Is rooftop solar in the U.S. getting more support than it deserves? One main argument from its advocates is that it will cut grid transmission and distribution costs that total hundreds of millions. Severin Borenstein at the Energy Institute at Haas crunches some numbers to try to uncover the true “avoided costs”. He shows that any savings won’t come even close to making up for the higher cost of rooftop electricity. It’s no match for the grid’s sheer economies of scale. The other arguments are about grid resilience (multiple generation and storage points), land scarcity (no room nearby for a power plant), and engineering obstacles to transmission lines. But that would make rooftop solar the exception, never the rule. Borenstein ends by warning against celebrating the growth of rooftop solar everywhere, which wastes money, rather than where it’s really needed.
California and other locations are moving to renewable energy at high speed. But even in these forward-leaning areas, there is still an active debate about which renewables and where. Part of that debate centres on the role of distributed generation (DG), which almost exclusively means rooftop solar. (Batteries are storage, not generation, but I will get to them shortly.)
The benefits and costs of DG continue to be debated, a topic I have written about a number of times. (If you are suffering from insomnia, try my blogs from 2013, 2015, 2015 again, 2016, and 2016 again.) Per kilowatt-hour (kWh), rooftop solar costs more than power generated from large-scale solar farms, but advocates argue there are advantages that such a simple comparison misses.
What are the true “avoided costs” of Rooftop Solar?
Among the first they mention is the savings in transmission and distribution costs that result from generating electricity at the location where it is used, a topic that Lucas dug into in June 2018. Lucas discussed some research that looks at specific circuits of a specific utility and studies what the savings might be. That research found that the grid benefits were substantial in a few locations, but were quite small for the grid overall.
Today I want to take a macro approach, looking at just how much the savings could be for the entire grid.
No point factoring in costs already incurred
To begin with, building a grid is very expensive. The US has spent trillions of dollars on its own grid. But those are sunk costs; nothing we do now will recover any of that money. So, those costs are not relevant when asking whether to build additional distributed versus grid-scale renewables going forward. Similarly, the country has sunk billions into rooftop solar that’s already installed, including some very expensive projects during the technology’s nascent stage, which is also irrelevant for policy going forward.
The critical question now is: how much of the expenditures that the country is likely to make on the grid in the future could be avoided by installing more distributed solar in the future?
All costs look big over 25 years!
One guide that I have heard referenced by two different leaders in the rooftop solar industry is the estimate that the US will have to spend $1.1 trillion over the next 25 years to maintain, expand, and modernise its grid. The source is this 2015 DOE report (page 3).
That’s a daunting number, but 25 years is also a long time, and a lot of electricity. (National expenditures on many things are impressive over 25 years: if current trends hold, it looks like the US will spend about $0.9 trillion on cheese in the next 25 years.)
Even Rooftop Solar households will need grid connectivity
Let’s assume that the $1.1 trillion number, adjusted for inflation, applies today for the next 25 years. Next, let’s ask how much of that grid investment could be avoided if we were to install enough additional rooftop solar over the next couple decades to provide 10% of the kWh that otherwise would have been produced by grid generation. A very generous estimate is 10%. That would mean that moving a given additional proportion of total generation to rooftops would reduce the needed grid investment going forward by the same proportion. There are two fundamental reasons the savings would likely be much smaller:
- The grid exhibits significant economies of scale. If every customer were to consume twice as much electricity, it would not require twice as much investment in the grid. Conversely, if every customer were to consume half as much – or if half of all customers were to drastically cut their consumption from the grid – it would not cut in half the level of investment we need going forward.
- Nearly all customers with rooftop solar, even if they generate as much as they consume, still use the grid extensively, and every second of the day. A residential system without batteries (still the vast majority of new systems) will export a large share of the power it generates into the grid when the solar panels are generating more than their consumption, and the household will import substantial quantities from the grid when they are consuming more than their panels are producing. That will be a smaller factor for solar with batteries, but it won’t go away. Once the batteries are charged, customers will again be exporting into the grid. And on long stretches of cloudy/rainy/smoky days, they will be depending on imports from the grid. In fact, while a solar customer with some batteries will surely do less electricity exchange with the grid, it is not at all clear that they would want to make do with any less service capacity on their wire.
The savings simply won’t be enough
So, an assumption that replacing X% of customer energy demand from the grid with distributed solar generation would reduce the need for grid investment by X% greatly overstates the true savings. But let’s go with it anyway for a minute. If that were true, how big would the savings be? The answer is 1.2 cents per grid-generated kWh that is displaced by rooftop solar.1 (Calculation details in that footnote.)
In other words, if rooftop solar PV otherwise had the same attributes as grid scale solar PV, but allowed grid investment to be reduced proportionally to its production, that would enhance its value by about 1.2¢/kWh. In reality, the number would be much smaller for the two reasons explained, almost certainly well under one cent per kWh.
To put this calculation in context, 2019 non-partisan estimates put the midpoint unsubsidised levelised cost for residential rooftop solar at 20¢/kWh, for commercial/industrial rooftop solar at 11¢/kWh, and for grid-scale solar at 4¢/kWh. That’s a big gap. Savings on transmission and distribution isn’t going to fill more than a tiny fraction of it.
It should be the exception, not the rule
Of course, savings on transmission and distribution aren’t the only consideration in comparing rooftop to grid-scale renewables. One that has grown in importance and attention since I last discussed the topic is resiliency, at least when the system includes batteries. Still, it is worth pointing out that, just as with a gasoline generator, the benefits of that resiliency flow primarily to the customer with the solar, which is not a compelling argument for preference in public policy.
