An Economic Analysis of Photovoltaics versus Traditional 

Energy Sources: Where are We Now and Where Might We Be 

in the Near Future? 

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Michael Woodhouse

Additional NREL Authors: Alan Goodrich,

Ted James, Robert Margolis, David Feldman, and Tony Markel2

Strategic Energy Analysis Center and 2Electric Vehicles Program

The National Renewable Energy Laboratory

Analysis Funding Provided by The United States DOE, Solar Energy Technologies Program

Presented at the IEEE Photovoltaic Specialist Conference (PVSC) 2011, June 19-24, 2011, Seattle, Washington

NREL/PR-6A20-52311
Analysis Disclaimer

DISCLAIMER AGREEMENT

These manufacturing cost model results (“Data”) are provided by the National Renewable Energy Laboratory 

(“NREL”), which is operated by the Alliance for Sustainable Energy LLC (“Alliance”) for the U.S. Department of 

Energy (the “DOE”).

It is recognized that disclosure of these Data is provided under the following conditions and warnings: (1) these 

Data have been prepared for reference purposes only; (2) these Data consist of forecasts, estimates or 

assumptions made on a best-efforts basis, based upon present expectations; and (3) these Data were 

prepared with existing information and are subject to change without notice.

The names DOE/NREL/ALLIANCE shall not be used in any representation, advertising, publicity or other manner 

whatsoever to endorse or promote any entity that adopts or uses these Data. DOE/NREL/ALLIANCE shall not 

provide any support, consulting, training or assistance of any kind with regard to the use of these Data or any 

updates, revisions or new versions of these Data.

YOU AGREE TO INDEMNIFY DOE/NREL/ALLIANCE, AND ITS AFFILIATES, OFFICERS, AGENTS, AND EMPLOYEES AGAINST 

ANY CLAIM OR DEMAND, INCLUDING REASONABLE ATTORNEYS' FEES, RELATED TO YOUR USE, RELIANCE, OR 

ADOPTION OF THESE DATA FOR ANY PURPOSE WHATSOEVER. THESE DATA ARE PROVIDED BY 

DOE/NREL/ALLIANCE "AS IS" AND ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, 

THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY 

DISCLAIMED. IN NO EVENT SHALL DOE/NREL/ALLIANCE BE LIABLE FOR ANY SPECIAL, INDIRECT OR 

CONSEQUENTIAL DAMAGES OR ANY DAMAGES WHATSOEVER, INCLUDING BUT NOT LIMITED TO CLAIMS 

ASSOCIATED WITH THE LOSS OF DATA OR PROFITS, WHICH MAY RESULT FROM AN ACTION IN CONTRACT, 

NEGLIGENCE OR OTHER TORTIOUS CLAIM THAT ARISES OUT OF OR IN CONNECTION WITH THE USE OR 

PERFORMANCE OF THESE DATA.

The National Renewable Energy Laboratory Innovation for Our Energy Future
Overview: The Need for a Low Carbon Energy Future

Projected Trends in Primary Power Consumption:

≈15 TW in 2004; ≈30 TW in 2050

Pre-Industrial CO2 concentration: 

280 ppm

Carbon-Free Power Requirements

(including efficiency)

In 2035 to keep CO2 <550 ppm:

≈10 TW

In 2050 to keep CO2 <550 ppm:

A LOT!!!!

WRE= Wigley, Richels, and Edmonds 

M. I. Hoffert et. al., Nature, 1998, 395, 881

The National Renewable Energy Laboratory Innovation for Our Energy Future

CO2

Concentration 

(ppm)

Global Mean 

Temperature 

Increase Above PreIndustrial Levels

445-490 2.0-2.4

490-535 2.4-2.8

535-590 2.8-3.2

(‘Dire Increase’)

590-710 3.2-4.0

710-855 4.0-4.9

855-1130 4.9-6.1

(Table 3.5 in IPCC Fourth Assessment Report) 
How Are We Doing?

Pre-Industrial CO2 concentration: 280 ppm

The National Renewable Energy Laboratory Innovation for Our Energy Future
Overcoming The Oil Conundrum: The Other Value Proposition of Renewables

The National Renewable Energy Laboratory Innovation for Our Energy Future

2010 U. S. Crude Oil Trade Balance: 

Imports – Exports

= $252.06 Billion – $1.32 Billion

= 50.4% of the 2010 U. S. Trade Deficit

Data Sources:

U. S. Bureau of Economic Analysis, U. S. International Trade in Goods and Services Reports & DOE (EIA)

U. S. Crude 

Oil Trade 

Deficit 

($ Billion)

Oil Price

($/ bbl, 

Weekly 

Averages)

2005 $180 $49

2006 $220 $60

2007 $250 $69

2008 $340 $96

2009 $190 $60

2010 $251 $81

2011 (to 5/31/11) --- $98
Lets Start Here: What are the costs for a PV Installation?

