Solar Panels (and Energy Efficiency) at the White House
Last week, the Washington Post reported that solar panels are being installed on the White House roof. Or, more accurately, re-installed. Jimmy Carter installed a solar thermal system on this roof back in 1979. This was quickly removed by the next tenant, Ronald Reagan. Solar technology made a not-so-celebrated come back when George W. installed photovoltaic (PV) panels atop his Presidential tool shed. When Obama took office in 2008, solar energy proponents saw their chance to restore solar technology to a more respectable perch. After a long wait (and a series of clever publicity stunts), the construction has finally begun.
When the news of PV on the White House appeared on my radar screen, it was as distracting as the arrival of the Royal Baby. I had to drop everything and scour the internet for details: measurements? Name (of the manufacturer)? Pictures please:
Alas, we the people were provided with very few specifics. The White House would only state that the system was American-made and part of a larger retrofit that included some energy efficiency upgrades (such as updated controls and variable speed fans). The WP reported the system is expected to generate 19,700 kWh annually. It is estimated that the initiative will pay for itself in energy savings over the next eight years.
With few official details about system size or cost, I could not resist making some simple, back-of-the-envelope calculations to see how the economics of this landmark PV installation pencil out.
- How big? The National Renewable Energy Laboratory’s PV Watts (v2) calculator can be used to estimate the electricity production potential of a PV panel installed in a specific location. Using hourly solar insolation data from the Washington DC area and NREL’s default assumptions about system specifications, the 19,700 kWh annual production estimate implies a 16 kW(DC) (fixed-tilt) system.
- Price tag?. The latest edition of the Lawrence Berkeley Lab’s Tracking the Sun documents a striking downward trend in median PV prices (see the figure below). In 2012, the median installed price for 10-100 kW PV systems installed in the United States had fallen to $4.9/Watt.
Source: Tracking the Sun VI
The report also shows that median installation costs in Washington DC are below the national average. Assuming that PV system costs have continued to decline through 2013, it seems the price tag for the White House system could easily fall below $4/W. So let’s assume the total system cost (before applying any subsidies or incentives) is $64,000.
- Levelized cost per kWh. This PV system should last at least 25 years (unless it is prematurely ripped off the roof by a grumpy future President). I assume annual operations and maintenance costs are 1% of the initial installed costs. I assume that panel out-put degrades by 0.5% per year. I use a discount rate of 3 percent. Having made all these assumptions, I estimate a levelized cost of 15.98 cents per kWh .
- Reduced electricity bills? I found the following rate schedule for the time-of-use rate offered by the Obama’s local service provider. Assuming the White House has signed onto this time-of-use rate, I match the timing of the simulated solar electricity generation with the corresponding seasonal time-of-use rates to crudely approximate the average bill savings per kWh generated: 14.69 cents per kWh.
If we also account for public-funded incentives (a quick web search suggests that PV subsidies available to residential customers in the DC area are substantial), the economics of this Presidential PV system look fantastic. From a private household’s perspective. Of course, given that we are talking about a taxpayer-funded, on-top-of-the-White-House PV system, a more appropriate question to ask is whether the costs of solar have now fallen so low that PV investments are cost effective from a social perspective.
In a recent paper, some colleagues and I lay out a basic framework for estimating the social benefits of a new grid connected solar PV installation. Electricity generated from grid-connected solar panels displaces electricity generated from conventional units. Our approach to estimating short-run marginal benefits involves measuring the avoided fuel costs and environmental costs associated with this displaced generation. One strength of the approach is that it accounts for temporal correlation between solar electricity generation and electricity market operating conditions. A caveat or limitation is that our estimates are based on recent electricity market operations and conditions which may change over the life of the system.
Applying our basic methodology to the Presidential PV installation, I come up with the following estimates (please see the paper for methodological details).
- Avoided fuel and operating costs: I merge the simulated hourly PV production with hourly marginal price data from the PJM electricity market. The estimated value of these avoided operating costs is $0.082/kWh. Note that this number falls below the avoided bill savings per kWh generated because retail prices capture costs which are not eliminated by a marginal increase in solar capacity (such as fixed system operating costs) and transfers (such as social benefit charges).
- Avoided emissions: I merge hourly PV reduction with marginal operating emissions rate estimates from the PJM market. Focusing exclusively on carbon emissions (which are not subject to a cap) I estimate that 1.66 tons CO2 emissions are avoided/kWh. Using a social cost of carbon value of $43/ton CO2, this implies an additional benefit of $0.032/kWh.
These calculations are admittedly rough. I have made no attempt to deal with uncertainty about future energy prices, emissions costs, etc. But given my ballpark numbers, it is hard to see how the value of energy generated by this PV installation could cover the investment costs in eight years. How then can the White House claim that this project will pay for itself in energy savings over this time frame?
Whereas the White House solar panels are making headlines, I suspect it is the far less sexy (but likely more cost effective) energy efficiency upgrade that is pushing this retrofit project into the black. And in this sense, the White House retrofit project may demonstrate an emerging trend. Some solar incentive programs now require certain home energy efficiency measures before an eligible PV array can be installed. Some solar providers are experimenting with bundling residential energy efficiency services with solar PV in order to broaden their customer base. Solar PV has not yet achieved grid parity (on average). And it is hard to get people excited about energy efficiency improvements (would you still be reading had I devoted this blog post to the President’s new variable speed fan?). But combining solar’s appeal with a relatively ho-hum efficiency retrofit can deliver social cost savings we can all get excited about.
Meredith Fowlie is an Assistant Professor of Agriculture and Resource Economics at the University of California, Berkeley. Prior to joining UC Berkeley, she was an Assistant Professor of Economics and Public Policy at the University of Michigan. She received a MSc in Environmental Economics from Cornell University in 2000 and PhD in Environmental and Resource Economics from UC Berkeley in ...
Other Posts by Meredith Fowlie
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