My tennants will be Gila Monsters

September 30, 2008 8:06 AM

Is it financially feasible to set up my own solar farm?

I was driving through the Arizona desert last week, and it occurred to me that one could buy what is probably very cheap land, with what is probably very low property taxes. I am interested in setting up a plot of land with a solar panel array and selling the energy back to the power company. This would work just like setting up panels on your house, but with no house.

In my mind, in order for this to produce profit, the money brought in from power generation would have to exceed the property taxes, plus the upkeep of the panels.

How do I go about figuring out if this would be financially solvent? Am I ignoring any other costs? Am I overestimating how much money I will be paid for the power? Would the solar installation tax incentives that apply to homeowners apply to this enterprise? Are there any conditions in the desert that damage solar panels, or make them inefficient? I have noticed that very few people out there use solar energy.

posted by soy_renfield to work & money (13 comments total)

If it were that easy, everyone would be doing it. Going into detail would take more time than I have right now, but there are a few things you need to consider.

1: Economies of scale. Yes, it is possible to bring down generation costs to around $0.03 to $0.05/kWh with photovoltaic generation, but that probably reflects massive economies of scale, i.e. millions, tens of millions, even hundreds of millions of capital. Setting up something for a few thousand bucks isn't likely to give anything approximating a good return.

2: Transmission. So you're generating power. Because this is Arizona we're talking about, that power is being generated in the boondocks. How are you going to get that power anywhere useful? The power company isn't going to pay for that, you're going to. And it isn't going to be cheap, because we're talking about a lot of power, because if we aren't talking about a lot of power, you've got problems with point 1 supra.

3: Labor. You can't just set up a bunch of panels and let them go. Even homeowners, if they're really interested in making good use of their arrays, need to periodically clean/replace their cells. For the few dozen that a single home can have, this probably isn't that big of a deal, and a few hours a year will suffice. But for the ten thousand cells you need under point 1, you're employing a few people full time, which means you need enough cells to pay for that, and we're back to point 1.

4: Environmental regulations. Yes, solar power is supposed to be "green," blah blah. True, it doesn't generate much in the way of emissions (if you ignore the emissions that go into making the array in the first place). But it does involve building over a large patch of presumably pristine desert. There are going to be costs associated with getting permission to do this, and there may well be people who are willing to sue to prevent it.

So basically, if you're a power company, this is something you're probably looking into seriously. But if you're a power company you're in a position to talk about a multi-decade, multi-million-dollar project. As a private individual, I'd stick to getting that Prius.
posted by valkyryn at 8:33 AM on September 30, 2008

My local power company will not buy excess electricity produced by residential solar panels, so the first thing you should do is check if the power company you'd be selling to would even want to deal with you. My local power company is extremely backward-thinking, though.

Depending on how much power you're generating, you might need some special kind of power lines to deliver to someplace where it'll be usable. If you're planning on building way out in the middle of the desert in currently undeveloped land, the cost of the power transmission lines will most likely fall on you.

Also, that land is quite likely BLM land, and they might not exactly want to sell it to you, although you might be able to rent it (I have no idea abou the likelihood of this), in which case you'd be paying rent to them instead of property taxes.

I think the most important question to ask yourself is: If there's so much money to be made from this, why hasn't the power company done this already? They probably have a lot more capital for projects like this to begin with, and could build out at such a scale that it would probably dwarf whatever you're proposing. I'd assume that if an idea similar to yours is completely economically viable, the power company would be doing it already. But, it may be that they just don't want to invest in the infrastructure to do it when they've already got a bunch of coal plants around.
posted by LionIndex at 8:38 AM on September 30, 2008

My data is almost certainly out of date, but it might give you a starting point. Seven years ago Home Depot started offering home solar power rigs and they had a special phone in the store you could use to call an "expert" to give some basic data and schedule an appointment with a contractor. I was the monkey expert on the other end of the phone for people who called.

Back in 2001 the answer was that with all of California's tax breaks, subsidies for purchasing solar panels, preferred pricing for sale back to the power company, etc, it took an average home install around 20 years to make back the money spent on the panels.

As valkyryn observes, economics of scale doubtless plays a role here, I'd bet that the big solar farms have a quicker payback.
posted by sotonohito at 8:42 AM on September 30, 2008

Back in 2001 the answer was that with all of California's tax breaks, subsidies for purchasing solar panels, preferred pricing for sale back to the power company, etc, it took an average home install around 20 years to make back the money spent on the panels.

The payback time for basic home roof photovoltaic cells may be uneconomical, but if you were constructing a major power generation facility you do have other options. For example, solar concentrators use (comparatively cheap) mirrors to focus sunlight at a point, then generate power either thermally or with high efficiency solar voltaic cells.

I would suggest you look at this page for an overview of existing solar power plants - should give you an idea of what other commercial endeavours have deemed cost-effective.
posted by Mike1024 at 8:55 AM on September 30, 2008

Using the PVWATTS calculator data for Prescott, AZ and the solar panel costs from Wholesale Solar, we can get a rough idea of how long it would take for the panels alone to pay for themselves. If you spent $100k on 20kW worth of Sharp ND-224U2 panels, it would take roughly 35 years for them to pay for themselves. That ignores maintenance, rent, grid connection costs, etc.

