The Drivers of The

Levelized Cost
of electricity
for Utility-Scale
Photovoltaics

sun power CorporaTion

14 August 2008
 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

E XEC UTIVE SUMM ARY

For more than three decades, utility-scale solar generated electricity has been dismissed as too costly.
But the cost of solar generated electricity is consistently coming down, while the cost of conventional
electricity is increasing. Advances in solar cell technology, conversion efficiency and system
installation have allowed utility-scale photovoltaic (PV) to achieve cost structures that are competitive
with other peaking power sources. The calculation of the levelized cost of electricity (LCOE) provides
a common way to compare the cost of energy across technologies because it takes into account
the installed system price and associated costs such as financing, land, insurance, transmission,
operation and maintenance, and depreciation, among other expenses. Carbon emission costs and
solar panel efficiency can also be taken into account. The LCOE is a true apples-to-apples comparison.

Around the globe, the solar industry has installed approximately 10 gigawatts of solar PV systems.
Pacific Gas & Electric Co. has announced more than 2 gigawatts of agreements involving both solar
thermal and PV technologies, including 800 megawatts of photovoltaic power – the largest utility-scale
contracts for PV in the world. SunPower’s 250 megawatt central station, high-efficiency, PV power
plant in California Valley will be the first to deliver utility-scale PV power to PG&E. These solar power
plants are vivid examples of how the electricity production landscape is changing rapidly to embrace
a much broader portfolio of renewable resources. The LCOE equation sorts through the relative costs
of such systems and pinpoints the increasingly positive economics for harvesting the world’s most
abundant energy resource – sunshine.

The economies of scale inherent in utility-scale solar systems are similar to those found with other
power options, but PV has the benefit of being completely modular – PV works at a 2 kilowatt
residential scale, at a 2 megawatt commercial scale or at a 250 megawatt utility scale. PV has the
unique advantage among renewable resources of being able to produce power anywhere: deserts,
cities or suburbs. Smaller scale PV costs more on an LCOE basis, but it can be selectively deployed on
the grid wherever and whenever needed to reduce distribution capacity constraints and transmission
congestion while producing pollution-free power. All PV can be constructed quickly and even utility-
scale power plants can begin delivering power within a few quarters of contract signing – a major
advantage when compared to conventional power plants. At SunPower, we serve customers across the
spectrum, from small-scale to utility-scale solar, because each application has distinctive advantages
and will contribute to driving solar power to become a major source of carbon-free power.

The LCOE Equation – a Key to Evaluating Emerging Energy Technologies

The LCOE equation is an evaluation of the life-cycle energy cost and life-cycle energy production. It
allows alternative technologies to be compared when different scales of operation, investment or
operating time periods exist. For example, the LCOE could be used to compare the cost of energy

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

generated by a PV power plant with that of a fossil fuel-generating unit or another renewable
technology.1 It captures capital costs, ongoing system-related costs and fuel costs – along with the
amount of electricity produced – and converts them into a common metric: $/kWh.

What drives LCOE reduction for PV?

Both capital costs and operating and maintenance costs are driven by the choice of technology and
the area of the solar system. We outline in this paper how the following key factors drive the LCOE for
solar PV power plants.
1) Panel Efficiency: SunPower’s high-efficiency solar panels generate up to 50 percent more power
than conventional technology and up to four times as much power as thin film technologies,
thereby lowering area-related costs.
2) Capacity Factor: SunPower’s tracker technology can increase energy production from solar panels
by up to 30 percent, further reducing area-related costs and contributing more high-value energy
during afternoon hours than fixed-tilt systems.
3) Reliable System Performance and Lifetime: SunPower’s established crystalline silicon technology,
with its history of consistent, predictable performance, reduces power plant financing costs
lowering the LCOE.

Sunlight is a diffuse energy resource.

Square M ile s of PV Pane ls pe r 1 TW h
Maximizing energy production per panel area
2.5
is critical to achieve the best LCOE in a utility-
2.0
scale PV power plant. As shown in Figure 1, if
1.5
a PV power plant with 1 terawatt hour (TWh)
1.0
Sq. Miles of
PV of annual energy production is built with
0.5
SunPower high-efficiency PV panels mounted
0.0
SunPower T20 Tracker 11% CIGS/CdTe Fixed 6% aSi Fixed Tilt on solar trackers, up to 75 percent less panel
Tilt
area is required when compared with thin film
Figure 1 - PV Panel Area Required for 1 TWh Annual Production technology mounted in a fixed tilt configuration.
This energy production density leverages almost all PV power plant fixed plant and operation and
maintenance (O&M) costs, directly reducing the system LCOE.

Based on the LCOE, SunPower’s high-efficiency power plants generate energy at a price competitive
with other peak power resources. Given our technology roadmap and LCOE forward cost curve, we
expect our high-efficiency silicon PV technology to maintain that competitive position.

