THE ECONOMICS OF SOLAR HOMES IN CALIFORNIA€¦ · Los Angeles, CA 90010 Environment California Research and Policy Center is a 501 (c) (3) ... term for installing solar photovoltaic

Written by:

Bernadette Del ChiaroTony Dutzik

Jasmine Vasavada

ENVIRONMENT CALIFORNIA RESEARCH AND POLICY CENTER

December 2004

THE ECONOMICS OF

SOLAR HOMES IN CALIFORNIA

How Residential Photovoltaic Incentives CanPay Off for Homeowners and the Public

2 The Economics of Solar Homes in California

ACKNOWLEDGMENTS

The Environment California Research and Policy Center thanks Thomas Hoff ofClean Power Research for guidance in using the Clean Power Estimator and LyleRawlings of the Mid-Atlantic Solar Energy Industry Association for insight in devel-oping the project. The authors also thank Craig Stevens of Solarbuzz, Barry Cinna-mon of Akeena Solar, Julie Blunden of Kema-Xenergy, Daniel Pellegrini of CommunityCooperative Energy, and Howard Wenger of PowerLight for providing editorial re-view.

Environment California sincerely thanks the Arntz Family Foundation, the EnergyFoundation, the Richard and Rhoda Goldman Fund and the David B. Gold Founda-tion, whose financial support made this report possible.

The authors alone bear responsibility for any factual errors. The views expressed inthis report are those of the authors and do not necessarily represent the views of ourfunders or those who provided editorial review.

©2004 Environment California Research and Policy Center

For a copy of this report, see our Web site, www.environmentcalifornia.org, or send$10 to:

Environment California Research and Policy Center3435 Wilshire Blvd, Suite 385Los Angeles, CA 90010

Environment California Research and Policy Center is a 501 (c) (3) organization thatoffers an independent, articulate voice on behalf of the public interest in California.Drawing upon 30 years of experience, our professional staff combines independentresearch and practical ideas to uncover environmental problems, develop pragmaticpolicy solutions and engage citizens in our work for meaningful results.

For more information about Environment California and Environment CaliforniaResearch and Policy Center, please call (213) 251-3688 or visit our Web site atwww.environmentcalifornia.org.

Environment California Research and Policy Center 3

EXECUTIVE SUMMARY ........................................................................... 4

INTRODUCTION ...................................................................................... 6

SOLAR POWER IN CALIFORNIA: AN ABUNDANT RESOURCE .......... 7

California’s Solar Resource ............................................................... 7

Untapped Potential ........................................................................... 8

Building Solar Panels into New Homes ............................................. 8

SOCIETAL BENEFITS FROM SOLAR HOMES......................................... 9

Reduced Electric System Costs and Price Volatility ........................... 9

Reduced Air Pollution ..................................................................... 12

Local Economic Benefits ................................................................. 13

Energy Independence ...................................................................... 13

CONSUMER BENEFITS AND COSTS OF SOLAR HOMES ................... 14

Assumptions to the Analysis ........................................................... 14

Costs and Benefits to Consumers .................................................... 17

Other Important Influences on the Economics of Solar Investments .... 19

CONCLUSION ......................................................................................... 23

METHODOLOGY.................................................................................... 24

NOTES ....................................................................................................... 26

TABLE OF CONTENTS


Developing clean, abundant so-lar power resources in Califor-nia can benefit all those who

live and work in the state – reducing airpollution, protecting consumers fromvolatile electricity prices, and reducingthe need for expensive upgrades to elec-tric transmission and distribution sys-tems. By providing incentives in the nearterm for installing solar photovoltaicsystems on residences, the state can reapthese public benefits while helping thebottom line of solar homeowners.

Including solar photovoltaic (PV) sys-tems in new housing in California canresult in significant public benefits.

Societal benefits of solar power devel-opment – in the form of reduced elec-tric system costs, mitigation againstprice volatility, environmental benefitsand encouragement of new business op-portunities – rarely are assigned an eco-nomic value. Nevertheless, studiessuggest that the value of this power toCalifornians is significant:

• Reduced electric system costs: Tomeet rising demand for electricity inCalifornia, utilities (and in turn,ratepayers) will either need to investin expensive transmission upgrades,improve energy efficiency, or developlocal resources. Solar PV deliverspower during peak demand timeswhen it is most needed. Studies haveshown that it is cost effective for utili-ties to invest as much as $2,200 to$4,500 for every kilowatt of solarpower developed in lieu of other capi-tal investments.

• Mitigation against price volatility:California now depends on natural

gas to supply nearly half of the state’selectricity needs. This dependence onnatural gas leaves Californians vul-nerable to volatile prices and steadilyincreasing fuel costs – natural gasprices have doubled between 1995and the present. Increased use of so-lar PV can reduce future demand fornatural gas and provide a hedgeagainst future price fluctuations.

• Environmental benefits: PV systemsreduce air pollution emissions thatresult from fossil fuel power genera-tion – particularly global warminggases (carbon dioxide) and smog-forming emissions (nitrogen oxides).A study conducted for the Sacra-mento Municipal Utility Districtfound the benefits of averting theseemissions could range from $38 to$1,048 per kilowatt of capacity.

Installing solar PV systems on newhousing has the potential to maximizethese benefits by reducing the costs ofsolar PV installations. Builders of newhomes are often able to achieve bulkdiscounts for PV module purchaseswhile saving on installation costs.

A buy-down grant of $2,800 per kilo-watt of installed solar capacity in 2006would enable solar PV to generate eco-nomic benefits for many buyers of newhomes in California while compensat-ing homebuyers for the societal benefitsresulting from their decision.

Based on outputs from an economicmodel developed for the National Re-newable Energy Laboratory, the instal-lation of a 2.5 kW DC (2.14 kW AC)solar PV system priced at $6.00 per Wattcan be expected to generate net eco-

EXECUTIVE SUMMARY


nomic benefits for new homebuyers innine of California’s fastest-growingmunicipalities with a buydown grant of$2,800 per kW (AC). (See Table ES-1.)

• On average, residents of one of thenine communities listed above couldexpect to save $4,500 over the life-time of their solar investment, withsavings of $68 in the first year (if thesystem is financed as part of a 30-year mortgage). The net present valueof that investment (which measuresthe benefits of the project versus thecosts, both discounted back to thepresent) would average approxi-mately $1,500.

• The amount of benefits a homeownercan expect from solar PV varies from

Net Monthly NetMonthly Electric Loan Payment Year 1 Cumulative Cash Present

Bill Savings (after tax, year 1) Savings Flow (30 yrs.) Value

San Jose $57 $44 $152 $7,662 $2,722

Bakersfield $53 $44 $100 $5,718 $1,989

San Diego $54 $44 $122 $6,534 $2,296

Murrieta $47 $44 $32 $3,144 $1,018

Fontana $46 $44 $20 $2,702 $851

Rancho Cucamonga $46 $44 $20 $2,702 $851

Irvine $49 $44 $58 $4,116 $1,384

Long Beach $49 $44 $58 $4,116 $1,384

Chula Vista $49 $44 $52 $3,910 $1,307

place to place based on several fac-tors – most importantly, the price ofelectricity. In cities such as San Jose,where utility rate structures are fa-vorable to PV, solar PV could poten-tially be cost effective with incentivesas low as $1,300 per kW, assumingsavings from installing the systemsduring home construction.

