Economics of Solar Power

Electricity can be expensive. As I type this in July of 2020 (running completely on solar power that I’m generating) my electricity costs are probably around 11.4¢ per kilowatt hour (kWh) if I were to get them from my electricity provider (Baltimore Gas & Electric (BGE)). But as I said, I’m running on my own generated power using solar panels on my roof that have a maximum capacity of 9.75 kW and was built for 10¢ per kWh over the course of thirty years. And while the system basically costs me 10¢ per kWh, the market value of every kW generated from my roof is 15.7¢ per kWh! Thus, I’m making around a nickel for kWh I produce!

So this is what solar power looks like in Maryland today. And as commercial electricity gets more expensive (and there’s a rate bump coming up in October), the market value of my electricity will climb as well. But what does this all mean, exactly?

Back in 2017, my wife and I decided to add solar to our house. It was more about the environment than for the cost of electricity, mind you. PJM, the regional supplier of electricity to the Mid-Atlantic area of the United States, currently uses the following for electricity generation[1]:

  • Natural Gas - 36.53%

  • Nuclear - 33.95%

  • Coal - 23.78%

  • Oil - 0.10%

  • Fuel Cell - 0.03%

  • Renewable Energy - 5.61%

That is abysmal. During the same period of time, our house ran on our own generated electricity 36% of the time and sold back more than 3 MWh of electricity to the grid! But just think about the amount of resources we saved and the amount that could potentially be saved if more people did the same thing. I only wish we could have put more panels on our roof or that the panels that are on our roof would have been more efficient. The next step is to improve the efficiency of the major energy users we have in our house so we can reduce the demand on the system.

Let’s talk dollars.

Some people are motivated by money, so lets talk about money. Solar panels are expensive. Installation is expensive. All the electrical panels, wiring, and switches are expensive. When it was all said and done, the cost was figured to be right around 10¢/kWh when the estimated system generation was calculated over thirty years[2]. We added two Tesla Powerwalls battery backup systems to the system which allow us to store our generated power and use it at night or when there is a power outage[3][4]. Our loan is especially designed for solar projects and has an interest of 2.99%. We financed the entire project over ten years so our monthly payments are a bit higher than what many people would opt for but after that, we will be generating free electricity (kind of).

BGE’s rates change twice a year, based mostly on fuel rates and expected demand. As of late, they have hovered around 11¢ to 12¢ per kWh. So, immediately, if our system was built with 10¢ per kWh in mind, we’re already doing better, right?

BGE says that our "efficient neighbors" are using 821 kWh of electricity per month, right now. That’s around $100 per month figuring 12¢ per kWh. But at 10¢ per kWh, our bill would be only $82! That almost a $20 savings in the month of July while we’re home all the time (thanks COVID-19) running the air conditioner.

If you would recall from earlier, I said that my system’s market rate was 15.7¢ per kWh. So, where is the extra ¢/kWh coming from? SRECs!

Solar Renewable Energy Certificates are a way for states to require energy generators to generate a certain amount of electricity using renewable energy. If energy generators aren’t able to generate electricity using renewable sources themselves, they can buy it from someone else that has (in the form of a REC). SREC values are market-driven and are all over the place. Right now we’re getting ~$70 for every MW we produce. That’s an extra ~$700 we received last year!

A deeper dive into our usage and demand.

Our solar production in 2019 was ~10MWh. Our home usage was ~18MWh during the same time frame. So, it would seem like we would have only needed to have taken 8MWh from the grid to satisfy our demand. Unfortunately it doesn’t quite work that way.

First, solar production isn’t linear. It really looks like a bell curve with the highest point of production being when the sun is directly overhead. Like a nice breakfast with coffee? You’re going to be pulling most of that power from the grid. Of course that also means that around mid-day there is a lot of excess power being generated. More than we use on a regular day.

Our supply side numbers look something like this:

  • Solar power going into the home: 41.7% - 4,223 kWh

  • Solar power going into our batteries: 31.1% - 3,149 kWh[5]

  • Solar power going back into the grid: 27.2% - 2,755 kWh

  • Total solar production: 10,127 kWh

Flipping those numbers a bit we can look at the demand side:

  • Home supplied from solar: 22.6% - 4,227 kWh

  • Home supplied from batteries: 12.8% - 2,394 kWh[5]

  • Home supplied from grid: 64.6% - 12,084 kWh

  • Total home demand: 18,706 kWh

Some of those numbers are going to leave you scratching your head. Unfortunately, a lot of this data is coming from a variety of sources, some being more accurate than others.