Materials:

• Module ($1.50 – $2.00/ W)

• Inverter (<$0.50/ W)

• Racking, Roof Mounts, Wiring, 

Frames, Combiner Boxes, etc.

Labor:

• Electrical and Manual 

(Varies regionally, we use RS Means)

• System Design and Engineering

• Grid Connection

The National Renewable Energy Laboratory Innovation for Our Energy Future

Margins:

• Manufacturing

• Distribution

• Installation

Soft Costs:

• Permitting (Estimated $500 for 5 kW)

• Sales Tax (5% in this analysis (CO))
System Costs

The National Renewable Energy Laboratory Innovation for Our Energy Future

$/W to LCOE is not necessarily a 

perfect correlation:

Efficiency, System Reliability, and

Capacity Factor are additional factors

(e.g., the low light level efficiency benefit

of CdTe or the approximately 25-30%

increase in capacity factor, kWh/ kWp,

Goodrich, A.; Feldman, D.; James, T.; Woodhouse, M. Installed Cost of U.S.- for 1-axis tracking).

Based Solar Photovoltaic Systems. ; NREL Report No. TP-6A20-52225.
Estimated Residential System Costs Along the c-Si Roadmap

The National Renewable Energy Laboratory Innovation for Our Energy Future

Non-Module costs may most significantly limit the

downward trajectory of system costs; reaching the SunShot

$2/W residential equivalent goal will certainly require new

innovations in BOS as well as modules.
Calculating The Levelized Cost of Electricity (LCOE) for PV 

LCOE ($/ kWh) =

Total Life Cycle Cost ($)

Total Lifetime Energy Production (kWh)

=

Initial Investment + 

Annual O & M Costsn

(1 + Discount Rate)

n

n =1

N

∑ − Depreciationn

(1 + Discount Rate)

n x(Tax Rate)

n =1

N

∑

Rated kWh/ kWp x Capacity Factor

(1 + Discount Rate)

n x(1- System Degradation Rate)n

n =1

N

∑

Cost

Stability/ Reliability Financing

(Standard Deductions from Tax Liability)

Efficiency

(AND SYSTEM LOCATION)

The National Renewable Energy Laboratory Innovation for Our Energy Future
The Estimated LCOE for the Residential System

NREL Solar Advisory Model (SAM) Input Assumptions

PV System Lifetime of 30 years

Module degradation: 0.5%/yr; Temperature coefficient: -0.38%/ C

Financing assumptions (John Bartlett, formerly DOE, and David Feldman, NREL):

2.5% Inflation Rate

Mortgage Loan (80% Debt, 30 years, 7% Discount Rate)

28% Federal Tax Rate for Interest Expense Deductions

Lease (100% Cash, But Leases are not yet a SAM functionality)

35% Federal Tax Rate for 5 Year MACRS Depreciation

LCOE ($/ kWh) = Total Life Cycle Cost

Total Lifetime Energy Production

30% 

ITC

The National Renewable Energy Laboratory Innovation for Our Energy Future

30%

ITC

Assuming Same System Cost for All Locations.

LCOE Differencesshown are Solely Due to Different Irradiation Levels.

2011 Residential PV LCOE Estimates
The LCOE for PV Against Traditional Power Rates in the U. S.:

A Range of Considerations

The National Renewable Energy Laboratory Innovation for Our Energy Future

LCOE Assumptions: 

Incentives: No federal, state, local or utility incentives are included.

Taxes : Residential PV segment assumes host ownership, therefore no taxes are paid on electricity. Mortgage payments in residential sector are tax-deductable. Utility PV Assumes IPP or IOU 

ownership, and thus the LCOE includes the taxes paid on the profit from electricity generated and sold. LCOE includes 5-year MACRS in the Utility PV segment. 

Financing: Residential PV assumes a high financing scenario of a nominal 6% Weighted Average Capacity Cost (WACC). The low financing scenario assumes 80% of system cost is paid through a 

mortgage loan, with a 7% interest rate. Utility PV assumes a high financing scenario with a nominal 9.89% WACC, with a 50% debt level. The low financing scenario assumes a nominal 8.15% 

WACC, with a 60% debt level. 

