Category Home Energy Economics

Insulation is one of the most important factors in improving building energy efficiency. Heating, ventilation and cooling (HVAC) often accounts for more than half the energy expense of a building. Insulation helps to improve the energy efficiency of heating and cooling. Depending on the selected insulating material, the economic impact on heating costs can be quite dramatic.

To understand how insulation helps improve building heating and cooling, it’s helpful to review the dynamics of building heat loss as it applies to building materials and outside actual air temperatures.

To calculate the heating requirements for a building, the overall heat loss from a building can be derived as a function of the combined heat loss of transmission through the roof, walls, windows, doors, and floors, as well as heat loss caused by ventilation and air infiltration. In general, without getting too scientific, the heat loss from transmission through roof, walls, doors, and windows represents the largest impact and is primarily a function of the temperature difference between the inside and outside air and thermal conductance of he building material. For a more detailed review of building heat loss see Heat Loss.

The difference between inside and outside temperature plays a critical role in building heat loss. The first step is to understand heating and cooling requirements from weather data. Heating degree day (HDD) are a measure of energy demand required to heat a building. HDD is derived from the difference between the daily outside temperature observations and the ideal indoor air temperature, say 65 degrees Fahrenheit (18.30 Celsius). The heating requirements for a building in a specific location can be derived from the HDD data in conjunction with building factors such as insulation, windows, solar heat gain, and use. Air conditioning also has a similar metric and is defined as cooling degree day (CDD) and measures the amount of energy used to cool a building.

From the historical data on outside air temperature, an average heating and cooling degree day can be assigned to a specific region. To calculate degree days for both heating and cooling Daily Temperatures can be assessed by zip code to capture historical data on specific climate zones.

When it comes to selecting building materials and insulation, material suppliers often supply two measures – the R-value and C-value. A material’s R-value (thermal resistance) is the measure of its resistance to heat flow. The C-value (thermal conductance) is the reciprocal of thermal resistance and measures the ability of a piece of material to transfer heat per unit time or more specifically, specifies the rate of energy loss through a piece of material.

The US Department of Energy (DOE) has provided revised R-value recommendations based on climate zones. To understand the energy impact of selecting the right R-value insulation material for your building, an on-line heating calculator will help illustrate the heating requirements and associated energy costs for different insulating materials. Building heating requirements are often expressed in BTU (British Thermal Units) per cubic foot.

The Heater Shop BTU Calculator Heating Calculator provides some useful insight into managing energy expenses. The calculations were based on an average of 25 HDD for New York City.

Figure 1 illustrates the heating requirements as measured by BTU per square foot of building space for corresponding insulating materials across ceiling heights from 10 to 40 feet to capture cubic feet. As seen from Figure 1, the heating requirements show significant variance depending on insulation assumptions.

Figure 1 BTUs per Square Foot
Source: Heater Shop BTU Calculator

Taking the building heating requirements one-step further, different insulating assumptions (no insulation, average, and good) translate into wide dispersion in operating costs. The on-line heating calculator was used to estimate the building heating requirements based on the following assumptions: 10,000 square foot facility with ceiling height of 10 feet for 25 HDD for no-insulation average insulation, and good insulation. To derive fuel costs, the BTU per square foot for each insulation category was applied to a heating system operating for five heating months with approximately 1,400 hour of operations to coincide with a gas furnace at 90% efficiency and 20-minute on-cycle and 30-minute off-cycle. Gas pricing for heating are based on $17.00 per million BTU.

Figure 2 Heating Energy Cost
Source: Green Econometrics research

Figure 2 demonstrates that heating cost per square foot for good insulation saves approximately $2.90 per square foot in comparison to no-insulation at all. If we compare the heating costs savings to the cost of insulation, the payback period for insulation can be achieved in a year under most circumstances.

Figure 3 Insulation Cost
Source: Green Econometrics research

To assess the C-value and R-Value of various building materials, there are some useful charts available on the web. Insulation and Building Materials R-Values

The bottom line is that insulation is one of the most important building components materials to improve energy efficiency and lower utility costs.

To understand current energy prices it may serve us to examine historical energy prices. Our theme is energy economics and specifically that energy prices follow the laws of supply and demand to set pricing.

There are some interesting perspectives on historical energy prices from several books including Security Analysis, 1940 edition by Benjamin Graham and David Dodd, The Great Wave, by David Hackett Fischer; and The Industrial Revolution in World History, by Peter Stearns. These books provide extensive data on pricing, industry revenues, and the framework that energy and technology serve in the economics of the industrial world.

Figure 1 Historical Energy Prices

With the risk of oversimplification, our first figure shows there have been four distinct energy prices waves that have rippled through history. The scarcity of wood that was used for building homes, heating, and tools became increasing scarce as deforestation spread through Europe in the 1300s and followed again in the 1600’s. Coal prices rose rapidly with the War of 1812 and the Napoleonic Wars. Oil prices peaked in 1982 and to an all time high of $145.16 on July 14, 2008.

Figure 2 Medieval Wood Prices

During the Medieval period in world history wood prices increased nearly threefold according to David Fischer in the The Great Wave. Wood prices rose with scarcity and peaked in 1320 as impact of the Bubonic Plague began to kill a quarter of Europe’s’ population. Twenty years from its peak in 1320, wood prices declined by 48% as the Bubonic Plague reduces the population and in turn, lowering the demand for wood.

Figure 3 Wood Prices

Figure 3. Illustrates the rapid rise in the demand for wood as the growing world populations benefited advances in science and agriculture from the Renaissance period. Wood is used for just about everything and prices climb as more land is used for agriculture leading to deforestation exacerbating the wood shortage. As demand for wood increases, prices subsequently follow. By the end of the 1600’s, coal begins to substitute for wood as an energy alternative.

With advances in technology came improvements in coal mining and transportation that allowed coal to substitute for wood as an energy source. With the invention such as Thomas Newcomen’s steam, powered pump in 1712 that facilitated coal mining and James Watt’s steam engine in 1765 that lead to advances in transportation including railroads and machinery, coal grew in importance as an energy source. These advances in technology enabled greater supplies of coal to enter the market which lead to declines in energy prices.

Figure 4 Coal Prices

We can gleam from Figure 4 that coal prices peaked in 1810-to-1815 coinciding with the War of 1812 and the Napoleonic Wars. The technological advances in mining and transportations fostered the development of an infrastructure to support the coal industry. The price of coal rose as wars ragging in Europe and the US, increased the demand for materials and supplies such as coal. However, as the wars came to an end, the abundant supplies of coal allowed prices to fall keeping energy prices low.

