By Logan Shewmaker
City of Tallahassee Utilities officials recently received proposals from solar contractors to build a solar farm, which could produce up to 10 megawatts of electricity (1% of Tallahassee’s energy needs). The project is expected to occupy 100 acres of land, and cost roughly $30 million. David Byrne, manager of electric system integrated planning for the city, has said the solar farm’s purposes would be to diversify fuel use for long-term cost stability, and forward the city’s “effort toward environmental stewardship.” There are numerous benefits to solar power, but the costs greatly outweigh the benefits for now.
The proposal would create a purchasing agreement with a third-party company. The city would pay for the generated electricity, and the company would build and manage the solar farm. Customers would continue to direct their utility bills to the city.
City officials also hope a federal tax credit will incentivize a third-party company to join the project. Taxable entities (such as solar companies) are eligible for a 30 percent credit for solar farm construction, but this credit decreases after December 2016.
The city expects prices in the purchasing agreement to be competitive with Tallahassee’s current electrical costs since the cost of producing solar energy has decreased expeditiously. According to the Solar Energy Industries Association, the cost of installing a photovoltaic (PV) solar power system has decreased 33% since 2011.
This decrease can be attributed to the decreasing cost of manufacturing. As the solar energy market has grown, so has manufacturing of solar materials, and solar manufacturing companies have been able to achieve economies of scale and reduce costs somewhat. Solar panels themselves have also become more efficient. Currently, the average PV system produces at 15% efficiency, up from 11% in 2000. This efficiency is expected to continue increasing.
However, electricity from solar power is still much pricier than natural gas (Tallahassee’s primary fuel source). According to the Energy Information Administration’s (EIA) 2014 Annual Energy Outlook, the the average levelized cost of electricity (LCOE) for solar PV in 2019 is projected to be $118.6 per megawatt hour (a megawatt hour is the amount needed to run 10 automobile engines continuously for one hour). LCOE measures the average yearly cost of an energy source over time, and is used to reflect the fact that the a solar panel’s high installation costs can be paid off over its lifetime. By comparison, the average LCOE for conventional natural gas is almost half the cost of Solar PV at $66.3/MWh.
Another measure the EIA recommends that energy consumer and producers consider is the levelized avoided cost of electricity (LACE)–the cost to the grid required to produce the electricity displaced by a new power source. Subtracting LCOE from LACE gives us the “net economic value”. A negative remainder indicates that the cost of the new power source exceeds the benefit. A positive number indicates the opposite. The EIA summary projects the average difference between LCOE and LACE for solar PV to be -$45.2 per MWh by 2019, compared to -$3.4 per MWh for natural gas.
Switching to solar power may currently be too costly for Tallahassee. Despite recent gains in efficiency, solar PV remains significantly more expensive than natural gas. However, solar PV’s future appears promising. The same EIA report mentioned above projects the average difference between LCOE and LACE in 2040 to be -$11.9 per MWh for solar PV, a vast improvement. Solar PV will likely continue to decrease in cost, but may take decades to be competitive with other energy sources.