These results – coupled with publishedestimates of the societal benefits of so-lar power – suggest that an aggressivestate solar PV buydown programcoupled with other incentives and stan-dards for the inclusion of solar powerin new homes, could benefit residentialhomebuyers, utility ratepayers and thestate as a whole.

Table ES-1. Economic Benefits of 2.5 kW DC Solar PV System on a New HomeWith $2,800/kW Buydown Grant


INTRODUCTION

California has much to gain fromdeveloping its solar power re-sources. Solar photovoltaic

(PV) systems reliably harness free energyfrom the sun. They generate electricitywhen California needs it most – duringpeak demand times such as the hot,sunny summer days when air condition-ers are running and the power grid isbeing stretched to its capacity. Moreover,solar PV systems create electricity with-out creating health-threatening smogpollution or global warming pollutionassociated with conventional fossil fuelpower production.

In addition, solar PV is rapidly becom-ing a commercially self-sustaining indus-try. In fact, if California positions itselfas a leader in solar manufacturing overthe next few years, it is likely to realizesignificant revenues from exporting so-lar technology throughout the UnitedStates and the world. Developing statesolar resources leads to direct benefitsto the local economy, particularly whenmanufacturing, distribution, and instal-lation are all local. In contrast, depen-dence on fossil fuels such as natural gas,coal, and oil results in large sums ofmoney leaving the state.

As Californians, we all benefit fromincreased reliability, protection from fuelprice volatility, a cleaner environmentand a more vigorous local energyeconomy when a significant portion ofthe electric grid is supplied by “home-grown” solar power. But solar powerfaces a number of hurdles that have pre-vented it from becoming more wide-spread. Homeowners considering“going solar” often contend with high

upfront costs, information barriers, anddifficult interactions with utilities thatdeter many consumers from going for-ward.

Incorporating solar PV into newhomes can alleviate many of these bar-riers by allowing builders to integratesolar into their building designs fromthe very start. But would an individualsolar homebuyer benefit economicallyfrom the installation of solar panels ona new home without government sup-port, or must a person purchasing a so-lar home simply subsidize the benefitsfor the rest of us?

The answer depends on a number offactors explored in this document: thecost of solar photovoltaic cells, the fu-ture costs of electricity, the amount ofsolar power that can be generated in agiven location and the financing optionsavailable. It also depends on the gov-ernment incentives that are available tohelp defray the initial capital investmentinvolved with incorporating solar pan-els into a home – incentives that recog-nize the public benefits resulting froman individual’s solar investment and helpaccelerate the point in time when a newindustry with new jobs will generate taxrevenues for the state.

Given realistic assumptions aboutmost new homes that will be built inCalifornia over the decades to come,however, the answer is simple: Califor-nia can develop tools to ensure that so-lar homebuyers in the Golden Statecontribute renewable energy to the ben-efit of all, without making a personalfinancial sacrifice.


Each day, the sun provides enoughenergy to meet the world’s energyneeds thousands of times over. In

contrast, other energy sources are be-coming increasingly scarce. While gov-ernments and energy companiescontinue to seek out the remaining re-serves of fossil fuels, attention is increas-ingly turning to developing cost-effectivetechnologies for harnessing the energyof the sun.

California’s SolarResource

California is blessed by an abundantsolar resource – nearly the entire statereceives an average of more than 5 kilo-watt-hours (kWh) of solar energy persquare meter per day. Much of the statereceives 5.5 to 6.5 kWh of solar energy

SOLAR POWER IN CALIFORNIA: AN ABUNDANT RESOURCE

daily.1 The average California householdconsumes an average of about 16 kWhof electricity per day, meaning that thesolar energy reaching a four squaremeter (about 43 square foot) plot couldtheoretically generate more than enoughenergy to supply the home, if the en-ergy could be captured and used withno loss of energy and then be stored andused when needed.2

Unfortunately, electricity generatedfrom solar PV typically cannot be cost-effectively stored. (Battery storage is avail-able, usually at significant cost. However,future developments in hydrogen and fuelcell technologies hold the potential even-tually to solve the storage dilemma.) Inaddition, solar PV systems do not gener-ate electricity during the evening whenresidential customers are likely to need itfor lighting, heating or cooling.

Figure 1. Annual Average Solar Radiation per SquareMeter per Day3


However, solar panels do generateelectricity when it is in greatest demandin California in the aggregate – duringthe daytime and particularly during hot,sunny weather in which air condition-ing demand is great.

Because of these factors, the most ef-ficient setup for most owners of solarphotovoltaic (PV) systems is to remainconnected to the electric grid – drawingpower from the grid when needed andsupplying power to the grid when theyare generating more than they can use.Net metering, in which power flowinginto and out of the house is monitored,allows consumers to be compensated forthe extra power they supply to the grid.Net metering policies can have a largeimpact on the degree to which solar PVis cost-competitive for individual con-sumers.

Not all homes, new or existing, areequally able to take advantage ofCalifornia’s solar resource. For solarhomes to operate most effectively, thesolar PV system needs to be in the sun-light for most or all of the day. Sincethe sun is always in the southern half ofthe sky in California, south-facing roofsare generally preferable, though east orwest-facing roofs may also work. SolarPV panels can also lie flat on a roof,but are optimized if they are tilted at anangle toward the south, increasing theamount of time that the full panel isexposed to the sun’s rays.

Untapped Potential

Despite California’s extraordinarypotential to generate electricity from thesun, the state’s abundant solar resourceremains largely untapped. California isby far the national leader in solar elec-tricity, generating 542 million kilowatt-hours (kWh) of electricity in 2001 –although this figure includes power gen-erated from large-scale utility solar ther-

mal installations, not just PV.4 Solarpower, however, contributes only asmall portion of the electricity consumedin California’s homes, businesses andfactories – approximately 0.2 percent.5

While government has made some ef-forts to promote the use of solar PV, anumber of hurdles remain. The up-frontcost of solar PV, limits to net metering,problems with utility interconnectionand rate policies, poor building design,and lack of knowledge about solar allcontribute to the small role solar energyhas played in California’s energy sup-ply to date.

Building Solar Panelsinto New Homes

Integrating solar PV systems into newhome construction is an effective wayto surmount many of the hurdles togreater PV penetration.

• First, by including PV in initial plans,builders can choose home and sitelayouts that can take maximum ad-vantage of the solar resource – forexample, by preserving southern ex-posure or by integrating PV into plansfor high energy efficiency homes.

• Second, including PV in initial plansmay reduce the cost of the system ina variety of ways. For example, build-ers may gain experience with PV in-stallations and/or be able to achievediscounts on bulk orders of PV sys-tems, while the building’s electricalsystems can be specifically designedto take advantage of PV.

Policies that encourage the develop-ment of “solar homes” have the capac-ity to ease the way for California to takebetter advantage of its solar resource,while reducing the costs of dependenceon fossil fuels and nuclear power.


The installation of solar panels onhomes in California has benefitsfor a broad range of California

residents. Solar homes can reduce thecost of generating and delivering elec-tricity, protect consumers from pricevolatility, reduce air pollution and en-hance California’s energy security andindependence.

Reduced ElectricSystem Costs and PriceVolatility

Every solar panel installed on a roof-top in California provides economicbenefits for all consumers of electricityby reducing the overall cost of produc-ing and delivering electricity. Solar PVcontributes to electricity cost savings byreducing the need for additional re-sources, such as upgrades to transmis-sion lines or new power plants, torespond to peak demand, providingpower locally, and reducing consumers’exposure to volatile fossil fuel prices.