Oil entered the picture with the drilling of the first oil well in northwestern Pennsylvania in 1859 and the Internal Combustion Engine in 1860 that facilitated the development of the oil industry.

As oil emerged to become the dominant fuel of the 20th Century, it’s only recently that we face supply shortages. To better understand the dynamics of energy pricing in the face of changing demand, a review of spending on railroads and electricity may serve as a surrogate for discretionary and consumer stable spending patterns.

Figure 5 Industry Segment Revenues

Figure 5 illustrates changes in the aggregate revenues of railroads in comparison to electric utilizes during the Great Depression. Copious notes taken by Graham and Dodd for their book Security Analysis help to demonstrate the economic laws of supply and demand.

The change in demand was most pronounced in railroad revenues. Expenditures on railroads, the more discretionary of the two industries, declined 51% from 1929 to 1993 as measured by gross receipts for the railroad industry. Over this same period, spending on the consumer stable, electricity only encountered a decline of 9%. In economic terms, railroads demonstrate greater demand elasticity meaning there is greater change in demand at prices change or this period, disposable income. While there is some discretionary portion of our spending associated with oil, a large portion of spending on oil is out of necessity. Therefore, even during times of great economic distress, the propensity for energy consumption is not eradicated entirely.

The bottom line: Energy pricing will continue to be dictated by supply and demand. Hydrocarbon fuels such as oil are finite in nature and therefore, without definitive strategies to cultivate alternative energy resources we will remain hostage to the vagaries in energy prices..

The precipitous drop in oil prices may not hold for long. Speculators and fears of oil flow disruptions drove oil prices to an all time high of $145.16 on July 14, 2008 and is now down to $49.50 in November 20, 2008. Now the fear has shifted to the economy where deteriorating fundamentals suggest demand for oil will abate, at least in the near term. However, if history is any guide, demand for oil should be influenced by both structural changes such as consumers driving more fuel-efficient motor vehicles and cyclical factors such as the state of the economy.

Figure 1 US Historic Oil Imports

To get an understanding of the impact that both structural and economic factors had in reducing the demand for oil is to look at oil import from 1978 to 1988. Figure 1 illustrates the US demand for oil during the last major economic recession. The Oil Shock of the 1970’s severely impacted the US economy and the term stagflation captured our attention while interest rates reached exorbitant levels. From 1979 to 1982, US oil imports decline by 46% as the oil embargo of 1973 led to structural changes in oil consumption. US oil imports, as measured by the Energy Information Administration in U.S. Crude Oil Field Production (Thousand Barrels per Day) demonstrated a significant decline as a result of changing driving habits as fuel efficient import vehicles encroached on the domestic auto makers. The US consumers opted for foreign vehicles demonstrating higher fuel efficiencies and MPG entered our lexicon. These economic and structural changes dramatically reduced the demand for oil and subsequently, oil prices fell. It was not until 1985 before oil imports began to increase.

What’s missing from this analysis is the fact that during this period the US accounted for 27% of total world oil demand. . According to the Energy Information Administration (EIA), in 1980, China and India accounted for 2.8% and 1.0%, respectively, of the global demand for oil. In 1986, China and India increased their oil demand to account for 3.2% and 1.5% of the world market, respectively, an increase in oil demand of 57% for China and 44% for India.

In 2005, China and India account for 8.0% and 2.9% of global oil demand while US dropped to 24.9% of global oil demand. While even China and India are not immune to the current blissful economic environment, when the global economy does improve, their demand for oil will more than negate any structural changes the US consumers make in their driving habits. The demand for oil should continue to grow as an economic recovery ensues thereby leading to an increase in oil prices.

Figure 2 China and India Oil Consumption

Figure 2. illustrates the rapid rise in the demand of oil from China and India. From 1980 to 2005, demand for oil increased 280% in China and 125% in India. Despite the improving fuel consumption in the US, the global oil market is more apt to be impacting from the growth in developing countries than conservation in the US.

The bottom line: don’t remain complacent, strive for energy efficiency and invest into alternative energies.

For further reading on oil prices please refer to
oil price analysis .

Access to energy was instrumental fueling the Industrial Revolution. Over the last 200 years, industrial nations have migrated from wood to coal and now to oil as a source of energy. During the 1700’s, wood was used for just about everything from fuel to constructing houses and building wagons and even tools. As demand for wood increased, the cost of wood rose as deforestation led to the scarcity. The scarcity of wood resulted in deteriorating economics.

It was the availability and access to coal that enabled the growth of Industrial Revolution by providing accessible energy. The Industrial Revolution was predicated upon the availability of Labor, Technology, Capital, and Energy. Scarcity of any of these inputs could undermine economic growth, as was the case with capital during the Great Depression of the 1930’s and the Energy Shock of the 1970’s.

Oil, driven by rapid growth in automobile usage in the U.S, has replaced coal as the main energy fuel. According to the Energy Information Administration (EIA), the 70% of oil consumption in the U.S. is for transportation .

Figure 1 US Oil Imports

Figure 1 illustrates US historical oil imports, as measured by the Energy Information Administration in U.S. Crude Oil Field Production (Thousand Barrels per Day) that dates back to 1970. The EIA provides oil import data dating back to 1910. To estimate the amount of money the US spends on oil imports every year, we can use the data from the State of Alaska Department of Revenue, which provides historical data on the price of oil an derive an average yearly figure.

Figure 2 US Oil Import Spending

Figure 2. appears quite staggering given the amount of money we send to oil producing countries. The US is spending hundreds of billions to import oil. According to the EIA, the US imported an average of 10,031,000 barrels per day equating to $263 billion in imported oil during 2007 when the State of Alaska measured the yearly average spot price for a barrel of oil at $72.

According to Solarbuzz, Germany leads the world in solar photovoltaic (PV) installations with 47% of the market while China increased its market share of PV production from 20% to 35%. The US accounts for 8% of the world solar PV installations. Solarbuzz indicates the global solar PV industry was $17 billion in 2007 and the average cost of solar electricity is $0.2141 per KWH. If a portion of our $260 billion sent to oil producing countries were to be invested into solar energy, perhaps the US would not lag the world in alternative energy.

The bottom line is that the money spent on importing oil has a deleterious impact on our economy and continues our dependence on hydrocarbon fuels producing carbon and other harmful byproducts that negatively impact our climate and health of our children. The longer we are dependent on oil, the longer our economy and environment suffer. Use your vote for alternative energy and not drill baby drill.

Energy storage enables the electric generated though solar photovoltaic devices or wind turbines to be used when it’s dark, cloudy, or calm. As Nathan Lewis, Professor of Chemistry, Division of Chemistry and Chemical Engineering Lewis Group at California Institute of Technology, framed it, energy storage is integral in facilitating the development of alternative energy programs.

