TODAY’S STUDY: THE BEST U.S. CITIES FOR SOLAR
Going Solar in America: Ranking Solar’s Value to Consumers in America’s Largest Cities
January 7, 2015 (North Carolina Clean Energy Technology Center)
Introduction & Executive Summary
Most Americans are unaware of the true financial value of solar today. Seen by many as a technological luxury, solar energy is not seriously considered as an option by most homeowners in the U.S. However, our analysis shows that, in 46 of America’s 50 largest cities, a fully-financed, typically-sized solar PV system is a better investment than the stock market, and in 42 of these cities, the same system already costs less than energy from a residential customer’s local utility. Of the single-family homeowners in America’s 50 largest cities, we estimate that 9.1 million already live in a city where solar costs less than their current utility rates if they bought a PV system outright – and nearly 21 million (93% of all estimated single-family homeowners in those cities) do if low-cost financing is available.
So why aren’t more Americans investing in solar? There is a clear information gap, and with this report, we intend to open the eyes of average homeowners by showing that solar can generate both significant monthly savings and long-term investment value, and not infrequently, cost less than energy from some of America’s largest electric utilities. What’s more, it is our hope that people will come away realizing that solar is now not just an option for the rich, but a real opportunity for anyone looking to take greater control over their monthly utility bills and make a long-term, relatively low-risk investment.
Executive Summary: Overall City Rankings
In order to characterize how good of an investment solar PV is in America’s 50 largest cities, we designed a ranking system based on a 0-30 point scale that scored each city on the following factors (for a 5 kilowatt, or kW, system):
The immediate (first-year) average monthly savings (before a loan payment) customers could expect (10 pts);
The relative value of investing in solar relative to a long-term investment indexed to the Standard and Poor's (S&P) 500 stock index (10 pts); and
The “levelized cost” of the system, which can be compared to the cost of energy from a customer’s local utility (10 pts). We then ranked the cities (seen at left) based on their score, which was tied to their percentile ranking within each category.
Solar PV Today: Residential Customers’ Rates & Bills
While many states “deregulated” their energy markets in the 1990s, other regions chose to keep their utilities fully regulated and vertically-integrated. Since verticallyintegrated utilities (particularly those in the South, Southeast and Midwest) can put more assets into the broader pool that they are allowed to recover in full from their customers through rates (called a “rate base”), they tend to build a significant amount of infrastructure upfront. In addition, even though a major tenet of utility regulation is to balance fair rates with reliable service and energy conservation*, utility regulators tend to push for residential rates at (what might be considered to be) artificially low levels relative to the utility’s true costs.
Surprisingly, however, this practice tends not to protect the interests of residential customers, nor does it encourage more efficient use of energy. As the chart to the upper right shows, data from the U.S. Energy Information Administration (EIA) shows that customers in regions with the lowest rates tend to use the most energy and pay the highest monthly bills. This data strongly suggests that maintaining lower rates does not have the desired effect of consumer protection, or of promoting efficient energy use.
Solar PV Today: A Tool To Offset Rising Rates
To compound the high monthly utility bills customers pay now, it is very likely that customer bills will continue on a steeply increasing trajectory. As the map to the left shows, the EIA also forecasts that utility rates will rise between 33%-83% over the 25-year typical life of a solar PV system.
Many customers still mistakenly believe, however, that solar PV is not an option for them. This stems, in part, from a belief that they may not be able to afford it, and because their area does not have enough sunshine year-round. In fact, solar PV’s value to a customer tends to be most closely related to the degree to which solar can offset their typical use of grid energy. It may seem surprising, but as the table to the lower left shows, customers with a 5 kW system in Chicago and Boston, (known more for their extended cold, grey winters than for sunshine) can offset more of their energy (and thus their bill) than they could in Phoenix, a location with some of the best solar resource in the United States.
Solar PV Today: Sharply Declining Hardware Costs
Most importantly for rooftop solar economics, however, has been how rapidly the cost of residential solar PV has declined. According to Tracking the Sun VII*, the most comprehensive and authoritative public report on solar pricing, the Lawrence Berkeley National Laboratory (LBNL) found that the median cost of residential solar has gone from approximately $12/Watt (W) in 1998 to about $4.70/W in 2013. These reductions have been driven by declines in the cost of manufacturing the “hardware” of a solar PV system.