Smoothing System “Peaks”

The electric system must be designedto accommodate peak demand for elec-tricity – even if such peak conditionsoccur for only a few hours each year.Smoothing the peaks in electricity con-sumption, therefore, can reduce thecosts of operating the electric system,even if the overall amount of electricityconsumed does not change.

Solar photovoltaics are perfectly situ-ated to smooth peak demand. Solar PVgenerates power at times when poweris needed most, such as when air condi-tioning is in heavy use. As a result it candisplace the need for expensive (and

often inefficient) peaking generationresources. It can also reduce the needfor investments in transmission and dis-tribution facilities needed to serve peakdemand.

This is particularly true in California.Researchers with the National Renew-able Energy Laboratory have matchedthe availability of the solar resourcenationwide with utility load patterns.The study found that, in most of Cali-fornia, the effective load-carrying capac-ity (ELCC) of solar power – whichmeasures the ability of solar to contrib-ute to a utility’s capacity at times whenit is most needed – is very high, mean-ing that solar power can effectively re-duce the amount of generating capacityutilities must keep on hand to respondto peak conditions. (See Figure 2.)

SOCIETAL BENEFITS FROM SOLAR HOMES

Figure 2. PV Effective Load-Carrying Capacity6


Smoothing system peaks also reducesthe opportunities for individuals orgroups to manipulate power markets togenerate excessive profits. Such oppor-tunities multiply when the power sys-tem is near its capacity. Under thoseconditions, individual generators candemand – and receive – extremely highprices for power. The California energycrisis of 2000-01 was just such an ex-ample, with energy companies takingadvantage of artificial conditions ofscarcity (caused by the unplanned shut-down of power plants) to demand un-reasonable prices for power. The energycrisis is estimated to have cost Califor-nia consumers $40 billion.7 Avoidinganother such crisis, by reducing demandfor scarce power under peak conditions,should be a top priority.

Generating Power Locally

Solar PV panels generate power at, orclose to, the point of use – reducing theneed for an elaborate and costly elec-tric infrastructure to deliver power fromfar-away central station power plants.

The electric industry and governmentofficials in the West and nationwide areconsidering massive investments to im-prove the transmission grid to accom-modate the greater long-distancetransfers of power set loose by the re-structuring of the electric industry. Na-tionally, the cost of these investmentshas been estimated at approximately$50 billion, much of which would bepaid for by electric ratepayers.8 A 2003study by regional transmission organi-zations in the West estimated the costof transmission investments in the re-gion at $2.6 billion to $16.7 billion overthe next decade.9

Generating power locally also im-proves energy efficiency. A significantamount of electricity – up to 7 percent– is “lost” in the transmission and dis-

tribution of power from central-stationpower plants to homes.10 Solar PV andother forms of local distributed genera-tion avoid these losses, thus improvingthe efficiency of the entire system.

Protecting Against PriceVolatility

Volatility in electricity prices has sig-nificant economic consequences. Com-panies or individuals facing unpre-dictable energy costs must keep extracash on hand, or restrict spending inother areas, in order to ensure that theyare able to pay their energy bills.

As mentioned above, solar PV insu-lates California consumers against pricevolatility in part by reducing peak de-mand. PV also can protect consumersby reducing the demand for highly vola-tile natural gas.

California’s electric system has be-come heavily reliant on natural gas, thebulk of which is imported from out ofstate, for both baseload and peak de-mand. Over the past decade, California’sdemand for natural gas to generate elec-tricity has increased significantly. In1993, natural gas-fired generation pro-vided 43 percent of the power generatedin California; by 2002, it provided 48percent.11 Natural gas prices have beenextremely volatile in recent years, hav-ing doubled between 1995 and thepresent.12 The U.S. Department of En-ergy projects that prices will remain highat least through the end of 2005. (SeeFigure 3, next page.) By reducing de-mand for power, solar PV can reducedemand for volatile natural gas, thusreducing California consumers’ expo-sure to price volatility.

Historically, the value of solar powerhas been underestimated, since pricepredictions rarely consider the possibil-ity of short-term spikes in electricityprices. For example, the actual value of


solar power generation in the Sacra-mento Municipal Utility District in onemonth during the energy crisis (May2001) exceeded the predicted value ofthat solar generating capacity for thewhole year.14

Quantifying Electric SystemBenefits

Investments in solar PV, therefore,provide direct cost savings and otherbenefits to utilities and, by extension,consumers. An exhaustive survey of re-search quantifying these benefits is be-yond the scope of this report, but a fewexamples are illustrative of the degreeof savings that can be achieved.

One recent study estimated the poten-tial savings to four different utilitiesacross the nation from PV installations.The study found that the value to utili-ties ranged from $2,200 to $4,500 per

kilowatt, meaning that the utility couldinvest that amount in PV at no gain orloss compared to capital investments inthe grid.15

A 2002 study conducted for the Sac-ramento Municipal Utility District(SMUD) estimated that direct, electricsystem-related benefits of PV installa-tions could range from about $1,300 to$1,600 per kilowatt. The study alsonoted that, because of the high densityof energy consumption and relativelylow level of transmission and distribu-tion infrastructure required in SMUD,other utilities could experience greatersavings in these areas.16

An analysis of Mid-Atlantic electric-ity markets estimated that load reduc-tion (including self-generation throughsolar PV) has a value to society of morethan twice the market price of powerduring most hours of the year and threeto eight times the market price of power

Figure 3. U.S. Natural Gas Spot Prices (Base Case and 95Percent Confidence Interval)13


during the 10 percent of hours closestto peak consumption.17 In the case ofone PV installation in the Philadelphiaarea in 2000, the study estimated itsvalue at approximately 10 cents/kWh –well above the cost of baseload genera-tion and enough to provide economicjustification for significant subsidies tosolar power.

Finally, a study by the Rocky Moun-tain Institute estimated the economicvalue of another form of distributedgeneration technology: fuel cells. RMIestimated that the use of distributed fuelcells could reduce system costs by $150to $575 per kilowatt of capacity peryear.18 (See Table 1.) The operationalcharacteristics of solar PV are signifi-cantly different from those of fuel cells,but should PV provide even a fractionof the avoided costs, the benefits to con-sumers would be significant.

While not a complete look at the lit-erature, these studies suggest that thetangible economic benefits of solar PVto electricity customers are significant.Utility rate structures and governmentpolicies should not hesitate to compen-

sate consumers that install PV for a por-tion of the benefits they bring to all con-sumers.

Reduced Air Pollution

Solar power eliminates air pollutionthat threatens public health and the en-vironment, here in California and glo-bally, by offsetting the burning of fossilfuels.

Each kW of solar power that replacesfossil fuel power in San Diego, for ex-ample, is estimated to avert a ton ofcarbon dioxide emissions.20 Expertsanticipate that emissions of greenhousegases (such as carbon dioxide) must becurbed significantly for efforts to stopglobal warming to be successful. In ad-dition, solar power reduces emissions ofsmog-forming nitrogen oxides and otherhealth-threatening pollutants.

Reducing air pollution can have eco-nomic benefits as well, particularly iftighter limits on nitrogen oxide emis-sions are imposed or if the state is even-tually required to reduce carbon dioxideemissions to limit its contribution to glo-

Table 1. System Benefits of Distributed Fuel Cells19

Estimated ValueItem Description ($/kW-year)

Option Value Value of the option of rapidly building $50-200small amounts of electric generating capacity.

