Michigan Solar Economics 101: Why Solar is the Cheapest Form of Electricity

Last April, Michigan had the highest Residential electric rates in the country except for 9 coastal states; Hawaii, Connecticut, Alaska, Massachusetts, Rhode Island, New Hampshire, Vermont, New York and New Jersey. (Source EIA)  

Ten years ago, Residential rates in Michigan were 3% below the US average. Five years ago they were 9% above, and in April 2016, Residential rates in Michigan were 20% above the US average.

For Michigan homeowners, this trend is only getting worse.  

Detroit area households paid an average of 16.7 cents per kilowatt hour (kWh) of electricity in January 2017, up 7.1 percent from January 2016.  The 16.7 cents per kWh that Detroit households paid for electricity in January 2017 was 24.6 percent higher than the nationwide average cost of 13.4 cents per kWh.

Detroit area electricity prices rise against national average

Detroit area electricity prices rise against national average

So What Can You Do?  Invest in solar array for your home and lock in your electricity rate to 10 cents / kWH for the lifetime of the project.

How Does This Work?

Let us introduce the concept of Levelized Cost of Electricity.  The levelized cost of electricity (LCOE), also known as Levelized Energy Cost (LEC), is the net present value of the unit-cost of electricity over the lifetime of a generating asset. It is often taken as a proxy for the average price that the generating asset must receive in a market to break even over its lifetime.

For example: If a solar energy system costs $10,000 to install (after all rebates) and it provides 100,000 kWh of electricity over its life, then the Levelized Cost of the solar energy system is $10,000 / 100,000 kWh = $0.10 per kWh.

Here is an example of the economic breakdown from an actual project we did:

Levelized Cost of Energy (LCOE) Can Be As Low as $0.09 / kWH

Levelized Cost of Energy (LCOE) Can Be As Low as $0.09 / kWH

This project had a south facing roof with no obstructions.  The economic payback is incredible considering Utility rates are currently at almost double what the Levelized Cost of Electricity is for this customer at $0.09 / kWH.

Another way of looking at going solar is that you are actually protecting yourself and family against the rising costs of Utility electricity.  In our last post we discussed Michigan's net metering policy.  By taking advantage of net metering policies and combining that with the Solar Investment Tax Credit (ITC) you can achieve the lowest possible cost of electricity on the market today.

US/Michigan rates:  http://www.eia.gov/electricity/data/browser/

Michigan rates:  http://www.eia.gov/electricity/data/browser/#/topic/7?agg=0,1&geo=vvvvvvvvvvvvo&endsec=vg&linechart=ELEC.PRICE.MI-ALL.M~ELEC.PRICE.MI-RES.M~ELEC.PRICE.MI-COM.M~ELEC.PRICE.MI-IND.M&columnchart=ELEC.PRICE.TX-ALL.M~ELEC.PRICE.TX-RES.M~ELEC.PRICE.TX-COM.M~ELEC.PRICE.TX-IND.M&map=ELEC.PRICE.US-ALL.M&freq=M&start=200101&end=201604&ctype=linechart&ltype=pin&rtype=s&maptype=0&rse=0&pin=

Historical average energy prices for the U.S. and select metropolitan areas are available at www.bls.gov/regions/midwest/data/averageenergyprices_selectedareas_table.htm.

Brandon Knight