THIN-FILM PHOTOVOLTAICS AND DECENTRALIZED ENERGY PRODUCTION

THIN-FILM PHOTOVOLTAICS AND DECENTRALIZED ENERGY PRODUCTION

Authors Daniela Hippler (UNC MBA 2008) Rachel Kuhn (UNC MBA 2008) Jeremy Riberdy (UNC MBA 2008) Abstract Thin-film photovoltaic technologies promise to significantly reduce the costs of solar power generating systems. This paper looks at the economics of residential solar using thin-film technologies. The authors conclude that with recent advances in lower-priced amorphous thin-film photovoltaics, it is now financially feasible to install residential solar on a large scale across the United States.
This paper includes a net present value analysis of the costs associated with grid-tied residential solar systems, as well as a summary of their triple bottom line advantages/disadvantages. Given the positive profile and economies of scale of such systems, the authors recommend utility companies embrace a distributed generation model in which the utility invests in and installs residential solar systems while continuing to maintain the transmission grid. Finally, the authors recommend Las Vegas as a test market for a decentralized energy production grid because of its energy demand and its favorable climate. WHITE PAPER PREPARED BY MBA STUDENTS AT THE UNIVERSITY OF NORTH CAROLINAS KENAN-FLAGLER BUSINESS SCHOOL

Publication Date 2007

2007 Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC, USA. Reprinted by permission. Available online at www.cse.unc.edu. This white paper was prepared by MBA students for class MBA815 Sustainable Enterprise, taught by professor Lisa Jones Christiansen. It is reprinted for educational purposes. Citations and source accuracy have been reviewed, but cannot be guaranteed; clarifications or comments may be directed to cse@unc.edu.

Keywords: Solar energy, renewable energy, photovoltaic, PV, electricity, power, grid, thin film, clean tech, residential, energy efficiency

W07-003

THIN-FILM PHOTOVOLTAICS AND DECENTRALIZED ENERGY PRODUCTION

Executive Summary For nearly 30 years solar technology has provided a relatively expensive alternative for homeowners to reduce their dependence on the national electrical grid. Increased efficiency and manufacturing cost reductions have recently made photovoltaic (PV) solar technologies a competitive solution to solving the electrical needs of a large number of homeowners. New materials and application methods better utilizing PV technology could create the opportunity for homeowners to become net energy providers to the grid in the very near future. Electric utilities are well-suited to embrace the technology and should do so in order to prevent the obsolescence of their business model. Challenges Unrest in the Middle East, the rise of Anti-American sentiment in oil-producing countries, Hurricane Katrina, the industrialization of China and India and concerns about global climate change have all contributed to the renewed interested in alternative energy. A number of exotic technologies have recently captured the imagination of the American public. Soaring gas prices have helped to spur interest in electric hybrid automobiles, and cars that run on hydrogen fuel cells may be available in the near future.
Even as these technologies gain broader acceptance by the general public, utility companies, faced with increasing demand, continue to receive government subsidies to build power plants that rely on nonrenewable sources of energy. Continued use of non-renewable energy sources will exacerbate global climate change, low-level pollution/smog, acid rain, and ozone depletion. Although considered renewable, nuclear power creates a significant amount of radioactive waste that cannot easily be disposed of and could pose a security risk if obtained by terrorist organizations. Figure A below shows the Earths total energy potential. To truly claim energy independence and attempt to mitigate the effects of global climate change, the focus must be on renewable sources of energy. As all forms of sustainable energy (wind, tidal, etc) are ultimately powered by the solar energy received by the earth, we believe that the most efficient technological solution is to concentrate primarily on solar energy.
Figure A: Earth's Energy Potential

Source: Heckeroth, S. Solar Future presentation. Downloaded from: http://www.renewables.com/SolarFuture206.pdf.

W07-003

Opportunity We believe that recent advances in amorphous, thin-film photovoltaics now make it economically feasible to install solar technology on nearly every single-family detached residence in the United States. If implemented properly, the energy produced by covering nearly 50% of the approximately 70 million1 residences will generate more power than required for consumption in the U.S. The rooftops of independent residences would, in effect, become a solar array for the utility companies. A paradigm shift is likely to occur whereby homeowners would receive monthly checks from the utility for the net excess energy that they produce, instead of paying for the utilities to generate their energy. Utilities would still exist to ensure that peak demand requirements are met, account for unexpected events, and to act as transfer stations between areas that generate excess energy (sunnier climates, detached homes) and those less able to provide energy for themselves (colder climates, dense urban areas).
Utilizing traditional crystalline photovoltaics in the southwestern region of the United States was preferred over other parts of the country due to the concentration and regularity of solar radiation (Figure B).
Figure B: Average Daily Solar Radiation across the U.S.