Deferral Value Value of deferring infrastructure investmentssuch as transmission and distribution upgrades. $50-200

Engineering Cost Savings Value of reducing operations and maintenance $50-175costs of transmission and distribution system.Includes reduced losses, voltage support,balancing reactive power, extending equipment life.


bal warming. By avoiding the need foradditional pollution controls on fossilfuel power plants – or the need to ob-tain carbon dioxide reductions else-where in the economy – solar PV canreduce the cost of complying with theselimits. In addition, reducing pollutionfrom the generation of electricity alsoreduces public health costs attributableto the treatment of air pollution-relatedillnesses such as asthma. The study con-ducted for SMUD estimated the envi-ronmental benefits of solar at $38 to$1,048 per kilowatt of capacity.21

Local EconomicBenefits

California is a net importer of naturalgas, meaning that much of the moneyspent in California for gas winds upoutside the state. On the contrary, in-vestments in solar PV create jobs andretain wealth in California. Solar PVcreates approximately two to three timesas many construction jobs per megawattof developed capacity as natural gas.22

There are approximately 500 solar PV-related companies in California, includ-ing 70 manufacturers of solar panels and

modules.23 Investing in solar PV willcreate a market for these home-grownbusinesses, as well as the assorted otherbusinesses that install and maintain so-lar panels.

Energy Independence

Solar power also contributes toCalifornia’s – and the nation’s – energyindependence, reducing consumers’ ex-posure to events overseas. While thenatural gas currently used to fire muchof California’s electric generating capac-ity generally comes from NorthAmerica, increasing strain in domesticsupplies has led some, including FederalReserve Board Chairman AlanGreenspan, to call for increased importsof liquefied natural gas (LNG) fromoverseas.24 These imports may open upa new source of supply to meet grow-ing demand from electric generators andother sources, but new LNG facilitieswill be expensive to construct and LNGimports may lead the United States togreater dependence on other nations assuppliers of natural gas, replicatingmany the problems caused by thenation’s dependence on foreign oil.


The benefits of solar to society aresignificant, and argue for gov-ernment intervention to ensure

that solar PV purchasers are compen-sated for those benefits. But what aboutthe direct costs and benefits to consum-ers? Will the installation of solar panelson the average new home result in a netbenefit or cost to individual consumers?

The answer depends on the assump-tions one makes about the cost of thesolar PV system, the future of electric-ity prices, the availability of governmentincentives, future trends in inflation andinterest rates, and numerous other fac-tors. To estimate the costs and/or ben-efits of installing a solar system, we usedthe online “Clean Power Estimator” de-veloped for the National RenewableEnergy Laboratory (NREL). The modelincludes assumptions as to the efficiencyof solar panels in various locations, theavailability of net metering programsunder various utility rate structures andother factors in the economics of solarpower.

Assumptions to theAnalysis

Key assumptions included:• Size of the system: We assumed that

the solar systems to be installedwould be 2.5 kilowatts DC, 2.14 kWAC. (Direct current – or “DC” power– is produced by solar panels. Thecurrent must then be converted to thealternating current – “AC” – that iscommonly used in homes.)

• Electricity costs: We assumed thatelectricity costs would escalate at anannual rate of 1.5 percent.

• Mortgage interest rates: We assumedan average mortgage rate of 7.25 per-

cent, based on the average 30-yearmortgage rate over the past decade,per the Federal Home Loan MortgageCorporation.25

• Annual electricity consumption: Weassumed that the average new homewill consume an average of 730 kWhof electricity per month, based onprojections provided by the Califor-nia Energy Commission.26

• Cost per kW: We assumed that in2006 the average cost of a PV systemper kW will be $5,500, and includeda 9 percent builder markup, increas-ing this to $6,000. (For more detailon this assumption, see next section.)

• Electricity costs: Electricity costs in2006 were based on projections ofrates at the state’s three main inves-tor-owned utilities made by the Cali-fornia Energy Commission,multiplied by estimated monthly con-sumption as described above, thenrounded up to the next incrementavailable in the Clean Power Estima-tor.27 Based on the consumption es-timates above, these rates translate toan annual $1,200 electric bill for cus-tomers of San Diego Gas and Elec-tric, $1,050 for customers ofSouthern California Edison and$1,000 for customers of Pacific Gasand Electric.

Other inputs for the model werehousehold income (assumed to be$110,000), tax filing method (married,filing jointly), and the slope and direc-tion of the PV system (30 degrees, south-facing).28

Further discussion of the assumptionsof this analysis can be found in the “As-sumptions and Methodology” sectionat the conclusion of the report. Two as-sumptions, however, have such a strong

CONSUMER BENEFITS AND COSTS OF SOLAR HOMES


influence on the economics of solarpower that they deserve discussion atlength here: the cost of the solar PV sys-tems themselves and the availability ofgovernment incentives.

Solar PV System Costs

Solar PV is at the cusp of becomingcost-competitive with fossil fuel powergeneration, and policies that promotelarge-scale manufacturing of PV cellsand associated system parts can helpachieve this target – it not a question ofif, but when. Solar energy prices havedeclined 4 percent annually over the past15 years. Over the same time period,global demand for solar PV has skyrock-eted – increasing by 25 percent annu-ally. The decline in prices is expected tocontinue into the future as a result ofincreasingly efficient solar modules,economies of scale as solar PV manu-facturing expands, and other techno-logical developments.29

Actual data for installed systems costsover the past two decades show a tra-jectory toward achieving $6/W prices by2006. (See Figure 4.) According to ana-

lysts in the solar industry, this price hasalready been achieved in Japan, where51,000 new homes have been built withsystems averaging $6 per Watt. Withvolume installation of solar systems inCalifornia in 2006, system prices couldbe expected to fall to $5.50 per Watt,before any markup in price is passed onto the consumer by the builder.30 Thecost would continue to decline in futureyears. As a result, the installed cost of$6 per Watt assumed in this analysis for2006 appears to be readily achievable.

The cost of a solar PV system can bebroken down into three areas: the costof the solar panels (or modules) them-selves, the cost of other components (in-verters, etc.), and installation costs.Currently, the average price of modulesis around $5 per peak Watt (Wp) DCwhen purchased in single units. How-ever, a number of solar modules areavailable for as low as $3.50/Wp indi-vidually, and can be purchased in verylarge volumes appropriate to the buildermarket for $3/Wp or less.32

The cost of other components andinstallation costs represent about 40 to50 percent of the cost of an installed

Figure 4. Trend in Price in Residential Grid-Connected PVSystems31 (1992-2003 actual, 2004-2008 projected)

0

2

4

6

8

10

12

14

1996 2001 2006 2011

(US

$ p

er W

)


solar PV system. (See Table 2.) This per-centage breakdown can be expected toshift over time as the costs of variousaspects of PV systems decline at differ-ent rates.

Estimating the future cost of solar PVsystems and installation is challenging.Over the past 20 years, the price of PVmodules, alone, has plummeted – fromover $20/Wp in the 1980s to as low as$3.50/Wp today.34 Should moduleprices decline at a rate of 5 percent peryear (assuming $3.50/Wp in 2004),module prices could reach just over$2.50/Wp by 2010. Industry manufac-turers have targeted a more aggressivegoal of achieving $1.50/Wp by 2010,without subsidies.35 Table 3 shows pro-jected prices per peak Watt for solarmodules through 2010.