1 W. Short, D. Packey, T. Holt, “A Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies”,
National Renewable Energy Laboratory – March 1995

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

Table of
Contents I. The LCOE Equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Major LCOE Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1. Initial Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Depreciation Tax Benefit . . . . . . . . . . . . . . . . . . . . . . 6
3. Annual Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. System Residual Value . . . . . . . . . . . . . . . . . . . . . . . . 7
5. System Energy Production . . . . . . . . . . . . . . . . . . . . . 7
C. The LCOE Model Sensitivity . . . . . . . . . . . . . . . . . . . . . . . 8

II. LCOE Variables for Utility-Scale PV . . . . . . . . . . . . . . . . . . . . 9

A. PV Power Plant Performance . . . . . . . . . . . . . . . . . . . . . 9
1. System Capacity Factor . . . . . . . . . . . . . . . . . . . . . . . 9
2. PV Panel Performance and Lifetime . . . . . . . . . . . . 12
3. Predicting System Performance . . . . . . . . . . . . . . . 14
B. Initial PV Power Plant Investment . . . . . . . . . . . . . . . . . 15
1. PV Panel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. Area-Related Expenses . . . . . . . . . . . . . . . . . . . . . . 17
3. Land Use and Expense . . . . . . . . . . . . . . . . . . . . . . . 19
4. Grid Interconnection Costs . . . . . . . . . . . . . . . . . . . 21
C. PV Power Plant Operating Expenses . . . . . . . . . . . . . . . 21
D. System Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . 24
E. SunPower’s LCOE Forecasting Tool . . . . . . . . . . . . . . . . 24

III. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

i. The LCoe
equation
The recent announcements of a wide variety of utility-scale solar
photovoltaic (PV) power projects provide evidence that utility-scale
PV is now reaching levels that are price competitive on a levelized
cost of electricity (LCOE) basis with other peak power sources.
Deriving a utility-scale PV LCOE requires a range of inputs which
this paper discusses in detail. It also will review the LCOE benefits
of high-efficiency silicon PV technology for utility-scale solar power
plants.

a. introduction
The LCOE equation is one analytical tool that can be used to compare
alternative technologies when different scales of operation, invest-
ment or operating time periods exist. For example, the LCOE could
be used to compare the cost of energy generated by a PV power
plant with that of a fossil fuel generating unit or another renewable
technology.2

The calculation for the LCOE is the net present value of total life
cycle costs of the project divided by the quantity of energy produced
over the system life.

The above LCOE equation can be disaggregated for solar generation

as follows:

2 W. Short, D. Packey, T. Holt, “A Manual for the Economic Evaluation of Energy Efficiency and
Renewable Energy Technologies”, National Renewable Energy Laboratory – March 1995

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The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

When evaluating the LCOE and comparing other commonly known

$/kWh benchmarks it is important to remember that the LCOE is an
evaluation of levelized life cycle energy costs. The price of energy
established under Power Purchase Agreements (PPAs) or by feed-
in-tariffs (FITs) may differ substantially from the LCOE of a given
PV technology as they may represent different contract or incentive
durations, inclusion of incentives such as tax benefits or accelerated
depreciation, financing structures, and in some cases, the value of
time of day production tariffs.

B. Major LCoe inputs

1. INITIAL INVESTMENT
The initial investment in a PV system is the total cost of the project
plus the cost of construction financing. The capital cost is driven by:
• area-related costs which scale with the physical size of
the system namely the panel, mounting system, land, site
preparation, field wiring and system protection.
• Grid interconnection costs which scale with the peak power
capacity of the system including electrical infrastructure such
as inverters, switchgear, transformers, interconnection relays
and transmission upgrades.
• project-related costs such as general overhead, sales and
marketing, and site design which are generally fixed for similarly
sized projects.

2. DEPRECIATION TAx BENEFIT

The depreciation tax benefit is the present value of the depreciation

tax benefit over the financed life of the project asset. Public policy
which enables accelerated depreciation directly benefits the system
LCOE because faster depreciation translates to faster recognition of
the depreciation benefit.

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The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

3. ANNUAL COSTS

In the LCOE calculation the present value of the annual system

operating and maintenance costs is added to the total life cycle
cost. These costs include inverter maintenance, panel cleaning,
site monitoring, insurance, land leases, financial reporting,
general overhead and field repairs, among other items.

4. SySTEM RESIDUAL VALUE

The present value of the end of life asset value is deducted from
the total life cycle cost in the LCOE calculation. Silicon solar panels
carry performance warranties for 25 years and have a useful life
that is significantly longer. Therefore if a project is financed for a 10-
or 15-year term the project residual value can be significant.