Economics of net metering and non-net metering

Here in Maryland, net metering is used. That means the excess electricity I produce is sold back to the electric company at the same rate as what I would purchase it from them. I’ll admit that net metering doesn’t scale well. Imagine, if you will, an electric grid where every home is contributing power, whether that be by solar or wind or whatever. The power company is paying for both the electrical generation and the infrastructure that is used to push all this energy around.

There are power companies out there that don’t do net metering. These companies buy the electricity that you produce at a wholesale rate that is equivalent to the cost of buying power from other providers. Instead of your self-produced power being sold for ~14-cents per kWh, you’re selling it to the power company for ~7-cents per kWh. That makes the return on investment (ROI) a little more difficult.

It’s even odder that when connecting a solar system to the grid in non-net-meter mode, the customer actually gets charged for the electricity they used that they also generated! Depending on how the electricity is billed, one might actually pay for grid infrastructure on electricity that never touched the grid.

For some, the answer is to not connect their solar panels to the grid and only use grid power when they don’t have enough solar power to meet their demands. That means that any generated power not used by the household is wasted. It also means you aren’t paying for something you didn’t use (the grid infrastructure).

Are batteries worth it?

There is another solution if you don’t want to waste that electricity. Store the excess power you generate in a battery! Then, when your demand exceeds your local supply, you can pull from your battery instead of the grid.

We paid $7500 for our first Powerwall and $5000 for the second which adds up to $12,500 for both Powerwall devices, installed. During 2019, we used 2394 kWh of power that was stored in those batteries. At ~14-cents per kWh, that comes up with a savings up $335[6]. If we do that consistently during the batteries' twenty-year life span[7], we will have saved ~$6,700 or about half of the cost of the batteries.

Based on BGE’s upstream supplier, we also saved 1.27 pounds of Nitrogen Oxide, 1.68 pounds of Sulfur Dioxide, and 2,212 pounds of Carbon Dioxide from being generated.

And because the batteries also act as a whole-house power backup[8], which was used for around 4 hours during 2019.

What about a petrol generator?

A Generac 10kW whole house generator costs around $2800 plus installation and parts to make that happen. It requires annual maintenance and fuel. When in use, it gives off emissions.

Now here’s a scenario that makes me love my batteries as compared to a generator. Consider a weather event that affects your area for days or even weeks. With a generator, you’re going to have to continuously get fuel for it during that period of time[9]. That’s going to be difficult to do.

Are solar panels worth it?

Again, in 2019, we produced ~10MWh of electricity. If we had to purchase that directly from BGE, it would have cost us ~$1400[10]. Over the course of our twenty-year guaranteed production timeframe, that comes to around $28,300 of electricity that we didn’t have to buy.

Source data

Table 1. Solar generation per month in kilowatt hours.
2018 2019 2020

January

38.8[11]

294

322

February

373

453

449

March

729

1037

862

April

1046

1235

1088

May

1181

1322

1131

June

1252

1341

1379

July

1337

1515

1394

August

1311

1290

1090

September

647

824

702

October

359

284

294

November

279

255

December

264

273

Total

8,816.8

10,123

8,711[12]


1. From January 2019 through December 2019
2. We also did some roof work and added backup batteries to our system which added to the cost so it’s difficult to separate all of these costs cleanly. The 10¢/kWh was a calculation only for the solar system and their installation.
3. We’ve had power outages that we weren’t aware of because of the Powerwalls. They make no noise so we never really know that they are there.
4. The Powerwall system also allows our solar system to function during a power outage. Without it, your solar system would just switch off and not function at all.
5. The difference between the power going into the batteries and what’s coming out is due to power being used to maintain the batteries. Total is 775 kWh during the course of the year.
6. Actually, the savings isn’t this at all. It’s based on difference between what your generation cost is compared with the commercial rate.
7. The manufacturer guarantees the units for that long with a certain performance. After twenty years the batteries will continue to function, just without the guaranteed performance.
8. These devices also allow the solar panels to keep producing power even when the grid is down. Without these batteries, our solar panels would just shut down during grid outages.
9. During Hurricane Isabel, my house was without power for more than two weeks. Further, no one could have even gotten to my house for two weeks due to the many trees that fell during that storm. Are you prepared to keep two weeks of fuel on hand for just such an event?
10. At roughly 14-cents per kWh. Electricity generation rates change regularly as do the rates for paying for the infrastructure.
11. January and February 2018 was our installation month and, thus, was only on for testing.
12. January through October.