Source: National Renewable Energy Laboratory, Average Daily Solar Radiation Per Month using North-South Axis Tracking Concentrator Tilted at Latitude. Downloaded from: http://rredc.nrel.gov/solar/old_data/nsrdb/redbook/atlas/serve.cgi

Unfortunately, crystalline PV becomes less efficient in higher temperatures; this represents an obvious flaw in the applicability of the technology as it effectively creates an efficiency ceiling that cannot be crossed. The introduction of the Ovonics Thin-Film Photovoltaic provides superior performance even at lower light levels, and has less loss of operating efficiency at high temperatures. The thin-film is flexible, uses 99% less silicon than crystalline PV, requires less energy to manufacture, weighs approximately 70% less and costs nearly 50% as much as crystalline PV. In addition, its flexibility and peel and stick application technique make it much easier to transport and install with less damage during transport, and the potential to be installed by relatively unskilled/inexperienced personnel.

Application and Recommendation For the purpose of our calculations we assumed a two-story, 2,350 square foot home with a gabled roof at a 4:12 pitch. Thin-film amorphous solar cells are installed on only the south-most half of the roof, and they cover approximately 90% of that surface, resulting in 118 m 2 of area available for the application of solar cells. This new photovoltaic technology can convert sunlight into electricity at an efficiency rate of 12%, when installed on a roof plane facing due south. We have reduced our efficiency projections to control for the fact that not all homes will have roofs with a plane oriented due south (Figure C)2.
1 2

U.S. Census Bureau, Census of Housing, http://www.census.gov/hhes/www/housing/census/historic/units.html http://www.mysolar.com/pv/techorient.asp 2

W07-003

Figure C: Efficiency by Roof Orientation Orientation South S-SW (30) Southwest (45) West (90) Average PV Efficiency 97% 95% 94% 78% 91%

We then calculated the expected electrical output of the installed system, and found that even in the regions of the United States that represent our worst-case scenario (northern New York, the Pacific Northwest, etc) with an average of only 3.5 kWh/m2/day, it is possible to produce, on average, 16,471 kWh per year. This is more than the average annual consumption of 11,256 kWh. Figure D depicts the expected electricity output of solar arrays installed in the four solar zones occupied by the United States.
Figure D: Electricity Output by Solar Zone kWh/m2/day Adjusted* Per Year 45.1 16,471.4 58.0 21,177.5 70.9 25,883.6 83.8 30,589.7

Received/day 3.5 4.5 5.5 6.5

Produced/day 49.6 63.8 77.9 92.1

Consumption 11,256 11,256 11,256 11,256

Surplus 5,215.4 9,921.5 14,627.6 19,333.7

Having established that the technology is capable of meeting functional needs, we then examined the cost implications of the new technology, using the cost per kWh to produce electricity via thin film amorphous silicon PV cells and benchmarking off of the current price charged by utilities in the United States. As of 2005, the average cost charged by U.S. utilities was 9.86 cents per kWh. The estimated cost per kWh using the thin-film solar cells was approximately 14.41 cents per kWh. These costs are based on fairly conservative assumptions regarding the cost of battery technology, and using a fairly short period of amortization. The technology is covered by warranty for 20 years, but we chose to amortize the costs over a much shorter period of 7 years, since this is the average number of years that a homeowner will own their home before moving3. Figure E illustrates the assumptions used in our model and the resulting projected cost of electricity in different regions of the U.S, and a sensitivity analysis comparing the cost of electricity in cents/kWh under different sets of assumptions.

