How attractive is residential solar in Alaska?

2/6/2017

Alaska the largest state of USA and is situated in the northwest of North America. It is one of the most sparsely populated states of the 50 states in the country. It is true that this state receives less solar radiations, an average of 3.1 KW-hr/m²/day, as compared to other

states in the country. If someone doubts the solar potential in the state, I can quote the example of Germany, whose solar radiations are comparable to Alaska, is the world leader in terms of installed solar panels per capita.

The state profile

Capital: Juneau
Population: 0.74 million
Area: 17,17,856 Km²
Coordinates: 64.00° N, 150.00° W

The solar radiations in Alaska

The solar radiations chart is as follows:

You can see in the chart above that the solar radiations are the maximum in the months of May, June, and July while radiations are minimum in the months of January, November, and December.
If I calculate the average for the whole year, it comes out 3.08 KW-hr/m²/day. I can say that the state receives the reasonable amount of the solar radiations neither high nor low.
You can also notice that the difference between the highest and the lowest solar radiations are quite high.
If I take the difference of the solar radiations for the month of June (6.05 KW-hr/m²/day) and the solar radiations for the month of December (0.18 KW-hr/m²/day), it comes out 6.05 KW-hr/m²/day - 0.18 KW-hr/m²/day = 5.87 KW-hr/m²/day.
The percentage change is {5.87 / 0.18} x 100 = 3261 %
This huge difference means that there will be months where energy production from the solar system will be greater than the required energy while in some months the energy production will be much lower than the required energy.

The energy produced by the 5 KW solar system

You can see the chart here:

If I say that my daily energy requirement is 7540 W-hr, see the blue line in the chart, and now if I look at the chart above, you will notice that there are months in which the energy production is higher than the energy required (March, April, May, June, July and August) and the months Jan, Feb, Sep, Oct, Nov and December have the lower energy production than the required energy.
You cannot alter or change the variations in the solar radiations; the solution here is to opt for grid tied system. When your system produces the excess energy, it is feed to the grid and you are credited with the units you transferred to the grid. During energy deficit months, you can take difference energy units from the grid. In this way, you can utilize and balance the solar energy production for the whole year by feeding extra units to the grid and taking those units when your energy production through solar is less.

Alaska being the largest state of the country, it experiences more climatic variations than other states in the country.

The grid electricity rate in the state

Alaska comes in the top 3 costliest states when considering the utility rates in the country. The average utility rate is $ 0.2069 or 20.69 cents per KW-hr with the average annual escalation of 4.10% since 2005.
Ref: http://sunmetrix.com/residential-electricity-rates-united-states/
If I consider escalation rate of 4.10% to continue in the future, the utility rates in the next 25 years would follow the pattern shown below:

It will be $ 0.54 per KW-hr in the 25th year from now.
While on the other hand the solar electricity prices are expected to come down further in the coming years, making it a lucrative option to produce electricity for the home use.

The average cost of residential solar in Alaska

The average per watt cost of solar in the USA is $ 3.50 per watt without any subsidy. Hence the total cost of the 5 KW system is 5000 x $ 3.50 = $ 17,500 (This is the cost of the system without any battery back-up).
This 5 KW system will generate approximately 1, 20,945 units of the electricity in its life time of 25 years.
The systems without battery back-up generally require very less maintenance in their life time which usually comes under 0.5% – 1% annually of the total cost of the system.

Grid electricity vs Solar electricity

After calculating from my solar feasibility spreadsheet, I can say that the solar electricity is cheaper than that of grid electricity.
The solar electricity will cost you $ 0.13 - $ 0.16 per KW-hr while the grid electricity is $ 0.21 per KW-hr
The Internal rate of return of the solar power system will be around 5% with a payback period of around 16 years.

Actual cost vs Break-even cost

The actual average cost of the 5 KW system in the state is around $ 17,500 offering you the annual average return of 5%
The break-even cost of the system would be $ 22,560. At this cost, the return offered by the system will be equal to the risk-free rate of return in the state which is 2.28%
On the above basis on can rightly say that the Actual cost of the system < the break-even cost of the system, making the system feasible.

Conclusion

If I were supposed to grade the residential solar power system in Alaska, it will be in the following form:

You can see that the system return gets the highest grading of 4 out of 5. It is because of the fact that the IRR rate of return of the system is 5% and the risk-free rate of return in the USA is 2.28%. Thus the system is giving more than double return than the risk-free return in the state. All the above calculations are done excluding any incentive offered by the federal or the state government.
If the government offers 30% incentive on the cost of the system, the feasibility dynamics can be depicted as follows: