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Which way for solar?

By Dave Elliott

‘The Future of Solar’, a major report from the Massachusetts Institute of Technology, US, looks at solar photovoltaics (PV) and also concentrated solar power (CSP). On balance it backs solar PV, advanced thin film systems especially, but says that, even with just current crystalline silicon, ‘material inputs for c-Si PV generation are available in sufficient quantity to support expansion to terawatt scale’:

MIT compares PV with CSP and says ‘utility-scale PV generation is around 25% cheaper than CSP generation, even in a region like southern California that has strong direct insolation. Utility-scale PV is about 50% cheaper than CSP in a cloudy or hazy region’. That is familiar enough – CSP has a way to go to beat PV, although it does have the system level advantage that daytime heat can be stored for continued night-time solar generation.

Interestingly, MIT claims that ‘if solar generation is valued for its contribution at the system or wholesale level … PV generation by residential systems is, on average, about 70% more costly than from utility-scale PV plants’. And so, provocatively, it says ‘residential PV generation should not continue to be more heavily subsidized than utility-scale PV generation’.

At present, MIT points out, in most of the US, grid-connected residential PV systems are supported by ‘net metering’: imports and exports are both charged at the same rate, the consumer in effect just paying for the net flow at the standard charge. It adds ‘Under these conditions, the commonly used investment criterion is grid parity, which is achieved when it is just as attractive to employ a rooftop PV system to meet part of the residential customer’s electricity needs as it is to rely entirely on the local distribution company. The highest incremental retail electricity rates in California are well above the estimated LCOE [levelized cost of electricity] of residential PV systems in southern California, even without accounting for federal subsidies. And with the current combination of federal, state, and local subsidies, the price of residential PV has now fallen below the level needed to achieve grid parity in many jurisdictions that apply net metering.’

So with low prices, it’s booming. However MIT says this may not make sense in system level terms and calls for a rebalancing of support. Domestic consumers with PV use the grid system to earn extra income via exports and for import backup, without contributing to the overhead costs of running the grid. As in Germany, where Feed In Tariffs produce similar results, there are moves to charge prosumers for system use. But it’s complicated. Prosumer self-generation does mean that the grid system is relieved of the need to supply power some of the time, so that should offset some of the extra local grid management/upgrade costs they would otherwise impose. And if prosumers invest in local domestic energy storage that would change the situation further – some might even go off grid entirely. However, although prosumers may no longer use the grid so much – or even, with storage possibly not at all – that would mean the remaining system costs would have to be shared by fewer remaining consumers, which could cost them more.

So there is plenty of room for conflict. It would be just as unfair if prosumers stayed on the grid but didn’t pay the grid use charge: they would be free riders. Either way, prosumers might be portrayed as an ‘elite’, able to invest in systems which, in effect, pushed up costs for the less affluent. Equally though, some see attempts to get PV users to pay system costs as a way for the utilities to resist the spread of PV (and home storage) and the disruption it causes to their operations and profits.

The utilities are certainly being challenged. Some of them even worry that consumers might store cheap off-peak grid power and sell it back during peak demand times at higher prices! MIT notes that conflicts over these retail price issues have already emerged in the US and says ‘robust, long-term growth in distributed solar generation likely will require the development of pricing systems that are widely viewed as fair and that lead to efficient network investment’.

That won’t be easy. It gets even harder when full account is taken of the overall wholesale/system picture. MIT notes that commercial PV generators bid in competitive wholesale markets at their marginal cost of production, which is zero, and receive the marginal system price. So PV ‘displaces those conventional generators with the highest variable costs. This has the effect of reducing variable generation costs and thus market prices. And, since the generation displaced is generally by fossil units, it also has the effect of reducing CO2 emissions.’ So far so good. But there is also ‘an increased need to cycle existing thermal plants as PV output varies, reducing their efficiency and increasing wear and tear,’ adding to system costs.

What’s more, at very high PV inputs there may sometimes be too much and a need for curtailment, unless there’s a lot of storage. Who would pay for that? Tricky. But, in system terms, it may be worth helping prosumers to invest in storage, for example with grants. From an EU perspective, a recent EC Insight report claims that, if prosumers invest in storage and demand management, they can help reduce the overall system cost by around 20%. Though there might be a need for cash support, or a variable pricing system, to stimulate uptake of these extras:

However, MIT thinks some these curtailment problems may be avoided, since PV can’t grow indefinitely: ‘penetration of PV on a commercial basis will be self-limiting in deregulated wholesale markets….revenues per kW of installed capacity will decline as solar penetration increases until a breakeven point is reached, beyond which further investment in solar PV would be unprofitable’. Well, we will see.

To some extent it depends on the support system. In the EU, the Feed in Tariff (FiT) system is (or was!) based on paying a guaranteed price for the output, not on renewable portfolio quotas as in the US, and as MIT admits, that is in some ways more effective: ‘It is not obvious why the output quota or RPS approach is so popular in the United States when experience internationally has made it so unpopular elsewhere’. It adds ‘There is certainly no general economic reason to favor a quantity-oriented approach like RPS over the price-oriented approaches generally used internationally; moreover, the quantity approach does not appear to be administratively simpler. Indeed, it is hard to imagine a more complex regime than the multiplicity of different state programs now in place in the US’.

The EU’s FiT system may have been more flexible, but of course, whatever the support system, it can only be used for PV projects if you have a suitable roof. A new US National Renewable Energy Laboratory report says that 49% of US households and 48% of businesses are currently unable to ‘host a PV system of adequate size or virtually net meter an entire system themselves.’ In which case, one way in which PV might expand is by widening access – by sharing the output from PV on rooftops of multi-dwelling buildings, or on nearby land supplied to buildings where it is hard to fit PV. NREL says ‘off-site shared solar and arrays on multi-unit buildings can enable rapid, widespread market growth by increasing access to renewables on readily available sites, potentially lowering costs via economies of scale, pooling customer demand, and fostering business model and technical innovations. Shared solar could represent 32-49% of the distributed PV market in 2020, growing cumulative PV deployment in 2015-2020 by 5.5-11.0 GW’:

Is this type of community-scaled development the way forward? Certainly MIT says moving up-scale to larger systems is wise, usually better than single house projects, but sees utility-sized projects as best. Though hard-line full ‘grid defection’ decentralists may not like it. Certainly there are local social and economic benefits from decentralised self-generation, e.g. see  And certainly the advantages of large-scale systems can be overstated: there are land-use constraints on large utility projects that roof-top projects avoid. For an interesting rejoinder see: Maybe shared and locally-owned community-scale projects are the best compromise.


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