5. SySTEM ENERGy PRODUCTION

The value of the electricity produced over the total life cycle of the
system is calculated by determining the annual production over the
life of the production which is then discounted based on a derived
discount rate. The first-year energy production of the system is
expressed in kilowatt hours generated per rated kilowatt peak of
capacity per year (kWh/kWp). The kWh/kWp is a function of:
• The amount of sunshine the project site receives in a year
• How the system is mounted and oriented (i.e. flat, fixed tilt,
tracking, etc.)
• The spacing between PV panels as expressed in terms of
system ground coverage ratio (GCR)

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The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

• The energy harvest of the PV panel (i.e. performance sensitivity

to high temperatures, sensitivity to low or diffuse light, etc.)
• System losses from soiling, transformers, inverters and wiring
inefficiencies
• System availability largely driven by inverter downtime

To calculate the quantity of energy produced in future years, a

system degradation rate is applied to initial system performance
to reflect the wear of system components. The system degradation
(largely a function of PV panel type and manufacturing quality)
and its predictability is an important factor in life cycle costs as it
determines the probable level of future cash flows.
Finally, the system’s financing term will determine the duration of
cash flows and impact the assessment of the system residual value.

C. The LCOE Model Sensitivity

The LCOE is highly sensitive to small changes in input variables
and underpinning assumptions. For this reason, it is important to
carefully assess and validate the assumptions used for different
technologies when comparing the LCOE.

Figure 2 illustrates the model’s sensitivity to input assumptions. We

provide three scenarios that all start with the same PV system price
and predicted energy output using a tracker in a high insolation3
location. We then modify 1) the annual degradation rate, 2) the
forecasted economic life, 3) the annual O&M expense, and 4) the
discount rate. The resulting LCOE for the three scenarios range from
$0.09 / kWh to $0.23 / kWh, illustrating that for the same system
capital cost and initial energy output the range of energy prices can
vary by a factor of two or more. Comparing LCOE calculations and
power plant energy pricing requires aligning assumptions across
examples and calibrating against empirical data to generate a more
accurate LCOE forecast.

3 Insolation is the level of solar radiation received at a given location

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

Case 1 Case 2 Case 3

Figure 2 System Price 100% 100% 100%

Solar PV LCOE
kWh/kWp 100% 100% 100%
Sensitivity to
Variable Changes Annual Degradation 1.0% 0.5% 0.3%
System Life 15 25 40
Annual O&M $/kWh $0.030 $0.010 $0.005
Discount Rate 9% 7% 5%
LCOE $/kWh $0.23 $0.13 $0.09

One use for LCOE calculations is to compare costs without

incentives. If incentives such as the U.S. Investment Tax Credit (ITC)
are assumed in an LCOE calculation they should be specifically
referenced to make clear the basis for comparison between
technologies.

Given the high sensitivity of the LCOE to input variables, it is

important to understand the validity of performance output over
a system’s lifetime. Silicon PV systems have been operating
outdoors for more than 20 years4 and therefore the performance
and degradation mechanisms are well understood. For silicon-
based PV systems it is possible to accurately forecast future output
allowing one to populate the LCOE equation variables with a high
level of confidence.

II. LCOE To understand the LCOE outlook for utility-scale PV it is important to

understand the lifetime system performance and cost. The following
Variables for sections summarize key cost and performance drivers for a utility-
Utility-Scale PV scale PV power plant.

A. PV Power Plant Performance

The lifetime energy generated from a PV power plant is a product
of the plant location, annual performance for a given capacity,
component degradation and system lifetime.

4 E. Dunlop, D. Halton, H. Ossenbrink, “20 Years of Life and More: Where is the End of Life of
a PV Module?” IEEE Proceedings 2005, p.1595

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 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

1. SySTEM CAPACITy FACTOR

The capacity factor is a key driver of a solar project’s economics.
With the majority of the expense of a PV power plant being fixed,
capital cost LCOE is strongly correlated to the power plant’s
utilization. The annual capacity factor for a PV power plant is
calculated as:

Annua l k ilowa tt -hours genera ted for ea c h k ilowa tt AC of pea k c a pa c ity (k W h/k W p)
7

8760 hours in a yea r

A PV power plant’s capacity factor is a function of the insolation at

the project location, the performance of the PV panel (primarily as it
relates to high temperature performance), the orientation of the PV
panel to the sun, system electrical efficiencies and the availability of
the power plant to produce power.
s ample r ange of e quivalent LCoe
LC oe values

figure 3
40%
Associated Capacity Factors
and System Prices Producing
an Identical LCOE5 38%

36%

34%
Capacity Factor (AC)

32%

30%

28%

26%

24%

22%

20%
$2.00 $2.50 $3.00 $3.50 $4.00
LCOE Equivalence
System Price – $ / Wp (DC)

5 Capacity factor is generally expressed as a function of the AC rating of a plant so the above
kWh/kWp calculation is based on the kWh per AC watt peak as opposed to the DC watt peak

