How to Decide If Solar Power Makes Financial Sense
Globally power supply companies, consumers, regulators, and policymakers are focused on solar power for many good reasons. This green, renewable power source exploits a readily available, natural resource, helping the planet and consumers at the same time. And for many energy providers and buyers, it can make sound financial sense. Those considering the switch to solar now have access to sophisticated tools to calculate its financial viability using the Levelized Cost of Electricity (or Energy, or Electrons, depending on who you talk to). This is a benchmarking method that helps people find out the anticipated cost, in megawatt hours, of a power-producing asset over its expected lifetime.
But the information required for accurate LCOE calculations differs depending on the power-producing asset. For example, data entered in a LCOE solar formula compares favorably to gas-fired power plants in many helpful respects. This is because one of the most attractive features of the solar calculation is that it excludes fuel costs. Given the global impact on the cost of gas caused by the war in Ukraine, supply chain issues, and the Covid-19 pandemic, this factor alone can make or break a project.
Solar Power Helps Corporate Social Responsibility
Another feature that is worth remembering about solar power is that it can help businesses meet their Corporate Social Responsibility goals. Many companies have targets to achieve net zero carbon emissions. Some are already there. Solar power can help them achieve these aims by using abundant, natural light, together with technology and efficiencies of scale, to generate power cost-efficiently.
The Impact of Subsidies on Grid Parity
By contrast, an arguably negative feature of solar power is that it was heavily subsidized early on to encourage adoption and move solar towards “grid parity”. (This is the point in time at which renewables like wind and solar could compete on a level playing field with other forms of power generation, like gas and coal.) The subsidies succeeded by helping develop both the technology and know-how to make solar work. In fact, since 2018, solar and onshore wind power have been the cheapest ways to generate power worldwide.
But, since solar has proven to be so successful, subsidies have diminished, or completely disappeared. Power suppliers who calculated the LCOE 15 or more years ago may have anticipated profitability for the 20-to-35-year life of a power-producing asset by relying on subsidies. If so, they may have to re-visit their figures and decide if their current power-producing solar assets remain viable.
Of course, one advantage of using technology is that it is always advancing. This means that outdated solar capture and storage systems can be replaced to extend the life of a power-producing asset, and, if required, bring the LCOE back up to profitability.
The US Department of Energy notes on its website that solar is the fastest growing source of new electricity in the country. With more than 3 million solar installations, it makes financial and environmental sense for a lot of people, communities, and businesses. Considering the factors above, and others, over the lifetime of solar installation assets is crucial when making the decision to invest. LCOE applies rigorous scientific data to support decision-makers in that task.