While hydrogen fuel cells offer future promise to our energy storage needs, battery technologies could provide some immediate results. As with all technologies there are tradeoffs.

There are several competing approaches to battery development. Among these approaches include the lead acid, nickel metal hydride, and lithium-ion cells.
Lead acid: batteries are the oldest approach and are typically found under the hood of your car or truck. Nickel metal hydride batteries have been around for more than 25 years and are used in hybrid electric vehicles such as the Toyota Prius. Lithium-ion cells have been on the market since 1991 and are used extensively in cellular phones, laptop computers, and digital cameras.

There are several issues in dealing with batteries such as environmental, economic, power, safety, and useful life. Lithium-ion cells possess many advantages, but incidences such as laptop computers erupting into flames, leaves many concerns for applicability in motor vehicles. Despite the setbacks, lithium-ion technology could provide solutions to the electric vehicle.

Why is this battery technology important? Solving the energy needs of the motor vehicle has profound implications in solving our energy needs. Nearly 70% of our oil consumption is direct towards transportation essentially motor vehicles. Without a dedicated strategy to address the transportation market and specifically the automobile, our progress towards energy independence is an illusion.

There are several issues with the nickel metal hydride batteries currently used in hybrid electric vehicles. Nickel metal hydride batteries are heavy, bulky, require large storage space in the vehicle, and don’t offer great acceleration. Lithium-ion offer power, size, and weight advantages over nickel metal hydride batteries, and numerous companies are working to improve performance and ameliorate the negative connotations associated with flaming laptops.

One of the basic concepts in dealing with batteries is the measure of battery energy versus battery power. The amount of battery energy refers to endurance, how long will the battery last and is often measured in ampere-hours or watt-hours per kilogram of battery weight. The amount of power refers to the energy draw and is akin to delivering acceleration in an electric vehicle.

The following figure illustrates the measurement of battery power and energy. Lithium-ion batteries are differentiated in their ability to bridge the power and energy tradeoff.

Figure 1 Battery Power vs Energy

For home renewable energy projects such as solar or wind energy deployment, it is often recommended that a deep-cycle battery be used. Deep cycle batteries are able to draw down 70%-80% of their full power, offering longer energy life than a typical lead acid battery. In addition, newer materials such as Gel batteries and absorbed glass mat (AGM) that are sealed, maintenance free, and can’t spill, and therefore, are less hazardous. For a tutorial on home use batteries visit
BatteryStuff.com

An interesting perspective on battery design is presented Energy vs. Power by Jim McDowall. For a primer on how batteries work visit presented Battery Power The premise is that there are tradeoffs between designing a battery for high power versus high energy.

Research conducted at Stanford University suggest the battery life of lithium-ion batteries could be extended through the use of Nano-technology. The bottom line: energy storage is paramount to sustaining the development of alternative energies and battery technologies play a critical role in energy storage and further expanding the role of alternative energies.

As energy and food prices set new world records, what can we do at home to avert the crisis? Food prices are rising because corn is diverted from food production to producing ethanol for use as fuel in motor vehicles and is exacerbated by the recent flooding in the Mid West. Oil prices continue to escalate as demand for oil in developing countries increases and supply constraints, rising production costs, and limited refining capacity constrain the supply of oil. These factors continue to weigh against homeowners that will face escalating fuel bills to heat or cool their homes. There are some viable alternative energy solutions including wind and solar as well as home insulation that should offset the rising cost of energy. As far as food for fuel, we need to break our dependence on hydrocarbons which continues to impact our climate and weather and transfer our wealth to oil producing nations

Corn Prices have increased 264% since 2005. The rising price of corn used for ethanol is causing farmers to plant more corn and less production of other grains such as wheat or soy. Lower supply of grains is driving up food prices. Rising food prices is most debilitating to the poor, especially those in developing countries.

Figure 1 Corn Prices

Growing demand for oil and questions over Peak Oil suggesting even with oil prices rising to such an elevated level, production is rather anemic. According to the Energy Information Administration (EIA) , while oil prices increased 344% since 2001, oil production from OPEC is up only 1.2% over this same period.

Figure 2 Oil Prices

According to the EIA The demand for oil in China is growing at an 8.1% CAGR over the last five years. With demand for oil growing significantly in developing countries and despite production developments in Saudi Arabia and the 5-to-8 billion deepwater Tupi oil discovery in over Brazil The Tupi announcement in January 2008 is the world’s biggest oil find since a 12-billion-barrel field discovered in 2000 in Kazakhstan according the International Herald Tribune. These new oil discoveries are often in inhospitable areas or deep ocean environments, which makes extraction costly and difficult.

Figure 3 Rig Count and OPEC Oil Production

What can we do? . Forget drilling for more oil, electric vehicles and investment into alternative energy is the only way to avert this crisis. OPEC area drilling activity is up 48% since 1998 and yet, despite dramatically higher oil prices, up 5 fold since 1998, OPEC oil production increased only 11% over 1998.

Homeowners could begin to deploy energy saving and alternative energy systems. Wind and solar energy could help reduce some of the pain. As consumer embrace hybrids, electric, and fuel cell vehicles, wind and solar should begin to offer a stronger value proposition. Energy saving tips such as compact fluorescent bulbs, on-demand hot water heaters, and thicker home insulation products should help reduce heating and cooling costs.

According to the American Wind Energy Association AWEA a turbine owner should have at least a 10 mph average wind speed and be paying at least 10 cents per Kilowatt-hour (KWH) for electricity. There are electric utility and tax credits available in some areas. There are also questions regarding zoning restrictions, and whether to connect to batteries for energy storage, or directly to your electric utility. Consult the Wind Energy Resource Atlas of the United States Wind Resource Maps to get a better understanding of wind speeds in your area.

Cost wind systems will vary depending on model and installation costs will vary by your location. The Whisper 500 from Southwest Windpower offers electric production of 538 KWK/month at 12 mph (5.4 m/s). The system weighs 155 lb (70 kg) and has blade span of 15 feet (4.5 m) and must be mounted on a tower in cement. At 538 KWH per month, that is enough energy to cover the needs a modest house with conservative electric usage. Small wind systems can range from under $1,000 to over $20,000 with a payback period of approximately five years depending on wind resources and utility rates.

Solar photovoltaic (PV) panels cost an average of $4.80 per watt according to Solarbuzz which is about $0.24 per KWH over a 20 year life of the PV system. With an average output of approximately 10.6-watts/square foot (114 w/m^2), a five KW PV systems would cover 515 square feet (47.8 sq. meters) costing approximately $36,000 before credits and tax benefits and produce about 490 KWH per month. Of course installations costs are extra, but with PV production ramping and new PV suppliers entering the market we can expect costs to decline. Federal and local tax credits as well as selling unused electric to your local utility offers economic value on the margin.

The economic value is expected to increase as costs decline and electric rates increase and we can expect significantly higher utility rates in the near future. The economics of zero carbon emissions is not even measured as a benefit to the consumer. We are just beginning to see the cost impact of extreme weather and climate change.

Consumers should try to ameliorate the rising cost of energy by investing into solar and wind. There are several companies offering complete installation services. Among these include: Akeena Solar (AKNS) in California and The Solar Center in New Jersey.

The bottom line: energy and food prices are creating a crisis for consumers globally and there are several initiatives that could help minimize the pain. In addition, the erratic weather patterns around the world may be just a prelude to climate changes due to the impact of carbon dioxide on climate, which may cost us much more in the long run. Let’s stop the drain of wealth cause by oil and invest into clean and renewable energy solutions.

Rising oil prices have driven exploration and drilling activity, yet oil production remains anemic in comparison. Could the latest data suggest oil production is nearing a peak? With global demand expected to rise over 30% by 2030 according to a recent article in the Wall Street Journal, Handicapping the Environmental Gold Rush the latest oil production figures suggest we are indeed vulnerable to energy shocks.

High oil prices have driven demand for energy exploration and investment into oil and gas drilling rigs. In the U.S., rig count is up 181% with 1,749 rigs in operation in 2007 from 622 in 1999 according to Baker Hughes Worldwide Rig Count. Oil prices are up quite dramatically in the last few weeks with latest price above $94/barrel.

Figure 1 Worldwide Rig Count and Oil Prices

Figure 1 illustrates world-drilling rigs in comparison to oil prices. The U.S. accounts for over half the world oil drilling rigs yet our production is less than 10% of total global production. While oil prices are nearly as high as they were back in the 70’s (accounting for inflation) we are not witnessing the tremendous oil-drilling explosion as we did back then.

Part of the explanation could lie with oil production. If we look at recent data, oil production appears to be leveling off while demand is expected to increase significantly as developing countries increase their use of motor vehicles. Data from the U.S. Department of Energy (DOE) and Ward’s Communications, Ward’s World Motor Vehicle Data show that the number of motor vehicle on the road is up 48% from 1990 to 2005 with countries like China experiencing the most dramatic increase. Yet oil production over this same period is up only 27%.

Figure 2 US Rig Count and Oil Production

In the U.S., rig count is up 118% from 1999, yet petroleum production is actually down 7%. On a global basis, oil and petroleum product production increased 13% since 1999 while global rig count increased 112%. The U.S. and the rest of the world is experiencing diminishing returns on investments in oil production wile usage, led by motor vehicle consumption continues to escalate. In the U.S. more than 60% of oil consumption goes to vehicle use.

With all of the attention given to oil and hydrocarbon fuels, alternative energies are just a small fraction of our energy needs. We need to dramatically increase our research efforts into alternative energies such as solar, wind, and hydrogen fuel cells energies.

My September electric bill arrived the other day and I was interested in comparing my energy savings after swapping 60 and 100-watt light bulbs for Compact Fluorescent Light bulbs (CFL), as recommended by the U.S. Department of Energy (DOE). Our progress in migrating to solar and wind energy is moving slower than expected. The CFL bulbs were a cheap investment so last year 12 standard light bulbs (two 100-watt and ten 60-watt) for ten 60-watt and two 100-watt CFL bulbs.

The results are impressive with improving energy reductions and money savings. Energy usage as measured by kilowatt-hours (KWH) is down an average of 30% from last and attributable to CFL, outdoor solar lighting as well as electric conservation efforts. However, the savings attributable to the CFL bulbs, of nearly $8 per month equate to an impressive return on investment of over 190% in one year.

While our initial calculations suggested energy savings (for lighting) called for reductions of over 70% when switching to CFL bulbs, the electric bill reduction was not that dramatic because large appliance usage account for a larger portion of electric power bill. However, when measuring the return on investment for a fast, cheap, and easy step to lower your electric bill, the CFL produces real savings,

The CFL bulbs cost around $4.00 for either a 100-watt or 60-watt equivalent light bulb. GE’s compact fluorescent lights were installed in August 2006 at a total cost of $48.00 (12 times $4.00 a light). According to GE the 60-watt CFL used 15-watts of power and the 100-watt CFL used approximately 26-to-29 watts of power. So theoretically, energy use, assuming lights were in operation for 4 hours per day, would save about 71 KWH a month. Our electric rates are currently at $0.108 per KWH which is at par with the U.S. average rate of Electricity Prices for Households $0.104 per KWH in 2006. Therefore, the CFL bulbs are saving about $7.71 per month from our electric bill amounting to $92.50 in savings over a year. That yields an investment return of 193% on a $48 investment in CFL bulbs.

Figure 1 CFL Energy Savings

Now of course, power usage varies by household, including the diligent habits of our children, so savings will vary. The bottom line is little steps sometimes produce big results – CFL bulbs do help reduce your electric bill with a small investment and also help the environment as each 1.3 KWH reduction in power use reduces carbon dioxide (CO2) emissions by 1 pound. Coal generates about half the electric power in the U.S. and produces roughly ¾ of a pound of CO2 for every KWH of electric. That means for every 1.3 KWH of electricity used (a 100-watt light used for 13.3 hours) produces one pound of CO2. CFL help reduce CO2 emissions by approximately 1.4 pounds per bulb based on light usage of just 1-hour/day a month.

With oil prices over $80 per barrel, the National Energy Assistance Directors’ Association in its press release today Record Home Heating Prices for Heating is expecting the average home heating cost for the ’08-’08 season to rise 9.9%. For homeowners using oil heat, heating costs are expected to increase 28% and for homes using propane, a 30% increase is expected.

With rising energy costs driven by costly oil extraction, the potential impact from carbon emissions with our continuing use of oil on climate change and rising sea levels, as well as the potential for fuel supply disruptions, could exacerbate our tenuous relationship with energy.

Eventually, as price rise dramatically, alternative energy becomes more compelling. The problem is our economy is so inextricably link to oil, that our energy security is based on securing foreign oil.