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

Figure 4 - SunPower’s T0 Tracker Figure 5 - SunPower’s T20 Tracker

The economic impact of the capacity factor is substantial. Figure 3

illustrates a range of identical LCOE values, expressed in $/kWh,
for a given PV power plant system price as expressed in $/Wp and
the associated capacity factor. As the capacity factor declines, the
required installed system price must also substantially decline to
maintain system economics. For example, a $2.50/Wp system with
a 24 percent capacity factor (such as with a fixed tilt configuration)
delivers the same LCOE as a $3.50/Wp system with a 34 percent
capacity factor (such as with a tracker). The highest capacity factors
are generated with trackers which follow the sun throughout the
day to keep the panel optimally oriented towards the sun. This
tracking also has the benefit of generating more energy in the
peak electricity demand periods of the afternoon. SunPower has
developed two patented tracking systems to optimize the capacity
factor of a PV power plant: the T0 Tracker – optimized for space-
constrained sites – and the T20 Tracker – optimized for maximum
energy production.

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 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

The LCOE model assigns an equal value to electricity generated

throughout the year. However, electricity generated at peak
periods is more valuable to the utility. The use of tracking with a
solar system can increase the output of a plant after 4 p.m. in the
summer by more than 40 percent, which is often a period of peak
demand on the system when energy is highly valued. Figure 6 gives
a comparison for the summer energy output of a fixed and tracking
PV power plant as compared with the California ISO load. A tracker
enables higher output during the peak afternoon period for a given
plant capacity.

s un
unpp ower p roduction vs. Load p rofile

figure 6
Comparison of California Summer Summer CA
Peak Load &"
Load Requirements with Fixed and #(!
)*++,-./+,0.1.23045607-18*9,807,-04570

Tracking PV Systems #'!

&!

%"
#&!
MWp Nameplate

CA ISO Load (GW)

Summertime MWh

%!
#$!

;<0=)>0?1280@!!!AB
per :2+,732.,

$"
#!!

$!
(!

'! T20 Tracker #"

Fixed Tilt #!
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2. PV PANEL PERFORMANCE AND LIFETIME

Successful prediction of PV panel performance over time is critical
to project investors. Furthermore, demonstrating the historical
performance of a company’s panel technology is critical to
determine financing parameters which underpin the LCOE
calculation.

Silicon PV has the longest operating history of any solar cell

technology. The photograph in Figure 7 shows a monocrystalline
silicon panel after 20 years of outdoor exposure with no major
visual degradation. Studies on the performance of silicon PV panels
show only four percent total degradation after 23 years of outdoor
exposure.6 This experience provides a high level of confidence in

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 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

making future performance predictions. Note that most investors

finance a solar system based on an assumed panel degradation rate
of 0.5 to 1.0 percent per year, a faster rate than this historical data
for silicon PV might indicate.

figure 7
Monocrystalline Silicon PV Panel
after 20 years of Outdoor Exposure

Research on silicon PV historical performance suggests that panel

life may extend much further than the 25-year design life.7 This
demonstrates that long-term performance may enable longer
financeable system lives in the future. Figure 8 illustrates the LCOE
model sensitivity to financed system life based on a seven percent
discount rate. As indicated in the figure, extending the financed term
of the project beyond today’s 20- to 25-year values could have a
material impact to the LCOE.

LCoe
LC oe vs. sY s T e M Life

figure 8 100%

LCOE Sensitivity to
95%
Financeable System Life
90%

85%

80%
LCOE vs. System Life
75%

70%

65%

60%
!"# !!# !$# !%# !&# '"# '!# '$# '%# '&# $"#
Financeable System Life (years)

6 F. De Lia, S. Castello, L. Abenante, “Efficiency Degradation of C-Silicon Photovoltaic Mod-

ules After 22-year
year Continuous Field Exposure,” Proc. 3rd World Conf. on PV Energy Conver-
y
sion, May 2003, Osaka, Japan.
7 E. Dunlop, D. Halton, H. Ossenbrink, “20 y years of Life and More: Where is the End of Life of
a PV Module?” IEEE Proceedings 2005, p.1595

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

13. Predicting System Performance

In addition to calculating PV panel output, an estimate of the
system’s overall performance must be made to finance a project.
The key variables in a PV power plant’s performance are plant
uptime, weather-based performance (insolation, ambient temperature,
soiling, etc.), inverter and power system efficiency, and system
component degradation (largely from the panel).

SunPower has developed an analytical model, PV Grid, which

accounts for the above variables and makes future performance
predictions based on SunPower’s experience with more than 450
installed commercial rooftop and power plant systems. With this
tool SunPower provides project investors with a well-demonstrated
means of estimating project cash flows.

Bavaria Solarpark Performance

Figure 9
Expected and Actual
Energy Production for
10MW Bavaria Solar8

Figure 9 illustrates the actual versus expected performance for a

10 megawatt SunPower tracking power plant system in Germany,
Bavaria Solar I. During the first three years of operation, the system
performance has exceeded the performance estimates under which
the project was financed.

