What’s the Real Cost?
“Solar energy is free, but it’s not cheap” best sums up the major hurdle for the solar industry. There are no technical obstacles per se to developing solar energy systems, even at the utility megaWatt level (e.g., 14 MW utility scale PV system at Nellis AFB or a 64-MW CSP system in Nevada); however, at such large scales a high initial capital investment is required.
Over the past three decades, a significant reduction of the cost of solar products has occurred, without including environmental benefits; yet, solar power is still considered a relatively expensive technology.
For small- and medium-scale uses, in some applications, such as passive solar design for homes, the initial cost of a home designed to use solar power is essentially no more than that of a regular home, and operating costs are much less.
The only difference is that the solar-energy home works with the Sun throughout the year and needs smaller mechanical systems for cooling and heating, while poorly designed homes fight the Sun and are iceboxes in the winter and ovens in the summer.
As energy demand increases as developing countries modernize and fossil fuel supply constricts, increased fuel prices will force alternatives to be introduced. The cost of technologically driven approaches for clean energy will continue to fall and become more competitive.
Eventually, clean energy technologies will be the inexpensive solution.
As the full effect and impact of environmental externalities such as global warming become apparent, society will demand cleaner energy technologies and policies that favor development of a clean-energy industrial base. By the end of the twenty-first century, clean-energy sources will dominate the landscape.
This will not be an easy or cheap transition for society, but it is necessary and inevitable.
Already, solar energy is cost effective for many urban and rural applications. Solar hot-water systems are very competitive, with typical paybacks from 5–7 years as compared to electric hot-water heaters (depending on the local solar resource).
PV systems are already cost competitive for sites that are remote from the electric grid, although they are also popular for on-grid applications as environmental “elitists” try to demonstrate that they are “green.
”However, one should beware of “green-washing” as people and companies install grid-tied PV systems without making efforts to install energy-efficient equipment first. Far more can be achieved through energy conservation than solar energy usage alone for reducing carbon emissions.
The decision to use a solar energy system over conventional technologies depends on the economic, energy security, and environmental benefits expected. Solar energy systems have a relatively high initial cost; however, they do not require fuel and often require little maintenance.
Due to these characteristics, the long-term life cycle costs of a solar energy system should be understood to determine whether such a system is economically viable.
They want to continue their operations as in the past because, sometimes, they fear that if they have to install new equipment, they cannot compete in the global market and will have to reduce employment, jobs will go overseas, rates must increase, etc.
The different types of economics to consider are pecuniary, social, and physical. Pecuniary is what everybody thinks of as economics: dollars. Social economics are those borne by everybody and many businesses want the general public to pay for their environmental costs. If environmental problems affect human health today or in the future, who pays? Physical economics is the energy cost and the efficiency of the process. There are fundamental limitations in nature due to physical laws. In the end, the environment and future generations always suffer the corollary of paying now or probably paying more in the future.
An economical analysis should be looking at life cycle costs, rather than at just the ordinary way of doing business and low initial costs. Life cycle costs refer to all costs over the lifetime of the system. Also, incentives and penalties for the energy entities should be accounted for.
What each entity wants is to earn subsidies for itself and penalties for its competitors. Penalties come in the form of taxes and fines; incentives may come in the form of tax breaks, unaccounted social and environmental costs, and also what the government (society) could pay for research and development.