Sunday, February 01, 2009

A 90% Subsidy?

Whenever I see one of these stories on solar projects I am inclined to run the numbers to see what the total subsidy turns out to be. Most of the time, the subsidy is about 75% of total costs. This one surprised me. It appears to be a 90% subsidy. From the story:

The Gatorade facility in Tolleson, one of the largest in the country in terms of gallons produced, is generating its own electricity from newly installed solar panels on its roof...

SPG Solar installed a 500-kilowatt system occupying more than an acre and a half on the roof of the distribution center, which allows Gatorade to cut its power usage from SRP by 40 percent on the warehouse building.

You can read the story for the details, but the useful numbers include a 4 year payback period with an annual savings of $51,000 per year. The system capacity is 500 kilowatts with an expected production of 783,000 kwhrs per year. SRP subsidy was $1.2 million, the state tax credit was $25,000 and the federal tax credit is 30% of total costs. The system will offset 392 metric tons of carbon a year.

Given those facts, here is what we can figure out. The four year payback at $51K per year savings implies a cost to the company of $204K. Add the SRP subsidy and the state tax credit and you're at $1.429M. Since that's 70% of the total that means the total is about $2.041M with a 30% federal subsidy of about $612K.

The total subsidy plus tax credits looks like 90% of total cost.

The $51K savings on 783Mwhrs per year implies an electric rate of 6.5 cents per kwhr. Note that The wholesale cost of power from the Palo Verde plant (SRP is part owner) is about 1.5 cents.

A 500 kilowatt system producing 783 megawatts a year gives you 4.29 effective hours per day of production. This is in line with what suppliers of household PV systems will guarantee here in Phoenix.

The closing price for carbon offsets on the Chicago Climate Exchange on Friday was $2.15 per metric ton or $842 per year for the project.

Arizona residents often ask why they can't tap more solar power. Because electricity here is so comparatively inexpensive, it hasn't been economically feasible for most customers. About 20 commercial customers participate in the EarthWise Solar program, said Chico Hunter, an engineer in SRP's sustainability initiatives and technologies, and seven of those have systems of 20 kilowatts or larger.

"The reality is, even with the federal tax credits and state tax credits and SRP incentives, it's still very expensive and it's a big investment for companies to make," he said.

If it takes a 90% subsidy to get a company to make an investment in solar, I think we can find better (more economically effective) things to do with the money. For comparison, note that my students at the community college pay 24% of the cost of running the place.

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