8 A. Kimber, “Long Term Performance of 60MW of Installed Systems in the US, Europe, and
Asia”, Proceedings of the 22nd Annual Photovoltaic Solar Energy Conference, September 2007

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

This correlation between empirical data and future predictions is

critical in reducing investor risk and the related cost and terms
of capital investments. An important path to utility-scale LCOE
reduction is to demonstrate to investors the predictable output,
Figure 10 degradation and system life which would support a lower cost of
Representative Experience project capital. As more PV data is generated and investors become
of SunPower PV Power
Plant Technology more familiar with the technology, this may become possible.

B. Initial PV Power Plant Investment

1. PV Panel
When discussing the potential for photovoltaic solar cost reduction
the focus is understandably placed on the panel. Over the past
several years, solar panel prices have represented approximately
$4/Wp of total PV system installed prices of $6-$9/Wp9 depending
on the market and application type.

Until 2004, PV cell and panel production costs were steadily

declining following classic learning curve behavior as the solar

9 Within the PV industry system prices and sizes are often referred to in terms of the DC Wp of
the system such as here. In other instances AC Wp prices and sizes are published. AC Wp prices
are higher than DC values because of the losses in transforming power from DC to AC i.e. a
1 megawatt DC system at $7.00/Wp might be rated as 0.8 megawatts AC and $8.75/AC Wp.

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The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

industry grew. In 2004 and through 2008 however, the rapid growth
in PV demand led to a global shortage of solar-grade polysilicon,
the key raw material used in conventional silicon solar cells. The
spot market price of polysilicon during this period rose from $25/
kg to greater than $500/kg for some reported transactions. The
cost of polysilicon became the driving cost of a conventional solar
panel, increasing production costs to artificially high levels relative
to the historic learning curve. As a secondary effect, solar cell
manufacturing costs also suffered as the result of underutilized,
silicon-constrained factories.

In 2007, some solar manufacturers entered into new intermediate

and long-term contracts that will continue through the rest of the
decade, lowering feedstock costs for those that have contracted
for that silicon. The polysilicon industry should also benefit from
an improved cost structure — as compared with pre-shortage
levels — due to the scale economies of the new factories being built
and new silicon purification process technology. In the first half of
2008, SunPower saw its first material silicon cost reductions as we
benefited from the delivery of substantial volumes of polysilicon
under supply contracts from new production facilities.

One benefit of the silicon shortage was that the cost and scarcity
of silicon prompted a significant improvement in silicon utilization
by solar cell manufacturers. In SunPower’s case, the grams of
polysilicon consumed to manufacture a watt at the solar cell level
declined from 13 g/W in 2004 to 6.3 g/W in 2008 and is planned to
decline to an estimated 5 g/W with SunPower’s Gen 3 technology
now under development. By 2011 this approximately 60 percent
reduction in the use of silicon, coupled with an approximately 50
percent decline in the price of polysilicon, will independently drive
large cost reductions for PV panels.

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 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

Cell and panel conversion costs are driven by yield, depreciation,

labor, chemical consumption, electricity cost and materials.
Conversion costs can be improved by shorter and more efficient
processes, higher throughput production lines, larger plant sizes
driving scale economies, and greater automation, among other
factors. All of these costs are also leveraged by the efficiency
of the solar cell. SunPower’s cost structure and cell efficiency
advantage demonstrate that higher efficiency cells can absorb the
increased manufacturing costs to make each cell due to the higher
watts per cell. Efficiency advantages continue downstream into
panel assembly, sales, marketing and installation. For example,
holding all other costs constant, an increase in cell efficiency of
one percentage point will equate to approximately a five percent
decrease in installed system costs. Figure 11 illustrates the solar
conversion of efficiency of SunPower’s solar cells relative to
conventional silicon and thin film PV technologies.

Relative Solar Cell Conversion Efficiencies

Figure 11 S o la r Ce ll
Relative Solar Cell E fficie n cy (% )
Conversion Efficiencies 22
= A ve ra g e p ro d u ctio n e fficie n cy
20

18

16

14

12

10

6
Th in Films Rib b o n Co n ve n tio n a l HIT S unP ow e r S unP ow e r
A-300 G en 2
2. Area-Related Expenses
PV power plant area-related expenses include system costs which
directly scale with the area of PV panels used. These expenditures
are the dominant non-panel costs in a PV system and include steel,
foundations, mounting hardware, plant installation, shipping and
warehousing, field wiring, and the electrical components used to
connect the panels. Area-related costs are highly correlated with the
prices of steel, copper and concrete as well as transportation expenses.

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The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

The structural materials necessary for panel installation are driven

by the wind load requirements of the project. These are a function
of the PV panel surface area that is exposed to the wind whether the
system is tracking or fixed (similar to how the wind force on a sail is
a function of the sail size). As a result, simplified tracking and fixed
tilt configurations share similar cost structures with the exception of
the drive and control components.