Location: LCOE calculations were performed assuming a range of solar insolation. New York and Phoenix were used as proxies. 

For a complete list of LCOE assumptions, see “Levelized Cost of solar Electronic Technologies,” Bartlett et. al. Publication forthcoming. Figure courtesy of David Feldman, NREL. 

$0.00 

$0.05 

$0.10 

$0.15 

$0.20 

$0.25 

$0.30 

$0.35 

Residential Utility (Fixed axis) Utility (One axis)

Cost of Energy in $/kWh (2010$)

UNsubsidized Continental U.S. Installed Solar PV System LCOE

Against Current Statewide Average Electricity Rates 

National Retail Average: 11.1 ¢/ kWh

(EIA May 2011 Electric Power Monthly) 

National Industrial Average: 6.7 ¢/ kWh

(EIA May 2011 Electric Power Monthly) 

PV LCOE 

PV LCOE 

PV LCOE 

Average

Statewide

Electricity 

Rates

Average

Statewide

Electricity 

Rates

Average

Statewide

Electricity 

Rates
Let’s Examine the U. S. Market Even More Closely

Rates Source: DOE (EIA): May 15, 2011 Release of Electric Power Monthly.

Note: California alone is the eighth largest economy in the world (EconPost.com., 2009).

While sizable ‘transition markets’ are available, the costs of PV will have to continue their downward trend in order to meet broader ‘Grid Parity’. 

2010 Costs and Incentives

•Includes 30% Federal ITC. 

(Guaranteed until 2016; 10% 

thereafter). State incentives 

not included.

•$6.50/WDC Residential 

system (4.4 kW); however, 

more recent costs are lower. 

•Electricity rate source: EIA

Tiered Rate Structure for California’s SCE and P G & E

Baseline

12 ¢/ kWh

Tier 2

0 - 30% 

Above 

Baseline

14 ¢/ kWh

Tier 3

31 -100% 

Above 

Baseline

29 ¢/ kWh

Tier 4

>100%

Above 

Baseline

40 ¢/ kWh

The National Renewable Energy Laboratory Innovation for Our Energy Future

¢/ kWh Missouri California Texas National

Residential 8.2 15.1 11.0 11.1

Commercia

l

7.0 12.6 8.9 10.0

Industrial 5.4 9.7 6.1 6.7

Weighted 

Avg

7.3 13.0 9.1 9.7
Current and Projected LCOE for Residential PV Compared to State-by-State Electricity Rates 

The National Renewable Energy Laboratory Innovation for Our Energy Future

Notes: 

-- Unsubsidized LCOE shown at the top of each bar. The White numbers estimate the LCOE with the current and post-2016 ITC benefit.

-- 2011 average residential rates for each state (May 2011 EIA Electric Power Monthly data) is indicated with blue horizontal bar.

-- Grid Parity in ‘transitional markets’ is clearly possible with wafer-Si; however, new technologies will be needed for the cost of PV to arrive at 

NATIONAL Grid Parity. The DOE SunShot Initiative specifically addresses this challenge. 
An Oil Alternative: Electric Vehicle Charging with Solar Energy

The National Renewable Energy Laboratory Innovation for Our Energy Future

4 - 5 miles/ kWh

Chevy, Nissan, Toyota, Tesla, et al; Duetsche Bank, 

& Tony Markel (NREL Electric Vehicle Team).
And Why it Makes Economic Sense

≈$1.15/ Gallon

ENERGY Price Per Gallon Equivalent for Electric Vehicle Charging with an UNsubsidized

US residential PV system at 2011 costs (mid-Range Solar Resource- $0.21/ kWh ).

25 mpg gasoline car comparison, 4.5 miles/ kWh.

The National Renewable Energy Laboratory Innovation for Our Energy Future
EV Battery and Related Components: The Additional Cost Considerations

Electric Vehicles Are A Valuable Hedge Against Ever-Increasing Oil Prices

Fossil Fuel Based Vehicles: Low CapEx, High OpEx

Electric and Hybrid Vehicles: High CapEx, Low OpEx

The National Renewable Energy Laboratory Innovation for Our Energy Future

Estimated Battery Costs:

2011: ≈ $700/ kWh capacity;

70% Battery Capacity Utilization -- About 12 kWh total capacity needed for 40-mile range

-- About $9000 for EV Battery & Additional Components1

-- Typical 2011 Charging Parameters: 120 V, 16 A

= 4.7 hours with 2.26 kWDC of PV2

(A typical residential PV System is around 5 kWp DC)

-- 240 V, 80 A in the near future: Much shorter charging times

1One can research the costs for an EV car versus a comparable allgasoline car to check; we are not here to mention or endorse specific 

brands. EV price depicted here includes federal tax credits.