Figure 1 Oil Prices and Home Heating Costs

Without support and research on alternative energies such as solar and fuel cell technologies, we are hostage to oil. The U.S. economy is facing one of the most crises since the Oil Embargo of the 1973. Inflation driven by escalating oil prices is impacting the cost of home heating, transportation, production, materials, and food, particularly as corn is diverted to ethanol production. The housing market is in turmoil with falling home values, rising foreclosures, and a credit crisis that is making it more difficult to secure a mortgage may lead to slower consumer spending. With rising inflation and slower growth we may find ourselves in an economic world described as stagflation that was coined in the ’70’s to describe the bleak environment when gas stations rationed fuel, unemployment grew and the Federal Reserve raised rates dramatically to quell inflation.If we could limit our dependence on foreign oil through investment into solar energy and fuel cell technologies, we would not be impacted by the exogenous events in oil producing nations.

We believe there are a number of catalyst that could serve to dramatically lower the cost of alternative energies. It takes initiatives from all of us to change the balance. After all, oil is becoming more costly to extract, new oil discoveries are in difficult and challenging environments, and oil will eventually run out – it is finite. If we wait to long, our ability to make a difference may not be available.

Without greater investment into solar and hydrogen energies, we are held hostage to rising oil prices. Alternative energies such as solar and hydrogen fuel cells offer tremendous potential to provide energy independence and energy security. The dependence of the U.S. upon imported foreign oil raises inflation, weakens our currency, exacerbates the trade deficit, and forces consumers to pay higher prices for home heating and transportation. With oil exceeding $80 a barrel in late September 2007, the only beneficiaries are countries exporting oil and oil conglomerates. I guess when countries such as Dubai, after accumulating a large trade surplus based on inflated oil prices, decides to diversify away from oil and buy a non-voting stake in the NASDAQ market, it’s a wake-up call.

To better understand the potential of alternative energy, we should try to understand two basic concepts of energy: Specific Energy and Energy Density. Without digressing into chemistry 101, (Molecular Weight Calculator) the specific energy of a fuel relates the inherent energy of the fuel relative to its weight. Typically, specific energy is measured in kilo-joules (kj) per gram. A joule is a measure of kinetic energy – one joule is the amount of energy needed to move two kilograms at a velocity of one meter per second. Or a kilo-joule equals one kilowatt-second meaning one kilowatt-hour (KWH) equals to 3,600 kilo-joules. Your local electric utility bills you by the KWH, which according to the US Department of Energy Average Retail Price of Electricity in 2007 is approximately $0.11 per KWH.

Table 1 Specific Energy and Energy Density

The specific energy of a fuel tells us how much energy can be derived from a measured amount fuel by weight. By ranking each fuel by its specific energy, one can determine how efficient each fuel is. Specific energy and fuel density are often proportional to the ratio of carbon and hydrogen atoms in the fuel. A reference to the specific energy and energy values of most fuels can be found at Hydrogen Properties

Figure 1 Specific Energy
Figure 1 illustrates how fuels compare according to their specific energy. As we can see, hydrogen, because it’s extremely light, has the highest specific energy in comparison to hydrocarbon fuels.

This however, is not the full story because volume or energy storage requirement becomes a significant factor for gaseous fuels. Specific energy is important to analyze fuel efficiency by weight, but for hydrogen that must be pressurized and cooled to bring to a liquid state, the energy density become more relevant to fuel efficiency.

Figure 2 Energy Density: KWH per Gallon

Figure 2 illustrates how fuels compare according to their energy density, that is, energy relative the container size. As we can see from figure 2, hydrogen, because it is so light, requires 15.9 times the container volume to provide the energy of diesel or oil. In comparison to diesel, ethanol requires 1.6x the container size for the same amount of energy.

The container size becomes a significant detriment for housing hydrogen. Energy density is usually measured in kilo-joules per cubic meter (kj/m3). As kilo-joules are readily translated into KWH by multiplying by the number of seconds in an hour (3,600) and the College of the Deserts’ computation into gallons, we are converting the data into KWH per gallon for those of us in the U.S.

Hydrogen fares poorly relative to energy density. However, technology offers an approach to enhance the benefits of hydrogen with fuel cells. Fuel cell enable hydrogen molecules to interact with oxygen through a membrane that allows transmission in only one direction to convert H2 into an electric current to power your automobile. Fuel Cell Basics Fuel cells often capture the hydrogen electron from hydrocarbon fuel such as methane allow convention fuels to generate hydrogen for electric generation.

In a hydrogen-based economy, solar energy can provide electric to generate hydrogen through electrolysis and vice versa. Jeremy Rifkin’s The Hydrogen Economy eloquently illustrated the hydrogen economy where fuel cell act as mini power plants and the electric network resembles the Internet where cars plug into an electrical grid supplemented by solar cells at your home and work. Electric power generation moves from large utility generation to a distributed generation – everyone plugged in can generate power to the grid. The key benefit of hydrogen is that it democratizes the energy economy bringing power to all countries in the world.

An interesting technical analysis of hydrogen energy is provided by Ulf Bossel and Baldur Eliasson Energy and the Hydrogen Economy The bottom line is that solar and hydrogen energies offer tremendous potential to low long-term fuel costs and improve our environment and climate. More research is required to lower costs and improve feasibility.

There is considerable variance in calculating the cost of solar energy. Using U.S. Solar Radiation Resource Maps from the National Solar Radiation Data BaseThe (NSRDB) we found the amount of kilowatt-hours (KWH) per days of solar radiation per square-meter varies from less than two for Northern Alaska to six KWH/m2 per day for parts of Arizona. Using these maps we found that the cost of solar varies from $0.23-to-$0.68 per KWH with a mean of approximately $0.45 per KWH. The cost of $0.23 per KWH equates to Arizona and $0.68 per KWH reflects the cost of the lower solar radiation in Anchorage, Alaska. These cost are based on data from solar photovoltaic (PV) supplies before tax benefits or rebates. Please see SunPower (SPWR) and Sharp Solar.

Green Econometrics provided a normalized solar energy cost per KWH of $0.38-to-$0.57 with a mean cost of $0.45 as reference for what most of the U.S. would expect for solar energy. We have referred to the Lewis Group at Caltech which has provided estimates of $0.25-to-$0.50 per KWH for the cost of electric production from solar with a mean of $0.38 per KWH. According to Solarbuzz the average price of solar electric is approximately $0.38 per KWH. The Solarbuzz index is based upon an average of 5.5 hours of sunshine per day over a year, which relates to locations such as the US Sunbelt, Latin America, Africa, the Middle East, India and Australia. With large U.S. populations still residing in the North, we would still expect the average home in the U.S. to be paying closer to $0.45 per KWH.

