Prices of solar power systems declining – analysis of cost-effectiveness depends on service life

2020-05-12 Karoliina Auvinen and Miika Rummukainen

The prices of solar power systems have been on the decline across all size categories since 2016. Larger solar power systems are more affordable in proportion to smaller systems. The larger the system, the more affordable the unit in relation to its size with EUR/kWp as the maximum electrical power.

In practice, the more affordable unit price of a larger system means that acquiring a solar power system is relatively more affordable in buildings that are large or consume large amounts or electricity compared to buildings that are smaller or consume less electricity.

Solar power is particularly suited for real estate that uses cooling systems. A building where the indoor areas and the service water are heated by geothermal energy may obtain a larger and, relatively speaking, more affordable solar power system than a building using district heating. This is because heat pumps consume electricity when recovering heat from geothermal sources, water or air, and the electricity can be partially produced by the building’s own solar power from spring to autumn. In buildings using district heating or no heating, the use of electricity is often limited to the power consumption of electrical devices and machinery.

As the emissions of heat production are currently often larger than those of electricity production, using solar power for heating is a great way of cutting back on emissions.

What makes solar power economically viable?

In addition to the purchase price, the profitability of a solar power system is particularly affected by the price of the delivered energy as the building’s solar power production is used to replace and conserve delivered energy. A general rule of thumb is that solar power should be scaled to your consumption. It is important to note that whenever the production of solar power exceeds your electricity consumption, the surplus electricity is fed into the grid. Electricity companies reimburse you for the electricity fed into the grid, and the fee is lower than the value of solar power when used personally.

The share of personal solar power consumption can be improved by using heat and electricity accumulators and virtual batteries. The hot-water tank of a building using geothermal heating, for example, can be used to store heat from solar power. This means that, on sunny days, the service water of the building is heated by solar power. Moreover, you can equip your solar power system with an accumulator system or conclude a so-called virtual battery agreement with your electricity company. Solar power can also be used to charge electric vehicles if the building has set up charging stations.

Assessing the quality of the system is an important part of the purchase process as the financial benefits of investing in solar power are realised over the course of a long service life. High-quality solar power systems require very little maintenance. During a service life of about 30–40 years, replacing the inverter is often the only maintenance procedure needed. Profitability is also affected by the interest charges of the loan.

The payback period is not a viable indicator for analysing the financial benefits of solar power as it does not take into account the service life of the system.

The open-data solar power profitability calculator developed by Aalto University helps assess the profitability of the investment using the net present value. We have added some new features in the calculator and set an example calculation of a 20kW solar power system procured by a municipality, based on the current cost level. Download the calculator here:

Today, solar power systems are a profitable investment for municipal organisations and businesses as the systems are scaled to correspond to the electricity requirements of the buildings and their financial viability is assessed with appropriate criteria.

Senior Specialist Karoliina Auvinen, Finnish Environment Institute and Coordinator Miika Rummukainen, Finnish Environment Institute

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