Introduction

A commonly asked question is "How much does solar electricity

cost?" There are really two questions here, which must be answered
separately. The first question is
What is the upfront cost to install solar? In other words, how much
do I have to pay today to have a system installed that delivers a given
peak power and a given amount of energy storage.
The second question is:
What is the life-cycle cost per kilowatt-hour of solar energy? In
other words, how does solar compare to the cost of grid power?

Approach
In this exercise, the overall approach will be:

First calculate the cost of each major component in terms of

user specified variables. The major components are:
o Inverter
o Solar Panels
o Batteries
We will ignore adding in the cost of the charge controller, since
this is only a few hundred dollars (whereas the whole system
cost will be in the thousands of dollars).
The user specified variables will be:
o Peak power required to power appliances
o Total energy produced/consumed per day
o Hours of sunshine (average)

 After calculating the component costs, we add them up to

create simple formulas with which to answer each of the
questions above.
Note: The numbers used below are fairly conservative and include
costs such as installation, and so the results should be taken to
indicate upper bound estimates. Moreover, we have tried to round up
to simple numbers to make the calculations easier.

Cost of inverter as function of peak power

required
Recall that power is defined to be the rate at which energy is
delivered (or captured), that is, energy per unit time:
Power = Energy / Time
For electrical applications, Power is usually specified in kilowatts (kw)
which means in thousands of watts. One kilowatt is enough power to
light ten 100 watt light bulbs, or one typical hair dryer (hair dryers use
alot of power!)
There are two types of power requirements one needs to know when
designing a solar system: The peak power delivered to the load, and
the peak power produced by the solar panels by the system.
The peak power delivered to the load is the total maximum power
level one expects to be drawn by appliances in the home. For
example, if one expects to run, at most, a 1 kilowatt hairdryer, five
100 watt light bulbs, and a 500 watt refridgerator, then the peak
power would be:
Ppeak, usage = 1 kw + 5 x .1 kw + .5 kw = 2 kilowatts
Two kilowatts is a probably a good peak power target for small
energy efficient solar home. Some people may require significantly
more (say, up to 5 kilowatts).

The amount of peak power the system can deliver will be determined
by the size of the system's inverter, the inverter being the device
which converts the dc battery power to ac:
Ppeak, usage = Ppeak, inverter
As determined by surveying current market prices for inverters, the costs
of an inverter are about $1 per watt, or (multiplying by 1000):
Costinverter = $1000/kilowatt

Thus, the cost of the inverter, as a function of the peak power used, is
therefore:
Costinverter (Ppeak, usage) = Ppeak, usage x Costinverter
or

For example, if we need 2 kilowatts of peak power used, the cost of

the inverter will be about $2000 dollars.

Cost of solar panels as a function of energy usage

The peak power produced by the solar panels is determined by the
type and number of solar panels one uses:
Ppeak panels = # of panels x power per panel
Although the energy used by the appliances will of course be produced
by the solar panels, it is not necessary that the peak output of the
solar panels be equal the peak power used:
Ppeak, usage : NOT NECESSARILY EQUAL TO: Ppeak panels

This is because the power generated by the solar panels is stored up

over time by batteries, so more peak power (but not energy!) can be
delivered by the inverter than is produced by the panels.
Instead, we should calculate the peak power of the solar panels, and
hence the number of solar panels, from the total amount of energywe
want them to produce each day.
Calling the energy produced Eproduced, we want this to equal the amount
of energy used each day,
Important connection: Eproduced = Eused

We will specify energy in units of kilowatt-hours:

Energy = Power (in kilowatts) x Time (in hours) = # of kilowatthours
A good target for Eused for an energy efficient home is 10 kilowatthours. Electrical energy from the grid in the United States typically
costs between 6 to 12 cents per kilowatt-hour. So, for example, if you
use 10 kilowatt-hours a day, and the cost of power is about 10 cents
per kilowatt-hour, then you electrical costs would be about $1 per day
(ten times 10 cents), or $30 per month.
Also, we need to know how long the sun shines each day on average.
Let this be denoted by Tsun,
Tsun = Hours of Sunshine on average.
Using the formula for power and energy (Power = Energy / Time), we
have
Ppeak panels = Eused / Tsun.
Note that the fewer hours of sunshine available, the more peak power
from the panels will be needed.
As determined from a survey of current market prices, it costs about $600
to purchase and install a 75 watt panel. Therefore, the upfront cost of the

solar panels per watt are

Costpanels = $600/75 watts = $8/watt
Or, by multiplying numerator and denominator by 1000,
Costpanels = $600/75 watts = $8000/kilo-watt

Thus, as a function of Energy use, the cost of the solar panels will be
Costpanels = Ppeak panels x Costs.p. = (Eused / Tsun ) x Costs.p.
or
Costpanels = (Eused / Tsun ) x $8000/kilo-watt