There are a number of factors to consider such as total system cost, the use of concentrators and tracking systems to align the solar panel to be perpendicular with the sun during the day and the property location. There are factors to consider with property location such as whether the roof is facing south or towards the east or west. If the system rests on the ground, shading from building or trees becomes a factor. Other considerations include latitude, climate, weather, and time of day, season, local landscape, and temperature. The Department of Energy provides some information for home owners considering a solar energy system Small Solar Electric Systems

The cost for solar energy systems refers to the average efficiency of solar photovoltaic (PV) panels. The average efficiency for PV devices is between 15%-to-16%. According to SunPower, which has the leading PV device efficiency of 22% there is a practical limit to solar efficiencies of approximately 30%. SunPower is targeting a 23% solar efficiency as a goal to reduce its solar energy system cost by 50% by 2012. Sanyo is second with solar efficiency of 18%. SunPower claims to have patented solar PV architecture and production processes that enable the company to command a lead in solar efficiency.

For solar energy systems below 5 kilowatts, the cost of the inverters represents a substantial part of the system cost. An inverter is used to convert the direct current (DC) from the solar panels to alternating current (AC) used in your home. Inverters can cost from $400-to-$700 per 1000 watt adding to the total cost of deploying small solar energy systems. See Wholesale Solar

How long will it take before solar energy is at parity with hydrocarbon fuels? In terms of cost per Kilowatt-Hour (KWH), solar energy is four-to-ten times the cost of hydrocarbon fuels. Green Econometrics’ research estimates that solar energy cost about $0.38-to-$0.53 per KWH. (See Understanding the Cost of Solar Energy ) There are two significant market factors that should help reduce the cost of solar energy: strong market demand for solar energy driven by rapidly rising oil prices that should lead to new product developments and the economies of scale derived from experience curves in the production of solar panels.

With oil harder to find and more costly to extract, energy prices should continue to rise. In the U.S. oil production continues to decline despite increased drilling activity. (See How vulnerable are we to energy shocks? ) These market factors should continue to drive demand for solar energy. With strong market growth rates we wanted to assess various solar energy cost assumptions for different experience curves found in the semiconductor industry.

The productions of solar photovoltaic cells are similar to semiconductors and enjoy cost reduction as production increases. We briefly mentioned experience curves, the production cost reductions associated with doubling production of semiconductors in our last post from an article from the Lockwood group TECHNOLOGY TRANSFER: A PERSPECTIVE. These experience curves translate into cost reductions of 10%-to-30% as production volume doubles.

Our analysis attempts to develop a what-if scenario for the solar energy market by comparing energy costs for different experience curves and market growth rates. Research into new materials or processes could significantly reduce the cost of solar energy. Of course the funding of solar R&D is limited, but there are programs that appear promising such as The Lewis Group at Caltech

Figure 1 Cost per Kilowatt-Hour

Figure 1 illustrates the cost disparity between solar energy and hydrocarbon fuels. Our what-if scenario provides a framework to measure the number of years it will take before solar energy cost are at parity to oil and electric. Our assumptions are solar energy market growth rates of 40%-to-60% and experience curve of 10%-to-30%. Current growth rates for domestic solar suppliers such as SunPower (SPWR), First Solar (FSLR) and Evergreen Solar (ESLR) are current enjoying revenue growth rates of over 100%.

Figure 2 Solar Parity

Oil and electric prices are assumed to increase at a modest 2.6% per annum for electric and 3.3% for oil. In the most optimistic scenario of market growth of 60% and experience curve of 30%, suggest that it would take until 2014 or seven years before solar energy is equal to the price of electric. With 10% experience curve and 40% market growth it could take 20 years before parity. Increased funding into solar energy research and higher energy prices shorten the time.

The bottom line is that as solar energy reaches parity with hydrocarbon fuels, energy security is achieved for all countries.

The U.S. Department of Energy (DOE)’s $23.6 Billion Spending Plan for FY’07 calls for $1.5 billion for the Office of Energy Efficiency and Renewable Energy where spending includes $28 million in solar, $16 million for thin-film photovoltaic manufacturing equipment to reduce the cost of solar panels, $23 million for researching ethanol, and $100 million for carbon sequestration research. However, more than half of the DOE spending is targeted towards research on weapons, defense, and security. Perhaps our national security would be better served if the U.S. were not dependent on foreign oil. Investment into alternative energies like solar and fuel cells could provide us with energy independence with less concern over protecting oil in foreign lands.

Solar energy is significantly more expensive than conventional hydrocarbon fuels. In Green Econometrics’ prior analysis of fuel efficiencies and costs, we found solar energy cost approximately $0.38-to-$0.53 per Kilowatt-Hour (KWH). See Understanding the Cost of Solar Energy
There is considerable variance in the cost of solar energy because sunlight availability varies by geography and climate. With limited sunlight solar costs could be over $1.00 per KWH. In terms of cost per KWH, solar energy is four-to-ten times the cost of hydrocarbon fuels.

Figure 1 Cost per Kilowatt-Hour

For solar energy to be at parity with conventional fuels solar energy needs to be subsidized through tax incentives, utility rebates, and research funding. Research is perhaps the most important aspect of improving the economics of solar energy because through research companies could dramatically lower production costs. The disconnect in solar energy research is limited funding. Funding is required to incubate ideas and new approaches to solar energy in order to develop a roadmap for commercialized products that in turn, could be embraced by venture capital.

The DOE’s research funding for solar is just a drop in the bucket or barrel that better correlates the magnitude disparity. Electric utilities companies are providing electric power generated mainly through coal, which contributes heavily to CO2 emissions, and yet they don’t spend on research and development towards alternative energies. Large energy companies like Exxon Mobil (XOM) don’t have R&D budgets like pharmaceutical or technology companies that spend 14%-to-20% of their revenues on R&D. Merck (MRK) and Genentech (DNA) spent 17% and 20%, respectively on R&D while Microsoft (MSFT) and Google (GOOG) spent 15% and 14%, respectively on R&D in 2006.

If Exxon Mobil were spending 10% of its 2006 revenues of $377.6 billion towards R&D to develop alternative energies, it would amount to over $37 billion, a figure that is larger than the DOE budget of $23.6 billion. DOE spending on solar energy research is approximately $28 million. According to the DOE, U.S. energy expenditures in 2004 were over $869 billion. So with that amount of money being spent on energy, how much should be spent to avoid dependence on foreign oil?

