1. What is “socket” parity and is rooftop solar PV there yet without subsidies? Shelly Hagerman Advisors: Granger Morgan and Paulina Jaramillo May 20, 2014 1

2. Background Growing need for renewables – Focus on wind and solar Federally subsidized by the Investment Tax Credit (ITC) – 30% of upfront capital costs – Set to expire at end of December 2016 State and local subsidies – Tax incentives, rebates, loans, etc. 2

3. Research Questions Is residential solar at “socket” parity? – Technology breaks even when paid retail electricity price. If not, how to get there? – Cost reductions 3

4. How to assess socket parity? 4 MethodScopeShortcomingsLiterature Levelized cost of electricity (LCOE) Capital cost, capital recovery factor, average capacity factor Omits electricity prices (revenues). Time value of money not explicit Fairley 2013, Darling et al. 2009 Payback periodCapital cost, average annual production, average electricity price Average values for the entire project lifetime. Does not account for time value of money Hay 2013, Richter 2009 Net present value (NPV) Capital cost, annual production, electricity prices, financing details, discount rates More complex than LCOE or payback period Hay 2013, Richter 2009, Banoni et al. 2012

5. Calculating the NPV 5 Capital Cost (Installation Cost) Residential Electricity Price Solar Insolation Required Inputs Parameters Output Net Present Value (NPV) Discount Rate (DR) Financing (rate, term) Electricity Price Escalation Rate (ER) Operation and Maintenance System Size (4 kW) Module Characteristics

6. Parameters Used Retail Price of Electricity – State average residential prices [EIA] Escalation Rate of Electricity Prices (2-5%) Discount Rate (7%) System Details – 4 kW, 25 year lifetime, 0.5% degradation rate after initial 3% loss in first year 1 Financing – 15-25 years, 5-8% interest rate 6 1 S. Roe, “Solar Efficiency Losses Over Time.”

7. Installation Costs ($/W) 7 Values based on NREL PV Pricing Trends 2013 * Information not available. Applied average range for 2-5kW systems. Region20 th PercentileMedian Northeast4.35.1 Mid-Atlantic4.44.7 Southeast4.65.6 Midwest4.65.8 Southwest3.94.6 Northwest4.55.1 Texas3.53.9 California4.85.7 Hawaii*4.65.6 Alaska*4.65.6

8. Residential Electricity Price (Sept 2013 State Averages) 8 Based on EIA Electric Power Monthly

9. Energy Produced by System Using Sandia PV Performance Model – Sun-Earth geometry – Solar insolation – Module performance characteristics U.S. weather data from 1011 stations – Typical meteorological year (TMY) – Locations across all 50 states 9

10. Energy Produced by 4 kW System 10

11. Scenarios for Evaluating NPV 11 VariablePessimistic Estimate Best EstimateOptimistic Estimate Installation Cost ($/W)Median Values20 th Percentile Loan Interest Rate8%7%5% Loan Term (years)152025 Electricity Price Escalation Rate 2%3%5%

12. NPV Pessimistic Estimate 12 Features: Median installation costs Electricity Price ER = 2% Loan Interest Rate = 8% Loan Term = 15 years

13. NPV Best Estimate 13 Features: 20 th Percentile installation costs Electricity Price ER = 3% Loan Interest Rate = 7% Loan Term = 20 years

14. NPV Optimistic Estimate 14 Features: 20 th Percentile installation costs Electricity Price ER = 5% Loan Interest Rate = 5% Loan Term = 25 years

15. Socket Parity Summary 15 ScenarioNumber of states at socket parity Pessimistic Estimate0 Best Estimate1 (Hawaii) Optimistic Estimate1 (Hawaii)

16. Break-even Analysis 16 Pessimistic EstimateOptimistic Estimate Best Estimate

17. Sensitivity Analysis 17 VariablePessimistic LimitOptimistic Limit Installation Cost ($/W)Median80% of 20 th Percentile Loan Interest Rate8%0% Loan Term (years)530 Electricity Price Escalation Rate 2%7% Discount Rate0%10% Starting Electricity PriceWholesale2013 Retail

18. Conclusions These results suggest that residential solar PV is still not at “socket” parity in most of the U.S. Mean break-even cost of $1.5-$2/W for “socket” parity without subsidies 18

19. Future Work Cost of variability – Regional variation of cost to grid and technology performance – Use of empirical data to evaluate solar output aggregation effects Optimizing subsidy allocation 19

20. Acknowledgements ClIMA Research Group This work was supported by academic funds from the Department of Engineering and Public Policy, by the program for Graduate Assistance in Areas of National Need (GAANN) of the U.S. Department of Education, by the Department of Energy under Awards DE-OE0000300 and DE- OE0000204, and by the NSF center for Climate and Energy Decision Making Center (CEDM) (SES- 0949710). 20