Installation and component costscould also be expected to decline overtime as installers gain experience withinstalling PV systems and componentmanufacturers achieve greater econo-mies of scale.

Government Incentives

A variety of government programsexist that can subsidize the installationof solar PV systems. Tax credits for pur-chasers or manufacturers of PV systems,electric rate incentives and net metering,and “buy-down” programs (or grants)are among those possible incentives.Buy-down programs are among themost effective policies to promote solardevelopment and provide for straight-forward assessment of their impact onsolar purchases.

There are two possible ways to set theoptimal level of a buy-down grant. Thefirst is to establish the level of the grantthat is necessary to bring solar installa-tions to the “break even” point for theconsumer. An effective buy-down pro-gram must include at least this level ofsubsidy to encourage consumers to in-stall the system.

A second way to assess the optimallevel of a buy-down program is to con-sider and quantify the societal benefits

Table 2. Breakdown of Solar System Costs33

Table 3. Projected Cost of Solar Modules (per Wp)

Cost component % of Total

PV module 60%Balance of system (equipment only) 25%System design and installation 15%

If module price declines If industry Year by 5% annually goal is met

2005 $3.33 $2.962006 $3.16 $2.672007 $3.00 $2.382008 $2.85 $2.082009 $2.71 $1.792010 $2.57 $1.50


that would accrue from the installationof the system. As noted above, we havenot attempted definitively to quantifythe societal benefits of residential PVinstallations in California. However, theanalyses cited above suggest that soci-etal benefits – in the form of reducedelectric system costs, mitigation againstprice volatility, environmental benefitsand encouragement of new business op-portunities – could be as high as $4,000per kilowatt.

In this analysis, we used the firstmethod – attempting to estimate thelevel of buy-down grant that would as-sure net economic benefit for consum-ers installing solar panels in thescenarios modeled. We assumed no con-tinuation of the California Solar EnergySystem Tax Credit currently scheduledto sunset on January 1, 2006.36

The Influence of Location

Location has a significant influence onthe economic merits of solar PV. Thisinfluence manifests itself in two ways.First, the degree to which a Californiahome outfitted with PV can take advan-tage of solar energy depends partiallyon the availability of the solar resource.While California generally has access toa strong solar resource, the quality ofthe resource does vary from place toplace within the state. Fortunately, manyof the areas experiencing the most de-velopment are also the areas with thebest solar resources.

A second and more important influ-ence is the impact of varying electricityrates and utility rate structures acrossthe state. Consumers with higher elec-tric rates benefit more greatly from so-lar power because each kilowatt-hourof power that is generated from theirPV system is a kilowatt-hour that doesnot have to be purchased from a utility.

In addition, some California utilitiesallow consumers to choose time-of-usepricing (in which consumers are chargedlower rates during offpeak hours thanpeak hours) and/or have “tiered” ratestructures (in which consumers paylower rates below a certain level of us-age and substantially higher rates forevery unit of power consumed abovethat threshold). When combined withnet metering, these rate policies canmake solar PV more advantageous forcertain types of consumers – for ex-ample, those who consume little powerduring peak daytime periods or thosewho have high monthly electricity con-sumption and must thus purchase powerat higher rate tiers.

Costs and Benefits toConsumers

To estimate the economic impact ofsolar PV installation for new home buy-ers, we chose to analyze those communi-ties in which the most new homes arelikely to be built. We identified nine ofthe top 12 areas in the state with the high-est total population growth between 2003and 2004 for this analysis.37 (See Table4, next page.) Because we opted to focuson areas served by investor-owned utili-ties, the three cities on this list served bypublicly owned utilities (Los Angeles, Sac-ramento and Elk Grove) were excluded.

For each of the nine communitiesstudied, the financial characteristics ofthe solar PV investment were the same:the 2.5 kW DC (2.14 kW AC) systemwas estimated to cost $15,000, with abuy-down grant of $5,985 ($2,800/kWAC) reducing the net cost of the systemto $9,015. As noted above, it was as-sumed that the cost of the solar PV sys-tem was incorporated into the total costof the home, financed through a 30-yearmortgage.


The Clean Power Estimator, run withthe input assumptions described above,estimates that consumers in all ninecommunities would achieve a net eco-nomic benefit from their solar invest-ment (as shown in Table 5, next page).The average benefit in terms of cumu-lative cash flow (total number of dol-lars saved over the 30-year period) inthe nine communities is approximately$4,500. Using the concept of “netpresent value,” which compares the dis-counted benefits of a project over timewith its initial costs, the economic ben-efit over the period averages approxi-mately $1,500.

While a $2,800/kW incentive wouldbe sufficient to put buyers of new homesin the black for their solar PV invest-ment, it would not likely generate a sub-stantial windfall for consumers,especially if the cost of inverters (whichlikely would have to be replaced at leastonce during the lifetime of the PV sys-tem) does not decline significantly in thecoming years. The net discounted return

on investment on a solar PV system inthe nine communities after 30 yearsranges from 5 percent to 17 percent, lessthan could be recovered from a low-in-terest savings account. Nevertheless,these results suggest that, for consum-ers who want to power their homes withsolar, cost would not be a factor with a$2,800/kW incentive.

Other measures traditionally used toevaluate solar investments, such as“simple payback” (the time it takes foran investment to “pay for itself”) areless applicable for investments in solarin new homes, which are integrated intothe original construction. For the ninecommunities studied, simple paybacktimes varied from 10 to 12 years.

It is also important to remember thatthe benefits estimated by the CleanPower Estimator include only economicbenefits to the end user. As noted above,many Californians benefit whenever anindividual installs solar power on his orher home. Just because a $2,800/kW in-centive would be sufficient for consum-

Table 4. Top Ranking California Cities for Population Change: 2003 to 2004

1/2003 Total 1/2004 Total NumericRank City County Population Population Change

1 Los Angeles Los Angeles 3,859,400 3,912,200 52,8002 Elk Grove Sacramento 85,900 109,100 23,200

3 San Diego San Diego 1,281,400 1,294,000 12,6004 Bakersfield Kern 268,900 279,700 10,8005 Murrieta Riverside 68,200 77,700 9,500

6 Chula Vista San Diego 200,700 209,100 8,4007 Fontana San Bernardino 146,500 154,800 8,3008 Sacramento Sacramento 433,400 441,000 7,600

9 Rancho Cucamonga San Bernardino 147,400 154,800 7,40010 Irvine Orange 164,800 171,800 7,00011 Long Beach Los Angeles 480,400 487,100 6,700

12 San Jose Santa Clara 919,600 926,200 6,600


ers in these communities to “breakeven” does not mean that a larger in-centive (or other policy adjustments thatreallocate benefits to the solar homeowner) might not be justifiable on thebasis of the societal benefits of install-ing solar PV.

Assessing the Break-EvenPoint

If a $2,800/kW buy-down is likely,based on the assumptions made here,to yield a mild economic benefit for con-sumers, what is the minimum level ofbuy-down that will cause consumers to“break even”? In the two communitiesstudied that achieve the least economicbenefit from PV (Rancho Cucamongaand Fontana), the tipping point appearsto be at approximately $2,400/kW. Inother words, this is the point at whichconsumers in all nine communitieswould still break even on their solar in-vestment (excluding operation andmaintenance costs, see below). It thus

appears to be the minimum level of in-centive currently required to provideadequate support for solar installations.As solar prices decline, the break-evenpoint should decline as well.