2 Active Capacity: 9 kWh of charging; 0.85 DC-to-AC derate.

Projected Near- Term Costs: ≈$300/ kWh
And Why it Makes Economic Sense

≈$3.50/ Gallon

Energy and Plug-In Battery Price Per Gallon Equivalent for Electric Vehicle 

Charging with an Unsubsidized residential PV system in CA, but Subsidized EV at 2011 costs.

25 mpg gasoline car comparison.

Estimated EV CapEx to End-Consumer: [$9000/ (12,000 miles/ year* 8 years)]*25 mpg ≈ $2.35/ gallon1

The National Renewable Energy Laboratory Innovation for Our Energy Future

≈$1.70/ gallon equivalent (With Near-Term Estimates of PV LCOE and EV Costs) 
Conclusion

We CAN (and should) think about the economics of using PV 

to reduce oil consumption, as well as traditional electricity. 

To that end, storage costs need the biggest reductions; 

the energy price is already quite compelling.

The National Renewable Energy Laboratory Innovation for Our Energy Future

Adoption dynamics must also be improved. 

Is it enough to simply be at ‘cost parity’?
Another reason why storage is critical

Woche des maximalen PV-Ertrags

0

10

20

30

40

50

60

70

80

1 2 3 4 5 6 7

Tag der Woche

Last und Stromeinspeisung [GW]

Konv. KW Wind (17 GW)

5 GWp PV 10 GWp PV

15 GWp PV 20 GWp PV

25 GWp PV 30 GWp PV

Day of the week

Load and Electricity Feed-In [GW]

Week with Maximum PV Harvesting (Germany)

Energy storage solutions are needed for penetration >10-20%:

Denholm, P.; Margolis, R. M., Energy Policy 2007, 35, 2852-2861.

Baseload Power:

>80% of total 

electricity 

production

Coal, Hydro, Nuclear, 

Geothermal, or Natural Gas

Natural Gas, PV, CSP, Wind, ‘Spinning Reserves’

Source of Figure: 

European Photovoltaics Industry Association

The National Renewable Energy Laboratory Innovation for Our Energy Future
Conclusions

“I’d put my money on the sun and solar energy. What a 

source of power! I hope we don’t have to wait until oil 

and coal run out before we tackle that.”

Thomas Edison, 1931

The National Renewable Energy Laboratory Innovation for Our Energy Future
Please Read

M. I. Hoffert et. al., Nature, 1998, 395, 881

Intergovernmental Panel on Climate Change (IPCC) 

Fourth Assessment Report

DOE, Energy Information Administration Website

Denholm, P.; Margolis, R. M., Energy Policy 2007, 35, 

2852-2861.

Duetsche Bank Reports:

- Price Dynamics at the End of the Oil Age

- Natural Gas and Renewables: 

A Secure Low Carbon Energy Future

The National Renewable Energy Laboratory Innovation for Our Energy Future
Supplemental Slides

The National Renewable Energy Laboratory Innovation for Our Energy Future
LCOEs from European PV Industries Association

The National Renewable Energy Lab Innovation for Our Energy Future
The National Renewable Energy Laboratory Innovation for Our Energy Future

Residential PV without ITC (Mortgage):

Initial Grid Parity: 2013

Widespread Grid Parity: 2015

Residential PV without ITC 

(Cash):

Initial Grid Parity: 2014

Widespread Grid Parity: 2017

∗ No state, local or utility incentives are included. The range in residential PV LCOE values is due to different geographic locations. 

For a complete list of LCOE values, see Table A-1.

The electricity rate range represents one standard deviation below and above the mean U.S. residential electricity prices.