Figure 2 Historic Energy Spending

Solar energy and fuel cell technologies have the potential to ameliorate our energy dilemma of foreign oil dependence and risk of climate change from carbon emissions. While it’s hard to measure the economic impact of climate change, our dependence on foreign oil leaves us with growing $450 billion debt for our presence in Iraq and our national security vulnerable to vagaries of oil prices. The Cost of Iraq War The $450 billion the U.S. is spending in Iraq is almost enough money to equip the 124.5 million homes in the U.S. with a 1 KW solar energy system. The U.S. housing units rose to 126.7 million in 2006. Of course that may not cover your total electric usage that averages about 10,760 KWH per household according to data from the Energy Information Administration Electric Power Annual 2005 – State Data Tables

Can higher R&D spending on solar energy help?
Even some of the leading domestic solar photovoltaic cell suppliers are light on R&D spending. SunPower (SPWR) and First Solar (FSLR) are budgeting their R&D spending towards the single digits as a percentage of revenues. Despite relatively low R&D spending levels, SunPower intends to lower solar panels cost by 50% by 2012. Solar photovoltaic cells undergo the same production processes as semiconductors. Experience curves associated with semiconductor production indicate a 20%-to-30% cost reduction with doubling of production. See The experience curve or cost-volume curve article from the Lockwood group TECHNOLOGY TRANSFER: A PERSPECTIVE The solar energy market is expected to grow at 80% over the next five years according to Rhone Resch, president of the Solar Energy Industries Association Solar Leader Expects >80% Market Growth Even without new advances in photovoltaic materials, with a solar energy market growth of 25% and an experience curve of 30%, solar cost could decline by 30% every three years from about $8.90 a watt ($0.45 a KWH) to $2.14 a watt or $0.11 a KWH in 15 years equal to the current price of electricity. The bottom line is that faster market growth and/or increased funding of solar energy research could significantly improve the economics of solar energy and give the U.S. greater security and energy independence.

Solar and alternative energies represent a very small percentage of our total expenditures on energy. Energy Price and Expenditure Estimates by Source
So a substantial reduction of solar energy costs, assuming somewhat elastic demand, we should see significant growth in solar energy. In addition, if we tax hydrocarbon fuels by their respective carbon emissions, we might begin to see level energy playing field.

Figure 3 Energy Spending

Funding solar energy should be views as a strategic imperative at par with national surety. Energy security should equate to national security and alternative renewable energies should provide us with the means to our energy independence.

To measure the efficiency of conventional hydrocarbon fuels, we need a common measure of energy. The Kilowatt-Hours (KWH), the billing quantity of electric usage, serves as a useful measure of energy because we can equate KWH to engine horsepower performance, heat energy of a fuel, and compare energy costs on a common level. KWH can be used to determine which fuel is most efficient by measuring the heat output of each fuel.

A BTU is the amount of heat necessary to raise one pound of water by one degree Fahrenheit and each fuel has its own BTU measure. For example, one ton of coal produces about 21.1 million BTUs, which would equate to 6,182 KWH. One KWH equals 3,413 BTUs.

A framework to measure energy costs is to convert each fuel type into KWH of energy. Some helpful links to common fuel conversions Energy Units and Conversions KEEP, BTU by Tree, and Fuel BTUs

We want to establish common energy measure to evaluate home heating fuel efficiency for each fuel type. Our first step is to measure the BTU value for each fuel type. The next step is to divide the BTU value for each fuel by 3,413 to arrive at its corresponding KWH energy value.

Kilowatt-Hour per Unit of Fuel
The energy value of a unit of fuel depends on its mass, carbon and hydrogen content, and the ratio of carbon to hydrogen. In general, hydrogen generates approximately 62,000 BTU per pound and carbon generates around 14,500 BTUs per pound. The combustion process is complex and while higher hydrogen content improves energy BTU levels, not all hydrogen goes to heat. Some hydrogen combines with oxygen to form water. Coal Combustion and Carbon Dioxide Emissions

Energy Comparison
1 pound of wood = 6,401 BTUs = 1.9 KWH
1 pound of coal = 13,000 BTUs = 3.8 KWH
1,000 cubic foot of natural gas = 1,000,021 BTUs = 299 KWH
1 gallon of oil = 138,095 BTUs = 40.5 KWH
1 gallon of propane = 91,500 BTUs 26.8 KWH

Figure 1a Kilowatt-Hours per Pound

As seen from figure 1, natural gas provides the highest efficiency level followed by oil. Wood offers the lowest efficiency per pound at 1.9 KWH/lb and is followed by coal with twice the efficiency at 3.8 KWH/lb. Oil offers almost a 70% efficiency improvement over coal and propane is just slightly more efficient than coal.

Fuel Energy Efficiency
Wood = 1.9 KWH per pound
Coal = 3.8 KWH per pound
Natural Gas = 6.9 KWH per pound (liquid and gas measures are calculated at 6.3 pounds per gallon)
Oil = 6.4 KWH per pound
Propane = 4.3 KWH per pound

This is not the full story. While the energy efficiency of the fuel is important, a lot depends on the fuel efficiency of the stove or furnace that is used to heat your home. The heating efficiency of your stove or furnace has a substantial impact on the overall efficiency of the fuel’s heat value. The adjusted KWH in figure 1 indicates the fuel efficiency adjusted for the efficiency of the heating system. There is also some variance in the fuel efficiency given impurities, temperature, and water presence.

Adjusted Fuel Energy Efficiency
Wood @ 1.9 KWH per pound and stove efficiency of 70% equals 1.3 KWH/lb
Coal @ 3.8 KWH /lb and stove efficiency of 70% = 2.7 KWH/lb
Natural Gas @ 6.9 KWH /lb and furnace efficiency of 95% = 6.5 KWH/lb
Oil @ 6.4 KWH /lb and furnace efficiency of 85% = 5.5 KWH/lb
Propane @ 4.3 KWH /lb and furnace efficiency of 95% = 4.0 KWH/lb

Figure 1b Kilowatt-Hours per Kilogram

Figure 1b proves the same fuel types measured by liters and kilograms. While the absolute numbers are different, the relative fuel efficiency among the fuels is the same.

Energy Economics

The final phase of our fuel efficiency exercise is to compare an economic measure of fuel cost. The market price of fuel will vary by location, usage amount, and market conditions. Our prices were quarterly average U.S. energy prices by fuel type:
Natural Gas Prices, , Oil Prices, and Propane Prices
Coal and wood prices were based on local residential delivery.

Figure 2 Cost per Kilowatt-Hours

Coal and wood are among the lowest priced fuels. However, coal and wood require extensive hands-on control and cleaning which are not factored into costs. Natural gas is offered in many urban areas and is currently priced below oil or propane. Natural gas offers higher energy efficiency and is priced lower than oil or propane, but is not available in all urban markets and very limited rural availability.

The trade off between oil and propane, which can be found in most markets, is operating efficiency and maintenance. Modern oil furnaces are demonstrating higher operating efficiencies, but cost significantly more than propane. Oil does offer higher efficiency than propane, but maintenance costs are higher for oil furnaces and that cost is not reflected in these fuel costs measures.

