PV Economics

By Thomas E. Glavinich | Jul 15, 2005
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Performing a preliminary design for a photovoltaic (PV) system is the first step in deciding how to effectively incorporate PV technology into a new or existing building. The design should generate a number of technically feasible PV alternatives for a new building under design or an existing building that will be retrofitted with PV technology. The number of PV alternatives are increasing with advancing PV technology.

They depend on a number of factors such as the type, location, orientation and size of the building; whether it is a new or existing building; the dedication of the owner and design team to the use of PV; how far along the building design is when PV is considered; and the type of exterior building materials that will be used.

Possible alternatives identified during the preliminary design might include the use of competing PV technologies, integration of PV into building materials versus the use of PV panels, the building loads that will be served by the PV system, and whether the PV system will be stand-alone or grid-connected.

Life-cycle economic analysis

The alternatives identified during preliminary design will not only impact the original installation cost of the PV system but will result in different ongoing savings and costs for the owner over the building's life.

Selection of a PV alternative should not be made based on original installed cost alone. The ongoing savings and costs must also be considered in conjunction with the original installed cost in the life-cycle economic analysis. The life-cycle economic analysis needs to recognize the time value of money through an after-tax discounted cash-flow analysis for each alternative using the owner's minimum attractive rate of return (MARR).

On a design-build project, the electrical contractor can perform this analysis for the owner by teaming with a consulting accountant or financial analyst. The electrical contractor needs to estimate the original installed cost of the PV installation along with the savings and costs over the life of the PV installation. The accountant or financial analyst will perform the after-tax discounted cash-flow analysis for each alternative from these estimates.

PV technology is advancing rapidly as PV materials become more efficient in the conversion of sunlight into electric energy and as PV manufacturing technology lowers the cost of producing PV materials.

New PV technologies do not have as high a conversion efficiency or as long a useful life as traditional crystalline PV, but material and manufacturing costs associated with these technologies are expected to be so low that they will easily compete with crystalline PV on a life-cycle cost basis.

PV is not expected to be directly competitive with utility-supplied electric power in most places for at least another decade. However, today's volatile energy market and rising energy prices could shift the economics in favor of alternative energy sources such as PV much sooner.

PV incentives

Government and utility incentive programs are available to level the playing field for PV compared to utility-supplied power. These incentives include tax credits, grants to assist with the initial cost of the PV installation, low-interest loans to finance PV installations, energy credits and buy-back arrangements.

Incentive programs can be easily researched using the Internet. An excellent resource is the Database of State Incentives for Renewable Energy (DSIRE), which is available at The DSIRE database is a program developed by the Interstate Renewable Energy Council (IREC), funded by DOE and maintained by the North Carolina Solar Center located at North Carolina State University. The DSIRE database provides information on all 50 states, U.S. territories and federal incentives.

Another valuable Web resource is the State Energy Alternatives database, which was developed by the DOE's National Renewable Energy Laboratory with the National Council of State Legislatures and provides technical and financial information on solar energy. The State Energy Alternatives database is located at

Beyond PV economics

PV is not just about economics and payback. The “green architecture” movement, energy codes and other environmental programs such as the Leadership in Energy and Environmental Design (LEED) are also driving interest in PV.

Building owners are finding that PV can give them a competitive advantage with prospective tenants that are environmentally sensitive and will pay a premium to be located in an environmentally friendly building. EC

GLAVINICH is an associate professor in the Department of Civil, Environmental and Architectural Engineering at The University of Kansas and is a frequent instructor for NECA’s Management Education Institute. He can be reached at 785.864.3435 or [email protected].


About The Author

Thomas E. Glavinich was an associate professor in the Department of Civil, Environmental and Architectural Engineering at the University of Kansas. His tenure as one of Electrical Contractor's most trusted and reliable source of industry research ended in 2014 when he passed away. Click here for more about Tom.





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