http://www.informationsavvy.com/mortgages/ 3

W07-003

Figure E: Model Assumptions and Projections Battery Costs $500.00 Years of Life $1,000.00 $1,500.00 $2,070.96 $1,035.48 $690.32 $517.74 $414.19 $345.16 $2,000.00 $2,170.96 $1,085.48 $723.65 $542.74 $434.19 $361.83 $2,500.00 $2,270.96 $1,135.48 $756.99 $567.74 $454.19 $378.49 $3,000.00 $2,370.96 $1,185.48 $790.32 $592.74 $474.19 $395.16 $3,500.00 $2,470.96 $1,235.48 $823.65 $617.74 $494.19 $411.83 5 $1,870.96 $1,970.96 10 $935.48 $985.48 15 $623.65 $656.99 20 $467.74 $492.74 25 $374.19 $394.19 30 $311.83 $328.49 Min Value: $ 311.83 Max Value: $ 2,470.96

Assumptions Roof area, m2: 262.38 South face, 90%: 118.071889 Cost/SF $50 Cost/kWh 0.3 Initial Cost $6,354.78 Battery Costs $2,500.00 Inverter $2,500.00 Years of life: 7 Cost/year, expected: $1,622.11 Cost/year, Min: $311.83 Cost/year, Max: $2,470.96 Expected Case Cost/kWh Cost/kWh produced used $0.10 $0.14 $0.08 $0.14 $0.06 $0.14 $0.05 $0.14 Best Case Cost/kWh Cost/kWh produced used $0.02 $0.03 $0.01 $0.03 $0.01 $0.03 $0.01 $0.03 Worst Case Cost/kWh Cost/kWh produced used $0.15 $0.22 $0.12 $0.22 $0.10 $0.22 $0.08 $0.22

Looking ahead into the future, electricity produced via traditional, coal-fired techniques is likely to increase in price due to probable cap and trade programs for carbon emissions. At the same time, the costs of the new solar technology are likely to decrease as the technology enjoys improved economies of scale and also benefits from a learning curve as complementary technologies establish themselves in the marketplace. For example, new battery technologies, such as the Firefly carbon foam battery4, offer extended life with greatly reduced production costs. Other costs that we would expect to decrease over time are installation and maintenance costs. For the reasons described above, we expect that the cost of photovoltaic-generated electricity to rival the cost of traditional coal-fired electrical production with the next ten years. There will very probably be a financial incentive for customers to switch to the new technology, potentially eliminating the revenue streams for traditional electrical utilities. Rather than fighting the adoption of the new photovoltaics, we believe that electrical utilities should embrace the new technology and incorporate it into their business model as a real option. In fact, it is in their best interests to invest in the technology and lower the costs. The use of photovoltaic electricity production still requires the existence of an electrical grid, maintenance of that grid, and monitoring of usage. Existing utility companies are already performing this role and are trusted by the public to continue doing so. For this reason, they have lower barriers to entry than a new player entering the field and relying on the new technology. Under our proposal, an electrical utility would come out to new homes and install a meter, as they do now, but at the same time they would also install photovoltaic sheets on houses, a centralized neighborhood battery array, and any portion of the grid not installed by the municipal or county
4

http://www.fireflyenergy.com/index.php?option=com_content&task=view&id=204&Itemid=89 4

W07-003

government. By owning the entire process, the utility thereby pre-empts the destruction of their business model, while simultaneously avoiding huge environmental fines due to carbon dioxide emissions. A savvy utility could treat this as a real option and invest now in the development of better battery technologies and cheaper production techniques in return for guaranteed access to the technology in the future. We anticipate that this new model would first be rolled out in areas of the United States where it is the most financially feasiblei.e., high growth rate areas with large amounts of solar exposure, such as California and the southwestern states. In time, as the new technology improves and as carbon emissions grow more expensive, it will be financially beneficial to roll out the new system in a broader array of states.