Other ImportantInfluences on theEconomics of SolarInvestments

Future Electricity Rates

The future path of electricity rates isof critical importance for determiningthe financial viability of solar power.Unfortunately, it is very difficult to esti-mate what electricity prices are likely tobe in 30 years, making any assessmentof the economic benefits of a new solarPV system fundamentally uncertain.

The California Energy Commissionhas projected that rates at two of thestate’s three largest investor-owned utili-

Table 5. Estimated Economic Benefits of 2.5kW (DC) Solar System for Purchaserof New Home in 2006

Net Monthly NetMonthly Electric Loan Payment Year 1 Cumulative Cash Present

Bill Savings (after tax, year 1) Savings Flow (30 yrs.) Value

San Jose $57 $44 $152 $7,662 $2,722

Bakersfield $53 $44 $100 $5,718 $1,989

San Diego $54 $44 $122 $6,534 $2,296

Murrieta $47 $44 $32 $3,144 $1,018

Fontana $46 $44 $20 $2,702 $851

Rancho Cucamonga $46 $44 $20 $2,702 $851

Irvine $49 $44 $58 $4,116 $1,384

Long Beach $49 $44 $58 $4,116 $1,384

Chula Vista $49 $44 $52 $3,910 $1,307


ties are likely to remain roughly stableuntil 2013, resulting in a decrease inrates when inflation is taken into ac-count.38 (Rates for San Diego Gas andElectric customers are estimated to de-cline significantly over the period. SeeTable 6.) Longer-term trends, however,are more difficult to ascertain. The U.S.Energy Information Administration, inits Annual Energy Outlook 2004, esti-mates that real (inflation-adjusted) elec-tricity prices in the Pacific region (whichincludes California) will decline by anaverage of 0.8 percent annually between2006 and 2025.39 Assuming this sameannual rate of decrease, and combiningit with the average annual change in theconsumer price index in the UnitedStates over the past decade (2.46 per-cent between 1994 through 2003),yields an estimated annual increase inrates of 1.66 percent, which is roundeddown to the 1.5 percent used in thisanalysis.40

Making different assumptions about thefuture course of electric rates changes thefinancial picture for consumers dramati-cally. Were one to assume no change innominal electricity rates over the next 30years, consumers in only five of the ninecommunities would achieve a positive netpresent value for their investment. By con-trast, if rates are assumed to increase by2.5 percent per year – in other words,roughly in line with the average 2.46 per-cent increase in the consumer price indexover the last decade – consumers in thenine communities would see their cumu-lative cash flow increase from an averageof $4,500 to an average of $8,300, andthe average net present value of their in-vestment increases from $1,450 to$2,470. (See Table 7.) In addition, tem-porary spikes in electricity prices – drivenby volatility in prices of natural gas orother factors – could lead to significantshort-term benefits for consumers whoinstall solar.

Table 6. Projected Near-Term Electricity Rates at Three California IOUs41

Table 7. Average Value of Solar PV Systems Over 30 Years atVarious Rates of Electricity Cost Inflation42

Relative % of(Nominal cents, 2002) Projected Change New Homes

Annual Percent in Service Area

2006 2013PGE 11.2 11.2 0 49%

Edison 11.9 11.7 -0.2% 39%SDGE 13.3 11.9 -1.6% 11%

Annual Increase in Electricity Costs Cumulative Cash Flow Net Present Value

Annual Increasein Electricity Costs Cumulative Cash Flow Net Present Value

.0% $2 $3671.5% $4,512 $1,5342.5% $8,319 $2,472


System Lifetime

The above analysis assumes that so-lar PV systems and all their componentslast for the life of the loan used to fi-nance them: 30 years. For PV modules,this assumption appears warranted;most modules come with a 20-year war-ranty for power production and can beexpected to continue to produce powerreliably beyond the expiration of thewarranty.43 Warranties of 25 years forcrystalline silicon PV modules are notuncommon.44

The same long life-spans are notshared by all elements of the PV sys-tem. Inverters (which convert the directcurrent generated by PV modules intoalternating current used in households)have been plagued by short lifetimes andthe need for frequent replacement. Theindustry has set a short-term goal ofimproving the average lifespan of invert-ers to ten years or more.45 Lifespans ofat least 7 to 9 years appear reasonablefor the current generation of inverters,and recent advances in inverters and thearrival of new imports from Europe(where there is more experience withsmall solar systems) suggest that furtheradvances can be expected in the yearsto come.46 Even so, however, PV sys-tem owners can expect to replace theinverter at least once, and perhapstwice, during the 30-year lifespan oftheir system.

The Clean Power Estimator does notallow for factoring in the lifespan of in-dividual elements of the PV system. Be-cause of this – and the difficulty ofestimating the cost and lifespan of fu-ture inverters – the cost of inverter re-placement is not included in the abovecash flow estimates. To take the expenseof inverter replacement into account, thecumulative cash flow figures cited aboveshould be reduced by the cost of replac-ing an inverter somewhere around year

10 (acknowledging the potential for fur-ther improvement in reliability betweennow and 2016, the tenth year of a solarsystem installed in 2006).

Currently, inverter prices average$0.831 per continuous Watt – translat-ing to about $2,000 for an inverter serv-ing the 2.5 kW DC system modeledabove.47 By around 2016, when invert-ers would need to be replaced, inverterprices can be expected to have declinedsignificantly. A European study has es-timated that it is technically possible toreduce the cost of inverters by roughlyhalf.48 Should that cost-reduction tar-get be achieved by 2016, the cost of areplacement inverter would reduce cu-mulative cash flow for the consumer bysomewhat more than $1,000 in today’sdollars. The impact of inverter replace-ment expense could also be reduced iflifetimes are extended beyond 10-15years, if technological improvementsbring about a breakthrough in invertercosts, or if future inverters run at higherefficiency than today’s models.

Non-Quantifiable Benefits

In addition to the direct costs or sav-ings to consumers from the installationof PV systems, consumers also achieveeconomic benefits from their ability tohedge against future increases in elec-tricity prices and price volatility. A Cali-fornian who buys a solar home iseffectively able to lock in his or her ratesfor the long term – the energy gener-ated from the solar panel will not getmore expensive than the initial invest-ment. A rate spike such as that whichoccurred in San Diego at the outset ofthe energy crisis of 2000-2001, for ex-ample, would yield significant relativebenefits for PV owners in very shortorder. At a time of increased uncertaintyover the future of fossil fuel supplies, aswell as the competitiveness and effi-


ciency of the electric power system over-all, this protection against uncertaintywould likely have significant value forconsumers.

PVs also have other benefits that areharder to quantify, including reducedneed for operation and maintenanceexpenditures by the homeowner due tothe simplicity of the design of PV sys-tems.

Special FinancingOpportunities

Finally, PV homes may qualify forspecial financing available for energy-efficient and clean energy homes. Be-cause the upfront investment in a solarhome results in lower electricity billsdown the line, a number of lenders willgrant mortgages that take into accountthe positive cash flow that homeownerswill experience over the life of the sys-tem.49 Major lenders such as Fannie

Mae and Freddie Mac, as well as a hostof specialized firms, grant energy-effi-cient mortgages or clean energy mort-gages. If the solar PV investment isstructured (through buy-downs andother incentives) to result in consumersavings, banks may allow the home-owner to have a larger mortgage andmonthly mortgage payment than wouldnormally be allowed for his or her in-come level, increasing the size of mort-gages available to Californianspurchasing energy-efficient homes.

