STANFORD, Calif. — There has not been agreement as to whether solar photovoltaic (PV) power makes sense from an economic point of view. According to a new study from Stanford University specifically looking at the economics, grid parity has now been achieved for large commercial-scale installations.

“The Prospects for Cost-Competitive Solar PV Power,” is a new working paper by Stefan Reichelstein, William R. Timken professor of accounting at the Stanford Graduate School of Business, and Michael Yorston, graduate student in the Department of Management Science and Engineering at Stanford University. Their paper examines the life-cycle cost of electricity generated by solar PV, paying particular attention to key factors such as location, public subsidies, and the long-term learning effects in manufacturing solar panels.

Reichelstein said, “Solar PV is not yet competitive with fossil fuel, like natural gas, from the perspective of a utility that can either build a new natural gas power plant or invest in solar installations.

“For a commercial power user, say a business with plenty of rooftop space, the cost of generating your own electricity is now on par with what the business would need to pay in retail electricity prices. In that sense, grid parity has been achieved for commercial-scale installations. However, I need to add immediately that this is subject to two important qualifiers. The facility has to be in a favorable location, such as the southwestern United States, and secondly the business must be able to take advantage of the current federal tax subsidies.

“Concerning the future, and this may sound like a pun, the future of solar PV looks rather bright. The industry has consistently been able to lower the cost of solar panels. If this trend can be maintained for the next 10 years, and if subsidies are continued for that period, there is a real prospect for solar to become cost competitive on its own (that is, without a subsidy), at least for commercial installations. Utility-scale installations will take longer to become competitive; possibly 15 years, though it obviously becomes murkier to make projections that far into the future.”

As to what is driving the economics of solar power, Reichelstein said, “A mix of federal tax incentives has been especially helpful to commercial-scale installations, and even to home installations. We’ve also seen dramatic growth in recent years of utility-scale installations despite their current cost disadvantage relative to fossil fuel power plants. The reason appears to be the additional subsidy mechanisms at the state and local level. Here in California, Assembly Bill 32 (a 2006 law that set goals for reducing greenhouse gas emissions) and the state’s renewable portfolio standard, which requires that 33 percent of California’s electricity come from renewable resources by 2020, seem to be driving demand.”

Publication date: 7/2/2012