Figure shows the LCOE for residential PV systems without the ITC, as there is no permanent 10% ITC as is the case for commercial and utility systems. To illustrate the effect of 

financing, we show both cash purchase (with a 6.0% discount rate) and mortgage financing (with a 7.0% interest rate). Even without any incentives, residential PV is projected to be 

competitive with high residential electricity rates under above-average insolation conditions by 2014 for cash purchases (2013 for mortgage financing) and under below-average 

insolation conditions by 2017 for cash purchases (2015 for mortgage financing). As residential PV system costs continue to decline thereafter, so too does the LCOE range. By 

2030, residential PV has expected levelized costs in all geographic cases and both financing assumptions that are lower than most residential electricity rates. The path of residential 

PV to grid parity and beyond is mostly due to PV cost reductions. From 2009 to 2030, the LCOE of PV is projected to decline by over 2.5 times whereas average electricity rates are 

expected to increase by only about one-fifth.

J E Bartlett, R M Margolis, A Goldstein. 

“Levelized Costs of Solar Technologies Through 2030”. Technical Report (2011)
The National Renewable Energy Laboratory Innovation for Our Energy Future

∗ Assumes IPP or IOU ownership of PV, and thus the LCOE includes the taxes paid on the profit from electricity generated and sold.

Includes 5-year MACRS but not state or local incentives. The range in utility PV LCOE values is due to different geographic

locations and financing conditions. For a complete list of LCOE values, see Table A-3.

The electricity rate range represents one standard deviation below and above the mean U.S. wholesale electricity prices.

Figure 3 shows the LCOE of utility PV systems with only the permanent 10% ITC and 5-year MACRS. By 2015, utility PV is forecasted to be competitive with high commercial 

electricity rates given above-average insolation conditions and good financing terms. Utility PV has proportionally similar differences as commercial PV between the upper and 

lower ends of the LCOE range, and it is not until 2026 that all utility cases modeled are within the same range as wholesale electricity prices. 

The 2009 – 2030 trajectories of PV LCOE and electricity rates are somewhat different for utility residential compared to commercial and residential systems, with a projected LCOE 

decline of just over 2 1/3 times and average electricity rate increase of almost 30%. Similar to commercial systems, utility PV system costs (and LCOE) decline more sharply than 

residential systems in the early years but more modestly thereafter. Due to the larger project sizes and less fragmented market compared to residential PV, the utility PV market is 

expected to mature more rapidly but with less total headroom for cost reductions. 

J E Bartlett, R M Margolis, A Goldstein. 

“Levelized Costs of Solar Technologies Through 2030”. Technical Report (2011)

Utility PV with 10% ITC:

Initial Grid Parity: 2015

Widespread Grid Parity: 2026
Overarching Realization: 

Increasing Domestic Demand for PV Installations= More Domestic PV Manufacturing

The National Renewable Energy Laboratory Innovation for Our Energy Future

y = 0.9206x + 55.965

R2 = 0.9564

0

50

100

150

200

250

300

350

400

450

0 50 100 150 200 250 300 350 400

Annual PV Domestic Shipments (MW)

Total Annual US PV Installations (MW)

Annual Domestic PV Manufacturing vs Installations

2000

2008

Sources: EIA
The National Renewable Energy Lab Innovation for Our Energy Future

Remaining Crude Oil Reserves

(Bn bbls, Conventional Sources1)

Rank Remaining Reserves Share of Total Oil Orthodoxy

1 Saudi Arabia 264.1 21.0% OPEC

2 Iran 137.6 10.9% OPEC

3 Iraq 115 9.1% OPEC

4 Kuwait 101.5 8.1% OPEC

5 Venezuela 99.4 7.9% OPEC

6 United Arab Emirates 97.8 7.8% OPEC

7 Russian Federation 79 6.3%

8 Libya 43.7 3.5% OPEC

9 Kazakhstan 39.8 3.2%

10 Nigeria 36.2 2.9% OPEC

Top 10 Total 1014.1 80.0%

14 

U. S. Total2

(ANWR, Offshore, etc.) 19 - 21 1.8%

Sources: EIA, BP and

Duetsche Bank

1Including Oil Sands puts Canada in the top two or three

(with caveats surrounding increased CO2 intensity & environmental damage). 

224% of Global Oil Consumption

U.S. Oil Consumption (from EIA Website): 

• 6.5 - 7 Billion Barrels of Crude Consumed Annually

• Net Dependence on Imports: 60-70%
The Oil Conundrum: 2009

The National Renewable Energy Laboratory Innovation for Our Energy Future

2009 U. S. Crude Oil Trade Balance: 

Imports – Exports

= $188.57 Billion – $1.01 Billion

= 49.3% of the 2009 U. S. Trade Deficit

Data Sources: U. S. Bureau of Economic Analysis, U. S. International Trade in Goods and Services 

Reports & DOE (EIA)