Cost of batteries as a function of energy usage

The amount of energy stored (by batteries) determines how much
energy can be used after dark, or on a rainy day.
The number of kilowatt-hours we can store will be determined by the
number and type of batteries we have:
Estored = Energy per battery x number of batteries
The lifetimes of deep cycle batteries are fairly short (3 - 10 years),
and depend on how well they are maintained (for example, one needs
to avoid overcharging, and overdrawing, and in many cases to keep
the water levels up). Typically, if a battery is discharged to 50% every
day, it will last about twice as long as if it is cycled to 80%. If cycled
only 10%, it will last about 5 times as long as one cycled to 50%.
We will assume, in order not to discharge the battery more than 50%,
that the batteries will be able to store twice the amount of energy we
use:
Estored = 2 x Eused

Presently, the cost of batteries is about $100 per kilowatt-hour of

storage:
Costbatteries = $100/kilowatt-hour
The cost of batteries, therefore, as a function of energy used, is
Costbatteries = 2 x Eused x $100/kilowatt-hour

Because we have included the factor of two, then we are probably

safe to assume at least a six year lifetime on the batteries:
Lifetimebatteries = 6 years

Calculation of upfront cost

Adding up the costs of the inverter, panels and batteries, we find:
Costupfront = Costinverter + Costpanels + Costbatteries
= Ppeak, usage x $1000/kw + (Eused / Tsun ) x $8000/kw + 2 x Eused x $100/kwh

Calculation of life-cycle cost per kilowatt-hour

As mentioned above, today's solar panels are estimated to last at
least 25 years. We will therefore use 25 years as our lifetime with
which to calculate the life-cycle cost:
Tsystem = 25 years
Note that this figure is somewhat arbitrary: using a longer lifetime will
tend to decrease the life-cycle cost calculated, and vice versa.
The total life-cycle cost per kilowatt hour is given by
Costkwh = (Total life-cycle cost)/(Total kilowatt-hours used).
To calculate the total life-cycle cost, we need to account for periodic
replacement of the batteries. Assuming a lifetime of six years for the

batteries (which we helped insure by sizing the battery to twice the

daily energy usage), The number of times we have to replace the
batteries is
Nbatteries = Tsystem / Lifetimebatteries = 25/6 = (approximately) 4
The total life-cycle cost of the batteries will therefore be
Costbatteries, life-cycle = 4 x Costbatteries = 8 x

Eused x $100/kwh

The total life-cycle cost of the system will therefore be

Costlife-cycle = Costinverter + Costpanels + Costbatteries, life-cycle
= Ppeak, usage x $1000/kw + (Eused / Tsun ) x $8000/kw + 8 x Eused x $100/kwh

Note that this is similar to the upfront cost formula, except for the
extra factor of four in the last term.
Because we defined the quantity Eused to be the number of kilo-watt
hours used per day, the number of kilowatt-hours used over the
lifetime of the system will be:
Total kilowatt-hours used = 25 years x 365 days x Eused = 9125 x
Eused.
We therefore have
Costkwh = Costlife-cycle / (9125 x Eused)

Summary of definitions and formulas

Ppeak, usage = Peak power usage in kilowatts
Eused = Total daily energy usage in kilowatt-hours
Tsun = Hours of sunshine (average)
Costinverter = Ppeak, usage x $1000/kilowatt
Costpanels = (Eused / Tsun ) x $8000/kilo-watt

Costbatteries = 2 x Eused x $100/kilowatt-hour

Costbatteries, life-cycle = 4 x Costbatteries = 8 x Eused x $100/kwh
Costupfront = Costinverter + Costpanels + Costbatteries
Costlife-cycle = Costinverter + Costpanels + Costbatteries, life-cycle
Costkwh = Costlife-cycle / (9125 x Eused)

Examples
We now give some concrete examples using the formula above:
Small Cabin: Choose
o Ppeak, usage = 1 kw.
o Eused = 5 kwh,
o Tsun = 6 hours.
From these we find that:
o Inverter: $1000
o Panels: $6666
o Batteries (upfront): $1000
o Batteries (life-cycle): $4000
o Costupfront = $8666.
o Costlife-cycle = $11,666
o Costkwh = $.255 per kwh - (26 cents/kwh)
One can see that:
o The panels are the lion's share of the cost.
o The upfront cost covers most of the life-cycle cost.

o That solar is two to three times the price of grid power

2. Small Home: Choose

o Ppeak, usage = 2 kw.
o Eused = 10 kwh,
o Tsun = 6 hours.
From these we find that:
o Inverter: $2000
o Panels: $13333
o Batteries (upfront): $2000
o Batteries (life-cycle): $8000
o Costupfront = $17,333.
o Costlife-cycle = $23,333
o Costkwh = $.256 per kwh - (still 26 cents/kwh!)

One can see that increasing the size of the system had little
impact on the life-cycle cost per kilowatt-hour.

o Large Home: Choose

o Ppeak, usage = 5 kw.
o Eused = 20 kwh,
o Tsun = 6 hours.

From these we find that:

o Inverter: $5000
o Panels: $26,666
o Batteries (upfront): $4000
o Batteries (life-cycle): $16,000
o Costupfront = $35,666.
o Costlife-cycle = $47,666
o Costkwh = $.261 per kwh - (still 26 cents/kwh!)
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