The cost of photovoltaic (PV) electricity generation refers to the price per kilowatt-hour (kWh) of power produced. This metric is essential for evaluating the true economic viability of solar energy systems. The cost includes all investment and operational expenses, such as equipment, installation, maintenance, and even the replacement of key components like inverters. By calculating this cost, PV systems can be fairly compared with other types of power generation sources.
Calculating the electricity cost involves several factors: the system’s life cycle, initial investment, operation and maintenance costs, discount rate, and the location of the power station. These variables influence how efficient and economically feasible a solar project is over time.
The report focuses on different technologies, including crystalline silicon and thin-film PV modules, and considers various market segments—residential (3 kW), commercial (100 kW), industrial (500 kW), and ground-mounted (2500 kW) systems. It also analyzes countries like France, Germany, Italy, Spain, and the UK, which collectively represented 82% of Europe's solar market in 2010.
PV system prices are composed of multiple parts: solar panels, grid-tied inverters, distribution equipment, cables, and construction and installation. In 2010, PV modules accounted for 45-60% of the total system cost, making them the most significant component.
Over the life cycle of a PV system, costs include maintenance, inverter replacement, land use (for ground stations), and recycling at the end of life. However, since these costs occur over time, they must be discounted to their present value using an appropriate discount rate. This rate varies depending on the country, market type, and perceived risk.
In recent years, financial institutions have become more confident in solar technology, leading to lower discount rates and potentially higher returns. However, if returns do not decline as expected, it may indicate that the cost of solar power is still too high, delaying its full competitiveness with traditional energy sources.
Looking ahead, the report predicts a continued decline in PV system prices. Under an intermediate scenario, module prices are expected to drop by 20% for every doubling of installed capacity. By 2020, the learning rate for thin-film modules will remain at 20%, while crystalline silicon modules will see a slower decline at 15%. Inverters, especially small-scale ones used in homes, are expected to follow a similar trend.
Distribution equipment and cabling costs depend on material prices, efficiency, and scale. Higher-efficiency modules reduce the need for extensive wiring and infrastructure. Installation and labor costs also play a role in overall system pricing.
To calculate the cost of electricity generated by a PV system, several parameters are considered: solar radiation levels (based on the PV-GIS database), system efficiency (75% for residential, 80% for large-scale), life cycle (25 years for modules, 15–25 years for inverters), and module degradation rates (80% efficiency after 25 years).
Over the past two decades, PV module prices have dropped significantly due to technological improvements and increased production. In 2011, the average price in Europe reached 1.2 euros per watt, down 70% from 10 years earlier. By 2020, system prices could fall by 36% to 51%, driven by improved efficiency, reduced component costs, and better economies of scale.
Germany has historically had the lowest PV prices, but other European countries are catching up. Smaller markets often face higher costs due to limited competition and less streamlined processes. However, with more mature markets and better policies, PV prices are expected to continue declining.
Overall, the cost of photovoltaic power generation has huge potential for reduction. By 2020, it is projected to be about half of what it was in 2010. With favorable conditions—such as stable policies, experienced installers, and competitive markets—solar power is becoming increasingly attractive across all market segments. Even in regions with lower solar irradiation, such as northern Europe, competitive electricity costs are expected to be achievable.
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