to compete on the global market with Chinese panel makers that benefit from cheap financing and land, as well as low labor costs.

David Crane, the CEO of NRG, said today that without clean-energy subsidies, utilities would build only natural-gas plants right now because gas prices are so low. “That would be a huge mistake for our country in terms of fuel diversity and the environment,” Crane said. Natural gas burns cleaner than coal, but it still produces significant greenhouse gas emissions. Utility-scale solar-thermal technology, he argues, has the potential over time to compete with fossil fuels.

For their part, SunRun, which serves homeowners by providing finance and taking the hassle out of solar installations, and Solyndra, whose cylindrical panels are designed for flat, commercial roofs, both provide electricity at places where it’s used (as opposed to in large-scale plants like Ivanpah). By doing so, they eliminate the costs of transmission and compete not with the wholesale cost of buring fossil fuels but with the retail price of electricity.

Ed Fenster, SunRun’s chief executive, told me by phone the other day that Solar PV is “well suited to displace the most expensive power you can find. That is the power that’s sold to homeowners.” He added: “You could never build a residential-scale, cost-effective nuclear power or natural gas plant.” True enough.

But assuming we can agree that there’s good reason to subsidize solar power, as well as other forms of low-carbon electricity (including nuclear), you have to ask–is this hodge-podge of loan guarantees, federal funds and ratepayer support an efficient way to do so? Wouldn’t it be better to enact a steep carbon tax, and then let all forms of energy compete? Should a friend of mine who lives in upscale Los Altos and put a $35,000 solar system on his roof be subsidized by the rest of us? Is this going to lead us to a sustainable energy future, one in which we can collectively make smart choices? I don’t know. But somehow I think not.

A robot delivering panels inside Solyndra's factory
Solyndra panels on the roof of its factory


  1. Peter Molloy says

    Have the other sources of fuel for electricity generation ever been or are they subsidized in any way. eg guaranteed rate of return for generation, transmission and delivery. How are all the ancillary costs for utility scale regulation incorporated in the rates you compare? Just food for thought when taking into considering apples to apples. Also is there any reduction in losses on the transmission, distribution system from not having to deliver energy. Maybe there are other little economic gems hidden that we are overlooking, ha.

  2. Peter Molloy says

    Oh, I forgot. Maybe the name of my little rant could be the hidden costs of a decaying and ancient way of inefficiently producing, delivering and consuming energy.

  3. says


    I am really disappointed to hear you repeating this sort of drivel. As RFK Jr. said so eloquently in his keynote address at Solar Power Int’l last year the fossil fuel industry is one of the most heavily-subsidized segments of our economy and always has been. It is really naive to think otherwise. There is nothing the solar industry would rather have than a level playing field and placing a tax on carbon which truly generates a host of costs to the society is one way of doing that. But if you’re going to compare renewable energy to other forms, let’s make it an apples-to-apples comparison. And please do your homework before you speak for my industry. Thanks.

  4. Dan Taylor says

    Marc, one cost of electricty left out is cost of electrity from an industrial co-generation plant (steam and electricity) powered by coal, which is as low as 2.5 cents/kWh. That is an enormous gap when compared the quoted 30 cents/kWh for solar, which I think is low. When I looked closey at a solar installation for manufacturing facility 2 years ago, the cost of installed solar power was around 45 cents/kWh. I know costs are improving, but not that fast.

    My point is, that it will take a lot of subsidies to bridge this gap. No matter how you spin it, taxing one form over power in favor of an other is not creating a level playing field, it is doing just the opposite, for a very good reason.

    When I mentioned when I was evaluating solar power two years ago, the State of Maryland was giving very obvious subsidies – around 39 cents/kWh. The subsidies coal and other fossil fuel recieves is not so obvious to me. I would be interested in what these subsidies consist of.

  5. says

    I hope I am clear that I favor public policy that promotes clean energy over fossil fuels–largely because the market now fails to capture the cost of emitting carbon. I’d just like the subsidies to be clear, transparent, simple, if possible.

    I should have included in this post the obligatory comment about how massive subsidies exist for coal, oil and natural gas. I no more support those that I do the solar hodgepodge.

  6. says

    Solar is less expensive than traditional utility power.

    For example, if you spend $200 per month for electricity with a dirty utility, then you will spend $81,979 over 25 years. This assumes a historically low 2.5% annual price inflation rate.

    Compare this to a $25,000 solar panel system that delivers a very low to $0 electric bill, and it is obvious that solar costs less. Today’s solar panels are efficient, clean and come with 25 year warranties. Remember, you can pay the utility for 25 years, with annual price increases, or you can pay a lot less for solar power. You’ll also get some great tax credits and cash rebates, and you will increase the value of your home.

    We’re not quite there yet, but solar can also be used to power your electric car. Your solar panels and electric vehicle can cut your monthly fuel bill by 80%, and you’ll never visit a gas station again. Think about this. Using today’s fuel prices, you’re saving $200 a month on electricity and $200 a month on gasoline. That’s $4,800 a year, for 25 years.

    Last, ask yourself this question. Would you rather have solar panels on your roof, or live across the street from a coal or nuclear plant, to power your home?

  7. John says

    I think we’re using the wrong word here. Subsidy has become a political term. Let’s call it what it is — an investment. When the federal government invested in the national highway system, we didn’t have detractors in Maine quibbling about tax dollars going to support roads to Nevada. When the government invested in hydropower and the great dams, we didn’t have people calling it a subsidy, or a hand out or a bailout. The point is that each of these developments were vital to US economic development or national security issues. Transitioning from a fossil-based economy to a renewables-based economy is just as vital for economic development and national security. So let’s get past politicizing this issue and realize that much more is at stake.


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