None of this is to say that rooftop solar can’t ever be a winner for society. In some areas, grid scale renewables are not feasible due to a lack of land availability (an advantage of rooftop real estate) or barriers to building transmission or distribution. As a result, in specific locations, distributed generation can be more cost-effective.
We’re building it in the wrong places
But we aren’t building rooftop solar in the specific locations with those constraints! We are building them anywhere that any home or business owner benefits privately, even if grid scale renewables would be much more cost-effective for society.
Anyone who is paying attention understands that the planet is warming and we need to stop burning fossil fuels. But to do that in a politically sustainable and equitable way, we also need to find alternatives that are cost-effective for society as a whole. We got into this mess through individual choices that don’t account for the impact on others in society. I believe that we can only get out of it with solutions that do account for those impacts.
***
Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business and Faculty Director of the Energy Institute at Haas
This article is published with permission
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas
REFERENCES
1] I assume that there is no growth in demand over 25 years (which biases upward the savings per kWh), so I divide the $1.1 trillion investment by the 2015 consumption of 3.900 trillion kWh times 25, which yields $0.0113/kWh in 2015 dollars. Inflating that figure to 2020 dollars using the all-urban CPI gives $0.0123/kWh.
Peter Farley says
The whole basis for your argument is flawed because the costs of rooftop solar in the US is ridiculous. If Australia with its high labour costs and relatively small market can install rooftop solar for less than US$1/Watt why can’t you do it over there.
Average residential power costs in Australia are about US 20-24c /kWh of which about 30% is generation, therefore transmission distribution metering and retailing costs are 13-20 c and feed in tariffs are between US 6 and 9 c. Amortised over 10 years a 6.3 kW system is providing power for about US 12 c/kWh. i.e. even if power from a solar farm was free it would barely compete with rooftop solar because of all the costs between the customer and the solar farm
Geir Vollsaeter says
Spot on. longa haul power wastes electrons, increase grid costs. Roof top solar with local storage enhances security of supply. Govts and Utilities should always analyze and compare direct and indirect costs, LCOE etc and optimal use of each electron
BoumahdiKarim says
Residential PV costs in US are utterly ridiculous: US$ 6000 for a 2kW installation !! (source: https://news.energysage.com/how-much-does-the-average-solar-panel-installation-cost-in-the-u-s/). Here, in Morocco, a middle income country with a tiny market for rooftop PV, I can tell you that it won’t cost you more than $2500 for a similar installation. And before you ask, renewables do not receive any public subsidies or tax incentives.
Andrew DeWit says
Excellent argument. Its point is perhaps amplified by the need to maximize material-efficiency (kWg/kg) of critical materials used in solar. Those materials have a significant environmental footprint at the mining and processing end. Of course, the impacts are much less than fossil, but they are quite real to the indigenous and other voices concerned about the rich world’s green gold rush.
Peter Farley says
While the PV material itself is expensive, the BOS for a solar farm with racks, trackers transformers and transmission uses orders of magnitude more material than a rooftop solar system and the solar farm has about 10% losses to the customer, so I think you would have to work very hard to show that the material cost of tracking solar is less than that of a well designed rooftop solar system
Tim Beesley says
Severin Borenstein You say “We got into this mess through individual choices that don’t account for the impact on others in society.” Does this imply that leaving choice to the individual is a flawed methodology?
I’m not an engineer or a practitioner in any way in the field but am aware of the desirability of avoiding transmission losses in systems. I’m aware of huge increases in demand for power in major cities (due currently to population growth but also, coming down the line is the use of EV’s) that cannot easily be satisfied by installing new high tension power lines due to space constraints.
If leaving installation to the individual on his/her own property is a flawed and cost inefficient way to go about the task of installing domestic grid systems, surely the answer is to insist that all new build housing and commercial projects are built from scratch with low carbon heating systems and sufficient insulation + PV and battery storage. At the same time vehicle to grid reversible charging should also be installed to integrate the uptake of EV’s in the near future. And then for all existing buildings, empower local authorities to install all such upgrades that are needed. Done as a mass renovation, a local authority is likely to achieve economies of scale to rival grid scale installations, saving money and time for home-owners. It seems to me that the only things missing are a leap of faith and some original thinking. The market will work against these economies being achieved as it seeks to maximise profit from a dis-empowered individual who lacks knowledge and bargaining power.
A corollary (from my own personal experience) to this was living in London under the flight path into Heathrow Airport, I was entitled to get special sound-proofed double glazing installed by the airport. The cost to me was around a half of what I expected to have to pay. But this was because it was the airport that had the ‘muscle’ to go to a well-known market leading contractor and negotiate the prices to cover a large part of west London, not me
Benn Gray says
there is a technological issue in this; in the Economist they talk about different solar technologies and the capacity of lithium batteries to store energy on cloudy days adn also, in residential settings…do you need a grid for rooftop solar or can individual units sell their power to the grid in turn, using solar power? It’s something to think about: “Without a home battery, excess solar energy is often sold to the power company and purchased back in the evening at a higher price,” Musk argues “The mismatch adds demand on power plants and increases carbon emissions.” Why don’t you guys push green incentives and let fossil fuels contract…they have had the benefit of the doubt for 100 years or more and in that time, look at what has happened. Renewable energy should enjoy the same lack of regulatory friction (from good sense, not a powerful lobby like the Koch Brothers can fund) and be offered as an incentive to people as a form of economic stimulus…make it worth people’s while to sell power to the utility and help them keep their homes…if people have green homes, their mortgage terms could be lenient as opposed to higher-footprint dwellings?