There is a common misconception that trackers significantly add

to the cost of a system over fixed tilt configurations. SunPower
has developed trackers which can move up to 300kWp of panels
with a simple half-horsepower motor which requires little
maintenance. SunPower has determined that the financial benefit
of the increased energy production generated by tracking the sun
significantly outweighs the incremental system costs. By the end
of 2008, SunPower and its partners will have deployed more than
250 megawatts of tracking systems on three continents. With this
experience, SunPower has determined that tracking systems have
delivered superior LCOE economics for its customers than fixed
configurations.

Area-related installation costs can vary substantially by site and by

country. For example, a fence post-like support foundation might
be easily driven into the ground in Bavaria whereas a South Korea
typhoon zone may require a thick steel beam placed in a hole
drilled into rock and secured with reinforced concrete at four times
the cost. As a result the range of foundation costs for a fixed tilt
system or single-access tracker could vary from $30 - $200 / m2 of
PV depending on the site. Additionally, differences in government
electrical codes can significantly impact costs; one jurisdiction may
require expensive steel wire conduit while others allow the direct
burial of cable into the ground.

Once the area-related costs for a system are calculated, a simple

transformation to $/Wp can be accomplished by dividing $/m2 by
the Wp/m2 of the panel. In the case of SunPower’s high-efficiency
panels, area-related $/Wp costs are approximately 50 percent
lower than thin film PV panels. Figure 12 below demonstrates how
area related costs are leveraged through efficiency for a sample

sunpower 18
 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

central station PV solar power plant with 1 TWh of annual energy

production. Note that although the material costs are higher for
standard efficiency and thin film panels, they are largely similar to
what they would be with a fixed tilt system so tracking still makes
economic sense provided there is available land.

Area Related Costs for a 1 TWh T20 Tracker Project

PV Panel Used for Project SunPower Standard Efficiency Thin Film

PV Panel Efficiency 20.0% 14.0% 11.0%
System Size (DC kWp) 423,191 439,754 430,108
Land Required (Sq Miles) 5.11 7.58 9.44
Truckloads of Concrete Required 12,718 18,218 22,678
Steel Required (Tons) 35,083 50,258 62,561
Cabling Required (Miles) 410 587 730
Trenching Required (Miles) 32 45 57
Modules to Wash (Sq Feet) 14,579,689 21,643,300 26,941,782
Tracker Installation Labor (hours) 365,450 523,516 651,678
Concrete Required (Tons) 254,353 364,367 453,568

Figure 12 3. Land Use and Expense

Area Related Cost
Components for a T20 Land used for solar power plants has been readily available and
Tracker Power Plant inexpensive in the past, largely because the land had little economic
with 1 TWh of Annual
Production value other than in some cases low-yielding agricultural activities.
As solar power plant developers began acquiring land in South
Korea, Southern Europe and the southwest U.S., prices for prime
land conducive to a solar power plant rapidly increased in cost and
general land availability became an issue. Korea and Southern
Europe have seen solar-suitable land price increases of more than
300 percent and southwest desert land has sold for prices as high
as a reported $23,000 per acre for flat land10 with high insolation
located near electrical transmission lines, a roughly 15,000 percent
increase over historical values for the same parcels.

There are two fundamental drivers for the land consumed by a solar
power plant: solar panel efficiency and system ground coverage
ratio (GCR). System GCR is the ratio of solar panel area to land area.

10 T. Woody, “The Southwest Desert’s Real Estate Boom,” Fortune Magazine, July 11, 2008.

sunpower 19
The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

PV panels mounted flat use land the most efficiently and have the
maximum GCR but have the lowest capacity factor, meaning lower
utilization of fixed plant costs. Conversely a two-axis tracker has
the maximum possible capacity factor but requires up to 10 times
more land than flat configurations. To put it simply, the better the
orientation to the sun (thus capacity factor), the longer the shadows
created and therefore the further apart panels must be placed to
avoid panel to panel shading.

To deliver the best utility-scale PV LCOE one must balance land use
with the system capacity factor. SunPower addresses this optimi-
zation problem by manufacturing the world’s highest efficiency PV
panels along with tracking systems that efficiently use land while
increasing energy production. SunPower’s tracker offerings include
the T20 Tracker, which maximizes capacity factor in an efficient land
footprint, and the T0 Tracker, which optimizes land use for
constrained sites while still providing a high capacity factor.