Likely Critiques It is important to note that this paper focuses on a suburban model of free-standing, individual houses. This application will have to be modified in an urban setting with higher densities. Another likely critique of solar energy is that the rate of growth in demand for electricity outstrips the rate of improvement in the efficiency of the solar technology, meaning that in time we are likely to hit a carrying limit on the ability of solar to provide all of our required electricity. While this may be true to a certain extent, we have found that simple changes to the typical new suburban home can dramatically reduce the amount of energy consumed (see Appendix 1). Conservation measures combined with improving efficiency in the technology itself should allow for continued economic growth. The spending habits of consumers are also a potential Achilles heel of the new technology. Appendix 2 shows that the present value costs of installing solar technology are already lower than the present value costs of corresponding electricity bills when calculated over a period of 15 years. However, most residential homeowners are likely to have trouble accepting a large initial investment after generations of paying regular monthly energy bills. This is an important competitive advantage for a far-sighted utility company; in contrast to homeowners, utility companies have already learned to view energy production as an investment and are more motivated to reduce long-term costs. Photovoltaics and the Triple Bottom Line The use of photovoltaic materials on single-family homes and potentially commercial buildings has distinct environmental advantages. Furthermore, solar energy production and the corresponding move towards a more decentralized system of energy sourcing present substantial economic and social opportunities as well. The concept of the Triple Bottom Line can therefore be used to illustrate the potential benefits and costs associated with solar energy production and thin-film photovoltaics in particular. Environmental:
As solar energy is replacing energy produced by burning fuel, corresponding CO2 and NOx emissions are eliminated. Coal mining has a major destructive effect on the natural landscapes of the mined areas. With decreased usage of coal for the production of energy, these landscapes can be restored to their natural state. Fossil fuel extraction is a water-intensive process. With the transition to solar energy, water usage can be decreased dramatically. Photovoltaics production is much less waste-intensive than sourcing and processing of traditional energy producing materials. Thin-film photovoltaics can be stored and transported in a very space-efficient way by rolling them. Therefore transportation volume decreases dramatically compared to transporting fossil fuels. This translates into reduced CO2 emissions.

W07-003

Economic: With the introduction of new thin-film photovoltaic material, investment in solar technology is viable for a single-family home when compared to current energy costs projected over 15 years (see Appendix 2). If additional insulation techniques are used on existing homes, return on investment can be increased even more.
Transportation costs can be reduced dramatically if photovoltaics are more widely adopted. The thin-film material is far smaller in volume than the fossil fuels that are needed to generate a comparable amount of energy. (See above.) Decentralized energy production by photovoltaics has a higher efficiency than traditional models of energy production and distribution. As electricity does not have to be transported across many miles of lines, there is no loss due to drops in voltage.

Social: Decentralized energy production translates into a move towards national energy independence. It therefore has substantial political benefits, as it, for example, protects the country from having to get involved in conflicts in the Middle East. Furthermore, increasing socialist tendencies in several countries of South America would be of less concern if the US was less dependent on oil imports from these areas.
Decreased carbon dioxide emissions and a resulting improvement of air quality translate into health benefits for the broader population. The cost of installing a solar system is paid up-front and is therefore predictable, which offers individual households a substantial advantage over being exposed to volatile energy prices. Once the use of thin-film photovoltaics is widely adopted and a decentralized system of energy production such as the one we are proposing is established, it will be easier to restore power in case a natural disaster affects a particular region. Right now, if the power grid is damaged, the entire area connected to that grid is without power. If most or all the houses within a neighborhood have solar power and only some of these houses are damaged, the intact houses would still be able to generate power for the neighborhood by feeding all the excess power generated into the neighborhood grid. If a household owns a hydrogen car in parallel to a solar energy system, they can install a CSIRO5 charging station in their own garage. The solar energy produced will be sufficient to generate enough hydrogen to power the car. One potential social cost of reduced fossil fuel use is a job loss in the utilities and transportation industries. However, this can be alleviated by a job creation in the production of solar technology.

Outlook With thin-film photovoltaics making solar energy production economically viable on a larger scale, the potential applications go beyond single-family homes. Application of the technology can easily be extended to the commercial space. Grocery stores and factories with their large roof areas are natural candidates for the adoption of thin-film solar technology. In Europe, efforts are already being made by companies to adopt solar technologies. One example is IKEA, which is using solar panels at 11 stores across Europe 6.

5 6

http://www.ferret.com.au/articles/59/0c03c059.asp http://www.ikea-group.ikea.com/corporate/PDF/SandEReport2005_August.pdf 6

W07-003

Sports facilities are another possible candidate for implementation of thin-film photovoltaics. The seats in large outdoor stadiums provide a large surface area which could potentially be covered with thin film solar cells. The energy generation potential of this area is enormous and could be used to feed back into the grid for use in homes and commercial buildings. Finally, we suggest using Las Vegas as a test market for the implementation of a decentralized energy production grid. Las Vegas is one of the fastest-growing cities in the United States and its energy demand is significant. Additionally, its location in the southwestern U.S. is ideally suited for solar energy production. The abundance of solar radiation suggests solar energy should be the renewable energy of choice. The reduction in cost offered by the new thin-film technology coupled with its higher efficiency makes solar collection economically feasible. Widespread adoption of new thin film solar technology, implemented in a network, can lead to a more economical and environmentally-friendly system of energy production.

