Q&A: Valuation Issues and Renewable Energy (Part Two of Two)

Published by H. Blair Kincer on Monday, November 1, 2010
Journal thumb November 2010

Question: What are the current costs and related market trends that affect the valuation of fair market value for renewable energy assets?

Answer: Based on published industry data and the current market transactions, the cost of solar grade silicon and other materials used to produce solar panels have decreased significantly since December 2007. It is our understanding that the cost of solar panels for customers that purchase in volume is approximately $2,000 to $2,250 per kilowatt (kW) direct current (DC). Solar panels produced by Chinese manufacturers can be purchased for closer to $1,750 to $2,000 per kW DC.

Reports indicate that as of December 2009, several commercial rooftop solar installations in the 500 kW DC range closed at a cost per kW DC in the range of $7,500 to $8,250 per kW DC.  Typically these transactions were completed among very credit worthy participants (integrator, host customer and investor). The cost of commercial solar installations when a cash customer/purchaser is involved would be lower by approximately $1,000 per kW DC.

Numerous utility scale solar projects in the 20 megawatts (MW) to 50 MW DC range are currently in the development process. To our knowledge, none of these facilities has been completed or placed-in-service. Based on financial projections and other data, utility scale solar projects of this magnitude are pricing at approximately $4,250 per kW DC (engineering procurement and construction (EPC) contract) with a development fee or margin of 15 to 20 percent in addition to the EPC contract. Permitting, construction interest and other eligible costs could bring this total higher. The amounts above would indicate an overall development cost range of $4,900 to $5,100 per kW DC for utility scale projects.

As an example of typical data utilized in our analyses we present several tables. The following table and chart outline typical development costs of solar panel systems from a variety of sources.

The development costs include all costs associated with the solar panels and the installation of the panels. Much of this data is based on work Novogradac & Company has performed. The National Renewable Energy Laboratory (NREL) also tracks development costs for photovoltaic (PV) systems on a national basis. The following graph outlines the costs per kilowatt for the nation and California from NREL’s Open PV Project database.

As indicated in the graph in the downloadable PDF article, installation costs have declined since 1998. According to NREL, current national average installation costs are $8,700 per kW DC. Given the amount of California data, the state trend is similar to the national level. The data in the graph appears to slightly lag the data found in the Open PV Project database.