Figure 13 illustrates the land consumption versus capacity factor for

a power plant producing 1 TWh / year in a high insolation location.
One can see in this example that:
• With high-efficiency PV panels, up to 75 percent less land is
required for a given capacity factor configuration.
• With high-efficiency PV panels mounted on trackers, up to
30 percent higher capacity factors are attainable while using
a similar or lower amount of land per quantity of energy
produced than low and medium efficiency panels mounted on
fixed tilt systems. This means that lower LCOE configurations
are achievable without prohibitively increasing the amount of
land required.

sunpower 20
 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

Land r equirements for a h igh i nsolation pv p ower p lant

6$7-',&"#)%&8&72+'95%'$':);<'=7+5*$2)57'>?'>5@&%'>*$72'@)2<''
with 1 Tw
T w h of a nnual p roduction
A'BC<'59'.77#$*'>%5-#12)57'
figure 13 !'&!!
@&%'>*$72'@)2<'' Land use and Capacity
Factors11 for 1 TWh
!'%!!
Production Configurations !'$!!

Square Miles Required

!"#$%&'()*&+',&"#)%&-'
!'#!!

!'(!! #()

!&!! '$)
'')
#()!*+,-! !%!!
%)
'$)!.*/! !$!!
'')!012*30456!57!
!#!!
%)!8*/!57!
!"!!
34% – T20 Tracker 32% – T0 Tracker 26% – Fixed Tilt

a C C a./'/$0$1)23'4$125%'
p a C i T Y fa C T o r

4. GRID INTERCONNECTION COSTS

Grid interconnection costs relate to the inverter, transformer,
switchgear, medium voltage substation and electrical interconnect,
the high-current electrical backbone bringing power in from the
array and ultimately the transmission back to the central grid in
the case of a power plant requiring a transmission upgrade for grid
integration. These costs are driven by the price of the manufactured
components, the skilled labor used to install and the price of copper,
which drives much of the inverter and electrical wiring costs. Power
transmission costs are driven down through scale economies, more
intelligent system design and through improved plant utilization
such as with solar tracking.

C. pv power plant operating expenses

The operation and maintenance (O&M) of a PV power plant is
relatively straightforward because there are few moving parts and
no cooling systems. O&M costs generally scale with three factors 1)
system peak power dominated by inverter maintenance, 2) system
annual energy production density, and (3) general site related items.
Improving the capacity factor of a system directly reduces O&M

11 Note the listed capacity factors are based on the AC rating of the power plant at the point of
grid interconnection, the DC nameplate capacity of the PV power plant will be approximately 20
percent higher than the AC rating depending on the PV panel type and system configuration.

sunpower 21
 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

costs through higher utilization rates of fixed assets. Figure 14

demonstrates this as it relates to the inverter requirements to
generate 1TWh of annual energy in a PV power plant. In this
example, 1 TWh of energy would require 335 inverters, each 1 MWp,
with a SunPower T20 Tracker versus 442 inverters with a fixed tilt
system at the same location. The use of a tracking system would
therefore significantly reduce the inverter O&M cost.

T20 Tracker f ixed Tilt

figure 14 Capacity Factor 34.1% 25.8%

Inverters Required for 1 TWh 1 MWp Inverters per annual TWh 335 442
of Energy Production in the
Southwest U.S. Desert Inverter O&M Cost 100% 132%

Significant power related maintenance costs also exist with respect

to transformers, switch gear and grid interconnection, and all
benefit from a high capacity factor system configuration.
Module cleaning, panel repair or replacement, mounting structure
and wiring maintenance, and vegetation control all scale with
the annual energy production density of the panels. The annual
energy production density is a critically important factor for system
economics (both O&M and overall LCOE). The annual energy
production density is the kWh generation per unit area per year as
measured as:

The impact of the annual energy production density can be

substantial. Figure 15 shows the area of PV panels required in a high
insolation solar power plant to generate 1 TWh of annual output.

sunpower 22
 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

s quare Miles of pv p anels per 1 Tw

Twh
!"#$%&'()*&+',-'./'.$0&*+'1&%'2'345'
figure 15
PV Panels Required for 1 &"$#
TWh of Annual Production
&"!#

%"$#

%"!#
'("#)*
01#
!"$#

!"!#
SunPower T20 Tracker 11% CIGS/CdTe Fixed Tilt 6% aSi Fixed Tilt

O&M costs which correlate with the area of PV panels used can thus
be reduced using high-efficiency PV panels mounted on tracking
systems. A simple example of these O&M savings is with the cost
of cleaning panels. With a high annual energy production density
panel, washing costs can be reduced by up to 75 percent. This allows
for either a direct reduction of O&M costs or allows for panels to
be washed more frequently and economically, increasing system
annual energy production. Although often overlooked, washing and
soiling can have a material impact to a PV power plant LCOE.

In a tracking system there is the added cost of motor and controller

maintenance. But in SunPower’s experience this cost is relatively
small when compared to the other O&M cost savings the tracker
provides. For example, the SunPower motor requires only annual
lubrication and a single motor can control more than 300kWp
of PV. Also, the tracker bearings require no lubrication and are
designed for more than 25 years of use. The O&M cost of a utility-
scale tracking system would be less than $0.001/kWh over a fixed
configuration, which does not include the O&M savings from the
increase in energy production.