W07-003

Appendix 1: Energy Savings Due to Design Change

Unit Cost
$0.00

Design Element
Site selection

Description
Select site near public transit, with access to efficient utilities, not on farmland, greenfield, etc. Avoid large eastern and western wall exposures, place windows intelligently, place doorway out of dominant wind, avoid destroying established vegetation, utilize passive solar Smaller houses = more sustainable

Upfront Cost
$0.00

Unit Savings
$0.00

Upfront Savings

Saving/yr

% Savings/yr

Comments
Urban infill may save money, downtown may be more expensive proximity to

Orientation Size: 10% smaller

$0.00 $135.00

$0.00 $0.00 $31,725.00

$238.65

15.00%

BPA study shows 10-20% energy savings just based on orientation, using 15% as average13 $135/SF. Average price residential construction
14

Insulation Upgrade

Better R-value in walls, tighter construction to prevent air infiltration

$0.73

$3,379.57

$64.22

4.04%

Cost is in $/SF based on IECC study. 2x4 walls can take up to R-15, 2x6 walls can take up to R-21. Smaller HVAC system = saves on upfront costs plus long-term energy bill savings, this is not included. Savings based on DOE study showing $7B savings, divided by 109M HH15 Savings of ~ 10% per EIA, DOE16 Based on $/SF of windows. All prices are as compared to single pane windows; low-e and gas filled prices include cost of going up to double pane and cost of additional film and gas.17

Caulk/seal/weather strip the exterior envelope Double pane windows Low-e windows Gas-filled windows Solar shade screen Two panes of glass with air gap in between Invisible coating on glass reflects heat Argon added to low-e to increase insulative value Insect screen, reflective, applied to exterior $1.25 $4.25 $4.75 $0.55 $874.03 $2,971.69 $3,321.30 $384.57 $0.12 $0.09 $.012 $0.08

$159.10 $83.91 $62.93 $83.91 $52.44

10.00% 5.27% 3.96% 5.27% 3.30% 0.00%

Total: Total upfront cost: Total upfront savings with smaller home: Payback period, large home, in years: IRR: $10,931.16 $20,794 14.7 3.53%

$10,931.16

$31,725.00

$745.15

46.84%

http://oikos.com/esb/42/solar.html http://www.b4ubuild.com/faq/faq_0002.shtml 15 Prindle, William R., and Bion D. Howard. Impact Assessment on IECC Wall Criteria Changes. Council Proceedings, American Council for an Energy-Efficient Economy Deb (2005): 1-43. 16 http://www.eia.doe.gov/kids/energyfacts/saving/efficiency/savingenergy.html 17 http://southface.org/web/resources&services/publications/factsheets/15windows.pdf
13 14

Appendix 2: Discounted Cash Flow Summary, 15 years

Discount rate: 4.80% Status Quo Year
Cost: PV:

0
$1,103.09 $1,103.09

1
$1,103.09 $1,052.56

2
$1,103.09 $1,004.36

3
$1,103.09 $958.35

4
$1,103.09 $914.46

5
$1,103.09 $872.58

6
$1,103.09 $832.61

7
$1,103.09 $794.48

8
$1,103.09 $758.09

9
$1,103.09 $723.37

10
$1,103.09 $690.24

11
$1,103.09 $658.62

12
$1,103.09 $628.46

13
$1,103.09 $599.67

14
$1,103.09 $572.21

15
$1,103.09 $546.00

PV:

$12,709.13

Typical Solar Scenario

Year Cost: PV: PV: 0 $11,354.78 $11,354.78 $11,354.78

Best Case Solar Scenario

Year Cost: PV: PV: 0 $9,354.78 $9,354.78 $9,354.78

Worst Case Solar Scenario

Year Cost: PV: PV: 0 $12,354.78 $12,354.78 $12,354.78