Electric heat in some markets where utility rates are below oil or gas may offer favorable economics, but electric rates might be going higher as utilities switch to lower carbon emission fuels. The challenge is to migrate electric utilities from lower-priced coal with high CO2 emissions to natural gas with lower carbon emissions. The cost to lower CO2 emissions from coal burning utilities could force natural gas prices to rise. The bottom line is that energy prices will continue to rise with natural gas tide to oil production. Even with higher fuel prices, there is still a tremendous disparity between conventional and alternative energies with the cost of solar near $0.38 per KWH and residential electric rates of $0.11 per KWH.

Carbon Economics

Emission of CO2 from hydrocarbon fuels depends on the carbon content and hydrogen-carbon ratio. When a hydrocarbon fuel burns, the carbon and hydrogen atoms separate. Hydrogen (H) combines with oxygen (O) to form water (H2O), and carbon (C) combines with oxygen to form carbon dioxide (CO2).
How can a gallon of gas produce 20 pounds of CO2

From this example, a carbon atom has an atomic weight of 12, combines with two oxygen atoms each with a weight of 16, to produce a single molecule of CO2 an atomic weight of 44. To measure the amount of CO2 produced from a hydrocarbon fuel, the weight of the carbon in the fuel is multiplied by (44 divided 12) or 3.67.

Wood has half the carbon content than coal, but coal is twice as efficient as wood and therefore both have nearly the same high level carbon footprint. Oil benefits from having higher energy efficiency than propane giving oil 30% lower CO2 emissions pound for pound.

Figure 3 Pounds of CO2 by Fuel Type

Natural gas, because of its low carbon content and high fuel efficiency, achieves lower CO2 emissions than oil, propane, or coal. Natural gas produces 46% less CO2 than coal and 10% less than oil. With coal relatively abundant and cheap in comparison to oil or natural gas, energy prices may increase as electric utilities switch to lower CO2 emission natural gas or invest into emission reduction processes that add to capital costs and operating expense.

In comparison to conventional hydrocarbon fuels such as coal or oil in generating electricity, the cost of solar energy is significantly higher. To compare energy cost, a common equivalent is required. Back in our previous post, Coal: Fueling the American Industrial Revolution to Today’s Electric, we developed a framework to measure energy costs by converting costs to kilowatt-hours (KWH).

In our example, a ton of coal on the average produces approximately 6,182 KWH of electric at a cost of about $36 per short ton (2,000 pounds). Under this measure coal cost less than$0.01 per KWH. In comparison, a barrel of oil at $70/barrel produces 1,700 KWH at a cost approximately $0.05 per KWH. Let’s provide some measures to understand energy costs.
Energy Units and Conversions KEEP

Energy Comparison
1 ton of coal = 6,182 KWH
1 barrel of oil = 1,699 KWH
1 cubic foot of gas = 0.3 KWH

Energy Costs
1 ton of coal costs $36 = $0.006 per KWH
1 barrel of oil costs $70 = $0.05 per KWH
1 cubic foot of gas $0.008 = $0.03 per KWH

In comparison to solar energy, the hydrocarbon fuel costs are significantly lower without rebates, tax benefits nor the cost of carbon emissions. A two–Kilowatt (KW) solar energy system costs about $45,000 and covers roughly half of a typical American household’s energy needs. At $45,000, a solar energy system equates to $9,000 a kilowatt. The $9,000 per KW for solar is not very helpful in comparing electric generation costs to other fuels like coal or gas. Since coal, oil, and gas can be measured on a cost per KWH, we should measure solar costs on a KWH basis.

Some of the considerations for a solar energy system include the 20-to-30 year lifespan of the system and the hours of available sunlight. The hours of available sunlight depends on latitude, climate, unblocked exposure to the sun, ability to tilt panels towards the sun, seasonality, and temperature. On the average, approximately 3.6 peak sunlight hours per day serves as a reasonable proxy to calculate the average annual output of electric from solar energy panels.

Solar Energy Costs
Average system costs = $95 per square foot
Average solar panel output = 10.6 watts per square foot
Average solar energy system costs = $8.95 per watt

In order to compare the solar energy costs to conventional hydrocarbon fuels, we must covert the $8.95 per into KWH. Let’s make two calculations to measure the total electric energy output over the lifespan of the solar energy system. The first adjustment is to convert solar direct-current (DC) power to alternating current (AC) power that can be used for household appliances. The conversion of DC to AC power results in an energy loss of 10 percent for a solar energy system. The second calculation is to approximate total electric output by multiplying the average peak hours of sunlight (about 3.63 hours per day) times 365 days times 20 years (the product lifespan).

For our 5-KW solar energy system costing $45,000, the conversion to KWH is as follows:

5 KW times 90% = 4.5 KW – (Conversion of DC to AC power)
4.5 KW times 3.63 hours = 16 KWH per Day
16 KWH x 365 = 5,962 KWH – (Average Annual Output)
5,962 KWH x 20 years = 119,246 KWH – (Total output over 20 year lifespan)

So a $45,000 5KW solar energy system produces about 119,246 KWH of electric over its lifespan meaning the average cost equals $0.38 per KWH. ($45,000 divided by 119,246 KWH)

Figure 1 Cost of Energy

The relatively high solar energy costs in comparison to conventional fuels should improve with utility rebates and government tax incentives. In addition, solar panel prices should continue to decline as volume production increases. Solar cell manufacturers employ similar production methods as semiconductor suppliers and benefit from economies of scale.

There are several components of a solar energy system. Solarbuzz provides some detailed information on solar industry pricing. Solarbuzz
The single largest cost is the solar panels themselves. The following figure provides an overview of the components of a solar energy system. Sharp Solar provides a very useful calculator for system costs and electric generation by geographical location along with utility rebates for your area. Sharp Solar Energy

Figure 2 Solar Energy Component Costs

We will explore the some of the advances in thin-film technologies, the declining costs of solar panels, and the improving solar conversion efficiencies that should continue to bring solar energy costs on par with hydrocarbon fuels. With the improving cost structure of solar and a better understanding of the cost of carbon emissions from hydrocarbon fuels, we may find a more level playing field in comparing energy costs.

Seven Ways to Lower Energy Bills

1)  Change your incandescent light bulbs to compact florescent lamps,

2)  Check for leaks and cracks throughout your house where heat or cooling could escape or enter,

3)  In winter, lower your thermostat and raise it a couple of degrees in the summer,

4)  Replace outside lights with solar-powered LED devices,

5)  Use your microwave to heat water for tea or before cooking with it on the stove,

6)  Use cold water for laundry, use low flow shower heads, and turn off water when using soap or shampoo in the shower,

7)  Clean air filters on A/C, refrigerators, and furnaces