Looking to the future, opportunities for O&M cost reduction

include improved inverter reliability, scale economies from larger
plant sizes, automated washing and water recycling tools, and
sophisticated remote monitoring.

sunpower 23
The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

D. System Residual Value

Related to the previous section, solar PV financial models generally
assign zero residual value to the project. The system however,
could have a useful life of 50 years or more yielding a material
residual value to the system after the 20- or 25-year financed term.
Additionally, the PV power plant could increase in value if fossil-fuel
based energy prices continue to rise.

Due to the time value of money, the LCOE impact of a system’s

residual value is diluted but could still materially reduce a PV power
plant’s LCOE.

It is conceivable that in the future PV systems will be treated as

assets with an active secondary market. In the wind industry,
secondary turbine sale and refurbishment has begun to occur.12
SunPower has seen some value being placed on the future
reclamation of the structural steel used in its power plants, but
placing a value the residual energy of a PV power plant is still
immature in the market.

E. SunPower’s LCOE Forecasting Tool

SunPower has set a company goal of reducing the LCOE of its
installed system cost by at least 50 percent by 2012 based on 2006
costs. Through its vertical integration, SunPower has a unique
window into the detailed costs of a solar system – from quartz
mining for metallurgical silicon to the construction and maintenance
of a PV power plant.

To plan and track LCOE reductions by market and application around

the world, SunPower has developed a Web-based database that
aggregates hundreds of cost, performance and financial inputs from
its projects. The project dovetails with SunPower’s research and
development work funded by the U.S. Department of Energy’s Solar
America Initiative (SAI). The SAI sets forth aggressive solar LCOE
reductions through technological and process innovation.13

12 J. Runyon, “Finding a Second Life For Retired Wind Turbines,”

http://www.renewableenergyworld.com, July 1, 2008
13 www.eere.energy.gov/solar/solar_america/pdfs/solar_market_evolution.pdf

sunpower 24
 The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

Figure 16
SunPower’s LCOE
Forecasting Tool

The LCOE for an incremental PV power plant to be built in the future

is influenced by a variety of external factors including exchange
rates, labor prices in respective manufacturing and construction
locations, scarcity of critical raw materials, the cost of capital, land
prices, and many other factors. These risks are minimized by the
use of a high-efficiency solar panel technology like SunPower’s
since the efficiency leverages almost all non-PV plant costs. Once
built, the LCOE of energy coming from a silicon PV power plant is
very predictable since the LCOE is heavily influenced by capital cost,
location and systems technology choice.

Based on extensive LCOE scenario analysis with a range of cost

and performance structures for incumbent and emerging solar
technologies, SunPower believes that utility-scale, central station
solar power plants built with high-efficiency silicon PV will deliver a
competitive LCOE now and in the future.

sunpower 25
 The DriverS of The LeveLizeD CoST of eLeCTriCiTy for UTiLiTy-SCaLe PhoTovoLTaiCS

iii. Conclusions We conclude that on the many dimensions of cost and performance
that underpin the LCOE for a solar power plant, high-efficiency
tracking PV offers a very compelling solution. To review, the LCOE is
the net present value of total life cycle costs of the project divided by
the quantity of energy produced over the system life.

Key LCOE benefits for high-efficiency PV power plants include:

Lowest Total Life Cycle Cost
• High-efficiency panels minimize power plant capital costs
through the reduction in the number of modules and scale of
the mounting system and land required to generate a given
amount of energy.
• Higher conversion efficiencies, more efficient use of silicon
and larger scale manufacturing operations will drive continued
high-efficiency panel cost reductions.
• Life cycle O&M costs are substantially lower for high-efficiency
tracking PV due to up to four times the energy production per
panel per year.
• A higher system residual value for a silicon PV plant drives
total life cycle cost reduction.

highest Total Lifetime energy production

• Through optimized solar tracking, SunPower PV power plants
maximize the annual energy production of a system leading to
high capacity factors and a lower LCOE.
• With a more than 20-year operating history, monocrystalline
PV modules provide predictable energy production which
reduces investor investment risk and enables longer
financeable system lives.

LCOE analysis shows how SunPower’s high efficiency silicon PV

power plants generate electricity at a price competitive with other
peak power resources. Based on comparison between published
cost predictions for other technologies and our internal cost
reduction roadmap and resultant LCOE forward cost curve, we
expect to maintain this competitive position into the future.
sunpower 26
The Drivers of the Levelized Cost of Electricity for Utility-Scale Photovoltaics

For more information about this paper, please contact:

Bob Okunski
Senior Director, Investor Relations
SunPower Corp.
(408) 240-5447
Bob.Okunski@sunpowercorp.com

Lead Author
Matt Campbell

Supporting Team
Peter Aschenbrenner
Julie Blunden
Ed Smeloff
Steve Wright

sunpower 27