Most banks do not aggressively mar-ket clean energy mortgages, but they arepotentially significant tools available tohelp new homeowners maximize thevalue of their solar PV systems.A more in-depth discussion of solarfinancing options, “Residential SolarFinancing: Homeowners Save, BanksProfit,” can be found atwww.millionsolarroofs.com.50


The installation of solar PV innew California homes has thepotential to yield positive eco-

nomic benefits for consumers – if thesocietal benefits generated by PV arereflected fairly in utility rate structuresand in government policy.

In the near term, a modest buy-downgrant of $2,800 per kilowatt would ap-pear to make solar PV cost competitivefor homebuyers in most of California’sfastest-growing cities. It is likely that thesocietal benefits California would expe-rience in reduced electric system costs,reduced air pollution, greater energyindependence and stimulus to localeconomies would be well worth the costof such an investment.

However, additional barriers to theadoption of solar power mean that anaggressive buy-down program alonemay not be sufficient to spur widespreadinstallation. In particular, encouragingbuilders and utility companies to installPV on new homes could alleviate manyof the barriers – including informational

CONCLUSION

barriers, high up-front costs, utility in-terconnection issues and others – thatdeter consumers from having to installPV as a retrofit on an existing home.Encouraging the use of PV in new resi-dences could also bring down the costof PV by allowing builders to negotiatebulk discounts and gain experience inPV installations.

Similarly, our analysis shows the im-portant role played by utility rate struc-tures in determining the economiccompetitiveness of PV. Utilities shouldconsider the adoption of tiered ratestructures that increase the per-kilowatt-hour cost for heavy users and shouldoffer time-of-use pricing options thatreflect the true cost of delivered utilitypower and take full advantage of solarpower’s ability to add capacity to thesystem during peak demand conditions.And utilities should continue to offer netmetering programs that allow solarhome owners to receive credit on theirelectric bill for their excess energy gen-erated.


METHODOLOGY

To estimate the consumer valueof solar PV in residential homes,we used economic evaluation

software for customer-owned clean en-ergy systems developed by Clean PowerResearch for the National RenewableEnergy Labs, available at www.clean-p o w e r. c o m / n r e l p v / i n c e n t i v e s /incentives.asp. The model was run onNovember 17 and November 22, 2004.

The program takes into account thecharacteristics of the PV system beingpurchased, the customer’s location, theelectric rate structure in that location,and other information such as thecustomer’s income and how incentivesinteract with each other.

This model allows the user to modifyor create incentive structures to deter-mine how they affect the consumer eco-nomics of the system. We made twochanges to the incentives built into themodel. First, we eliminated a Califor-nia state tax incentive for solar powerscheduled to be phased out in 2006 (inthe model, titled “CA Tax Credit,Res.”). We also modified the “CEC PVbuydown” incentive, changing its valuein period zero, the first year analyzed,to $2,800 per kW.

Most of the assumptions input in themodel are discussed in the text of this

report (including the major assumptionsrelated to system cost, net metering, in-terest rate, electricity consumption andprices, household income, and futureelectricity cost trends). For each loca-tion, the user can choose from differentutility rate structures currently offeredby the utility. The table below lists therate structures chosen for each location.When available, we chose time-of-usepricing and net metering, which in gen-eral will lead to higher value for the so-lar power based on the averageconsumer’s load profile built into theclean energy model. When time-of-userates were not available, we opted forsimple net metered residential rates. Wedid not choose rates specially availablefor all-electric houses.

The Clean Power Estimator only al-lows for the evaluation of solar instal-lations in the current year. Because thisanalysis attempts to estimate the eco-nomics of solar installations in 2006,we provided inputs to the model thatapproximate anticipated conditions in2006. The discount rate used to calcu-late net present value is embedded in theClean Power Estimator and is based onthe 7.25 percent interest rate assumedin the modeling run.


Location Utility Rate Schedule

San Jose, Santa Clara Pacific Gas and Electric Company (PG&E), NetMetered Residential Time-of-Use (Rate E7 Area X)

Bakersfield, Kern Pacific Gas and Electric Company (PG&E), NetMetered Residential Time-of-Use (Rate E7 Area W)

San Diego San Diego Gas & Electric (SDG&E), Net MeteredResidential Service (Rate DR Zone 1)

Murrieta, Riverside Southern California Edison (SCE), Net MeteredBasic Residential Service (Rate D Region 17)

Fontana, San Bernardino Southern California Edison (SCE), Net MeteredBasic Residential Service (Rate D Region 16)

Rancho Cucamonga, Southern California Edison (SCE), Net MeteredSan Bernardino Basic Residential Service (Rate D Region 17)

Irvine, Orange Southern California Edison (SCE), Net MeteredBasic Residential Service (Rate D Region 10)

Long Beach, Los Angeles Southern California Edison (SCE), Net MeteredBasic Residential Service (Rate D Region 10)

Chula Vista, San Diego San Diego Gas & Electric (SDG&E), Net MeteredResidential Service (Rate DR Zone 1)

Table A1. Rate Schedules Used in Calculating Value of Solar Power


1. National Renewable Energy Laboratory, PVSolar Radiation: Annual, downloaded fromwww.nrel.gov/gis/solar_maps.html, 10 August2004.

2. Average daily electricity consumption fromU.S. Department of Energy, Energy InformationAdministration, 2001 Residential Energy Con-sumption Survey, Table CE1-7c.

3. See note 1.

4. U.S. Department of Energy, Energy Informa-tion Administration, State Energy Data 2001,Table F15.

5. U.S. Department of Energy, Energy Informa-tion Administration, State Energy Data 2001.Based on solar power production data from TableF15 divided by consumption data from TableF11.

6. National Renewable Energy Laboratory, Pho-tovoltaics Can Add Capacity to the Utility Grid,downloaded from www.nrel.gov/ncpv/docu-ments/pv_util.html, 11 August 2004.

7. Public Policy Institute of California, ResearchBrief #66: What Can Be Learned FromCalifornia’s Electricity Crisis, January 2003.

8. Statement by U.S. Energy Secretary SpencerAbraham in Ceci Connolly, “Search Is On forBlackout Trigger,” Washington Post, 18 August2003.

9. Seams Steering Group-Western Interconnec-tion, Framework for Expansion of the WesternInterconnection Transmission System, October2003.

10. “7 percent” from Oak Ridge National Labo-ratory, DOE’s ORNL Part of Initiative for Su-perconducting Transformer [press release], 31August 1998.

11. U.S. Department of Energy, Energy Infor-mation Administration, State Electricity Profiles2002.

12. Based on prices for natural gas use in theelectric power sector from U.S. Department ofEnergy, Energy Information Administration,Monthly Energy Review April 2004, 28 April2004.

13. U.S. Department of Energy, Energy Infor-mation Administration, Short-Term Energy Out-look November 2004.

14. Thomas E. Hoff, Clean Power Research, Fi-nal Results Report with a Determination ofStacked Benefits for Both Utility-Owned andCustomer-Owned PV Systems, 10 December2002.

15. Joseph McCabe and Christy Herig, TheValue of Building Integrated Photovoltaics,downloaded from www.energyi.mccabe.net/bipvvalues.pdf, 11 August 2004.

16. See note 14.

17. William B. Marcus, Greg Ruszovan, JSBEnergy Inc., Mid-Atlantic States Cost CurveAnalysis, prepared for the National Associationof Energy Services Companies and Pace LawSchool Energy Project, 18 September 2002.