Today, data from the online solar marketplace EnergySage reveals that the average cost of a 5 kW rooftop system (pre-incentives) in the third quarter of 2014 ranged from about $3.70/W to $4.24/W. When the declining cost of solar is coupled with the rising cost of grid electricity, the financial case for solar (given the strong odds of future rate increases) can be quite persuasive, particularly for locales with higher than average electricity rates, such as California and the Northeast.
As we will describe in greater detail later, our analysis already shows that the average levelized cost of energy (LCOE) for a fully financed solar system in the country’s largest cities ranges from only 3.1 cents/kWh to 14.4 cents/kWh. LCOE can be compared to a utility’s electric rates to see how the cost of generating power from a solar array compares to the cost of buying it from the utility.
The median cost of a solar PV system prior to incentives has declined from $12/W installed in 1998 to around $4.70/W installed in 2013, a 60%+ decline. By Q3 2014, the price had declined even further to between $3.70/W-$4.24/W before incentives.
Solar PV Today: Policy & Incentives…Net Metering…Value of Solar Tariffs…Renewable Portfolio Standards and Carve-Outs…Tax Incentives and Rebates…Available Incentives in America’s 50 Largest Cities…
The Value To Consumers: Rankings Methodology
Our rankings are based upon three major metrics, each weighted equally based on the following results for a 5 kW system in each city:
Average monthly first-year savings;
The net present value of investing in solar relative to a 25-year investment indexed to the S&P 500; and
The levelized cost of energy (LCOE), adjusted for inflation.
Below is a description of how the score for each metric was calculated.
Average Monthly First-Year Savings
Each city was assigned a number corresponding to their percentile. This gave each city a number between 0 and 100. This number was then multiplied by 10 to give each city a score between 0 and 10.
Net Present Value (NPV)
A score was given to each city for the NPV of a fully financed system (100% Finance) and of a system paid with cash upfront (0% Finance). As with monthly savings, each city was assigned a number corresponding to their percentile.
This number was then multiplied by 5 to give each city a score between 0 and 5 for both a 100% financed case and a cash upfront case.
Levelized Cost Of Energy (LCOE)
As with NPV, a score was given to each city for the LCOE of a fully financed system and of a system paid with cash upfront. Each city was first assigned a number corresponding to their percentile. One was then subtracted from this number in order to make it negative. This flipped the rankings in this category, as a lower value indicates a better value. This value was then multiplied by 5 to give each city a score between 0 and 5 for both the financed and cash cases.
Monthly Savings Score (0-10 points)
+ NPV 100% Financed Score (0-5 points)
+ NPV 0% Financed Score (0-5 points)
+ LCOE 100% Financed Score (0-5 points)
+ LCOE 0% Financed Score (0-5 points)
Total Score (0-30 Points)
The Value To Consumers: First-Year Monthly Savings
Monthly electric bill savings are calculated as the difference between an average customer’s bill with solar and what the same customer’s bill would have been without solar.
This calculation uses a 5 kW system, average energy usage data, and each utility’s standard residential rate schedule.
Cities seeing the greatest monthly savings are concentrated in California:
Oakland ($187), San Francisco ($187),
San Jose ($186), San Diego ($137), and
Long Beach ($131).
The utilities whose customers see the greatest monthly dollar savings are Pacific Gas & Electric, San Diego Gas & Electric, Southern California Edison, Arizona Public Service, and NSTAR, which serves Boston and some adjacent areas.
The Value To Consumers: Better Than Stocks?...The Value To Consumers: Levelized Cost (LCOE)…The Value To Consumers: Retail Or “Grid” Parity…Solar Pv Today: “Soft” Costs’ Persistence…
Looking Ahead: The Path To Adoption & Affordability
Within two years, residential rooftop solar PV technology is likely to continue to grow at a rapid pace. Nevertheless, this growth will likely face a series of policy and market challenges.
These challenges include (but are not limited to):
The expiration (under current law) of the 30% federal investment tax credit (ITC) by the end of 2016, and the market disruption that could occur as that deadline approaches;
The continuing reduction and/or elimination of state, local, and utility incentives as costs continue to decline;
An increased clip of legislative and regulatory debates related to the costs and benefits of net metering policies; and
The continuation of a series of contentious international trade disputes that could impact the cost of solar PV hardware.
However, with targeted actions to reduce soft costs, local governments can help to make costs can come down even further and allow an even greater portion of the American public to choose solar energy if they so desire…