Are Photovoltaic Systems Cost Effective?

Photovoltaic (PV) systems that convert ambient sunlight into carbon-free electrical power are increasingly common and cost effective. The average cost of PV systems has dropped by about 60 percent since 2009, while utility electrical rates have continued to rise.

The result is a much faster return on investment for building owners who install PV systems than even a few years ago, according to research by LPAred, LPA’s in-house research arm. For example, the average cost for installed PV systems in California in 2019 was $3.78 per watt for systems larger than 10kW—down from $11.69/watt 10 years ago—and $4.50 per watt for systems smaller than 10kW. This translates to a cost of $50 to $75 per square foot based on the area of the PV array.

Meanwhile, electrical rates continue to increase. Depending on the region and local costs, most LPA clients will see a return on investment of over 10 percent for PV systems, or a simple payback of 8 to 12 years. Since PV systems have a useful life of approximately 25 years, PV systems make financial sense for the majority of projects, when the building owner is responsible for utility costs and intends to own and operate the facility for at least 10 years.

In almost all cases, a large PV system is required if the goal is to achieve a net-zero energy building. A general rule of thumb when targeting net zero is to install one square foot of solar PV panel for every two square feet of building area. This is a rough estimate since different buildings will have different energy use profiles and since PV system output is contingent on system efficiency, array azimuth, mounting angle and local climate factors.

The calculation for a net-zero building assumes that solar panels produce between 15 and 18 watts per square foot on average and that there are about 1,450 peak sunlight hours per year. This yields a PV output intensity equivalent to an Energy Use Intensity (EUI) of 75. For most LPA projects the predicted energy use falls between 25 and 40.

The design of the PV system can play a key role in the efficiency of the system and the ultimate cost savings. PV systems require large open, unshaded areas with maximum solar exposure. In many cases, it’s preferable to install PV systems on canopies shading parking lots since this allows the PV system to be installed independent of any building roofing or structural constraints. Other shade structures and canopies can also provide suitable mounting surfaces for PV systems when planned and coordinated appropriately within the context of the site design.

The optimal tilt angle for solar panels to maximize annual output is equal to the latitude of the site (30-40 degrees for most in the US), with panels tilted facing due south. Often PV systems are installed flat or at a more modest angle of 10 to 20 degrees since attachment, wind loading, spacing and aesthetic issues limit the viability of a heavily tilted array. Mounting panels at a 10- to 20-degree tilt to the south yields only a mild reduction of 3 to 6 percent in predicted output compared to an optimal 35-degree tilt. PV panels mounted flat output about 15 percent less than an optimal orientation. PV panels mounted vertically (on a wall) facing south output 40 percent less energy than an optimal orientation and this output degrades for walls that are not oriented due south and/or are shaded during portions of the year.

The increasing efficiency of PV systems is one reason the installed base is quickly rising. According to the California Distributed Generations Statistics website, which aggregates solar information from a large number of projects, the overall installed PV capacity in California has increased 80-fold from just 87 MW in 2005 to more than 7,000 MW in 2019. Texas has also experienced exponential increase in PV systems with the installed capacity increasing from less than 50 MW in 2010 to almost 1,000 MW in 2018.