18. Joel N. Swisher, Rocky Mountain Institute,Cleaner Energy, Greener Profits: Fuel Cells asCost-Effective Distributed Energy Resources,2002.

19. Ibid.

20. Based on estimates from the Clean PowerEstimator, developed by Thomas Hoff, Ph. D.for the National Renewable Energy Labs(NREL). Available at www.clean-power.com/nrelpv/default.asp.

21. See note 16.

22. Brad Heavner, Susannah Churchill,CALPIRG Charitable Trust, Renewables Work:Job Growth from Renewable Energy Develop-ment in California, June 2002.

23. “500 solar PV-related companies” fromHoward Wenger, personal communication, 4October 2004. “70 manufacturers of solar pan-els and modules” from Brad Heavner, SusannahChurchill, CALPIRG Charitable Trust,Renewables Work: Job Growth from RenewableEnergy Development in California, June 2002.

24. Federal Reserve Board, Testimony of Chair-man Alan Greenspan, Natural Gas Supply andDemand Issues, Before the Committee on En-ergy and Commerce, U.S. House of Representa-tives, 10 June 2003.

25. Federal Home Mortgage Corporation,Mortgage Interest Rate, Federal Home LoanMortgage Corporation, Primary MortgageMarket, Commitments, 30-Year ConventionalMortgages, downloaded fromwww.federalreserve.gov/releases/h15/data/a/cm.txt, 9 August 2004.

26. Based on data provided by the CaliforniaEnergy Commission, including 2003 CED Resi-dential Electric Consumption Summary, Form2.1 for single family homes. The average newsingle-family home in 2007 was assumed to in-clude central air-conditioning, refrigerator,freezer, color television, electric stove, dish-washer, clothes washer and dryer, and furnacefan, as well as miscellaneous power consump-

NOTES


tion for lighting, computers and other appliances.Average energy use was based on the average ofenergy consumption estimates for each utility,weighted by the percentage of new homes inCalifornia projected for each utility service ter-ritory.

27. Projected electricity costs from CaliforniaEnergy Commission, California Investor-OwnedUtilities Retail Electricity Price Outlook 2003-2013, Prepared in Support of the Electricity andNatural Gas Report under the Integrated En-ergy Policy Report Proceeding Docket 02-IEP-01, July 2003.

28. Estimated median household income for newhomebuyers of $110,000 based on results of U.S.Census Bureau’s American Housing Survey forvarious California metropolitan areas. The sur-vey estimates the median household income offamilies in owner-occupied housing built withinthe previous four years. Results for metropoli-tan areas included in this analysis are $109,033(Anaheim-Santa Ana, 2002); $96,446 (San Di-ego, 2002); $108,832 (San Jose, 1998); $84,608(Riverside/San Bernardino, 2002). The CensusBureau’s 1999 survey of the Los Angeles areadid not include an estimate of median income,but other data suggest the median is likely to beapproximately $120,000. $110,000 was chosenas a reasonable estimate within the range of datapresented by the Census Bureau, but readersshould note that median income of new homebuyers varies greatly among metropolitan areasand that these variations may affect the degreeof tax benefits resulting from the home mort-gage interest deduction. See U.S. Census Bureau,American Housing Survey for the San Jose Met-ropolitan Area: 1998, November 2000 and simi-lar reports in this series.

29. Solarbuzz, Fast Solar Energy Facts, June2004, downloaded from www.solarbuzz.com/FastFactsIndustry.htm, 24 August 2004.

30. Paul Maycock, President, PV Energy Sys-tems Inc, personal communication by email, 17August 2004. Mr. Maycock was a member ofthe Board of Directors of the American Solar En-ergy Society (1982-90) and a member of theBoard of Directors of the Solar Energy Indus-tries Association.

31. Trend extrapolated from data presented byPaul Maycock, “US Trends in System Prices forGrid-Connected Residential Systems,” Renew-able Energy World, July-August 2004.

32. Solarbuzz, Solar Module Price Highlights -August 2004, downloaded from www.solarbuzz.com/Moduleprices.htm, 10 August 2004.

33. Public Renewables Partnership, Solar PVCost Factors, downloaded 8 August 2004 fromwww.repartners.org/solar/pvcost.htm.

34. “$20 per peak Watt” from U.S. Departmentof Energy, Office of Energy Efficiency and Re-newable Energy, Building Science Consortium’sPV Primer, downloaded fromw w w . e e r e . e n e r g y . g o v / b u i l d i n g s /building_america/pdfs/db/35206.pdf, 17 Novem-ber 2004. “About $3.50 today” based on lowprice for individual module in Solarbuzz pricesurvey, www.solarbuzz.com/ModulePrices.htm,downloaded 17 November 2004. Lower pricesare available for modules purchased in largerquantities.

35. U.S. Department of Energy, Office of En-ergy Efficiency and Renewable Energy, BuildingScience Consortium’s PV Primer, downloadedfrom www.eere.energy.gov/buildings building_america/pdfs/db/35206.pdf, 11 August 2004.

36. California Energy Commission, ConsumerEnergy Center, Solar and Wind Energy SystemCredit, downloaded from www.consumerenergycenter.org/renewable/tax_credit.html, 22 No-vember 2004.

37. State of California, Department of Finance,2003-2004 City Population Numeric ChangeRankings, downloaded 17 August 2004.

38. See note 27.

39. U.S. Department of Energy, Energy Infor-mation Administration, Annual Energy Outlook2004, Supplementary Table 19, January 2004.

40. Change in consumer price index from 1994through 2003 from U.S. Department of Labor,Bureau of Labor Statistics, Consumer PriceIndex - CPI-U, downloaded from ftp.bls.gov/pub/special.requests/cpi/cpiai.txt, 17 August2004.

41. See note 27.

42. Based on arithmetic (unweighted) averageof values from nine communities studied basedon outputs from the Clean Power Estimator.

43. “20 year warranty” from California SolarCenter, PV Project Gallery: Grid-Tie Applica-tions, downloaded from www.californiasolarcenter.org/pvgallery1.html, 13 September 2004.

44. John H. Wohlgemuth, BP Solar, “Long TermPhotovoltaic Module Reliability,” National Cen-ter for Photovoltaics and Solar Program ReviewMeeting Proceedings 2003, sponsored by U.S.Department of Energy.

45. Sigifredo Gonzales, Chris Beauchamp, WardBower, Jerry Ginn, Mark Ralph, “PV InverterTesting, Modeling and New Initiatives,” Na-tional Center for Photovoltaics and Solar Pro-gram Review Meeting Proceedings 2003, spon-sored by U.S. Department of Energy.

46. “7 to 9 years” based on Sigifredo Gonzales,Sandia National Laboratories, personal commu-nication, 22 November 2004.


47. Solarbuzz, Inverter Price Environment,downloaded from www.solarbuzz.com/Inverterprices.htm, 13 September 2004.

48. Gerrit Jan Schaeffer, et al, Learning fromthe Sun: Analysis of the Use of Experience Curvesfor Energy Policy Purposes: The Case of Photo-voltaic Power: Final Report of the PhotexProject, August 2004.

49. Additional providers are listed atwww.energy.ca.gov/renewables/marketing/2004-05_RESIDENTIAL_FINANCE.PDF.

50. Mark von Topel, “Residential Solar Financ-ing: Homeowners Save, Banks Profit,” PowerShift, 2002.

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