Now, that said, Nanosolar claims that their process will bring the price of solar generation down to 99 cents per watt. You could make back your $100k in about 7 years. Nanosolar has some major financial backing and recently shipped their first commercial panels, so there's some real hope for a dramatic drop in the cost of solar panels.
posted by jedicus at 9:01 AM on September 30, 2008

The economics of scale are pretty lousy on PV, costs rise pretty linearly in line with the number of installed modules, which isn't true of solar thermal for example, where other system elements play a big part in the overall economics. Your other possibility is solar concentrator technology for generation, such as this one in Sanlucar de Mayor. Transmission will still be a problem however, unless you can find something reasonably near a population or a power line with sufficient spare capacity.

The other option is to find somewhere with decent subsidies, e.g. Germany.
posted by biffa at 9:13 AM on September 30, 2008

Im guessing from this article that the minimum to get started is around 140 acres. Also note that they had to build mounts that rotated with the sun. You're looking at spending 700k per acre before land costs.

I dont think this is viable for the small investor yet, if ever.
posted by damn dirty ape at 9:22 AM on September 30, 2008

Residential net metering programs don't pay out cold, hard cash -- they just credit your electricity bill for the surplus amount you put onto the grid on an annual basis, up to the amount you are being charged for.

As for the naybobs above, with the right technology (and land), solar generation would be a profitable enterprise, since the spot market peaks right when when insolation peaks.

The main problem (to my semi-casual understanding) is simply the manufacturers and distributors have got the market by the balls and are charging what the market will bear.

If I were doing this I'd take a hard look at thermal cycle approaches since PV itself is allegedly advancing from the present approach and I wouldn't want to be stuck with a sunk capital cost into inefficient yesterday's technology.
posted by troy at 9:40 AM on September 30, 2008

If this was really economical, why wouldn't the POWER COMPANY, who obviously has the expertise to run a power station, do this? A: It's not economical. I mean, let's not be naive here. If you could just buy a few acres and throw solar panels on them, and that would generate enough money to make a profit, wouldn't the power companies turn off all of their coal and NG powered plants? The reason why this whole energy crisis is really a crisis is that fossil fuels are *extremely* energy dense and have been very cheap to extract. There is no substitute on the horizon that will provide such cheap and plentiful energy. It's back to whale oil and a few hydro-powered water wheels for us...
posted by zpousman at 9:55 AM on September 30, 2008

The answers amounting to "if it worked, someone would be doing it" may be correct, but they make some seriously flawed assumptions. The fact that large enterprises aren't investing in a given technology/sector/whatever does not mean that it is not profitable to do so... perhaps the rate of return on capital invested in such a scheme is simply smaller than the return from some other investment.

To take up zpousman's argument, for example, it is not clear that if solar could "generate enough money to make a profit" then "the power companies [would] turn off all of their coal and NG powered plants". Such a scenario would play out only if solar was a) as or more profitable than coal or natural gas and b) the power company could replace or exceed its current rate of profit by making the switch. The continued use of coal and natural gas for electricity generation demonstrates only that solar is less profitable (in either relative or absolute terms) than these fuels, not that solar is not profitable in and of itself.
posted by onshi at 10:06 AM on September 30, 2008

I've been to a few conferences for "Electricity Marketers" - that's jargon for "wholesale electricity sales". Here's some info you'd need to know:

Generating electricity is relatively straightforward. Getting it to where it's needed is relatively hard. Transmission is a major issue in several regions of the US. At a recent conference, a representative from one of the ISOs (Independent System Operators) stated that their organization has almost a millennium of backlog in their transmission request queue based on their current rules - they're trying to change the rules.

Just because you can generate electricity doesn't mean you can sell it. Each region holds daily auctions to set the price the next day, and there are many variables in play to calculate what the various prices are throughout the region. If you bid too high you don't get any request for service from the market (and therefore make no money), and if you bid too low you don't optimize your profit.

Electricity generation is an extremely complex market, far more complex than any stock exchange.
posted by lowlife at 11:03 AM on September 30, 2008

Generating power in the desert is fine and all but the problem is the power is in the desert. Transmission is the killer.
posted by chairface at 11:33 AM on September 30, 2008

Even if profitable, power generation is a regulated utility. There are hosts of state and federal rules to be followed. There are environmental impact statements to be filed. There are, even in a desert, NIMBY objectors to even the cleanest power facility.

I recall in my youth a fellow who bought an abandoned power-generation dam from the state and tried for several years to turn it into an operational facility again. Everything worked, but the paperwork was a bitch. The power companies rightly saw him as competition and deployed phalanxes of lawyers to prevent him from hooking up to the grid. It was illuminating. Today, the grid is much more flexible and there are rules for net power generators allowing you to sell to someone on the far side of, or out of, your state, instead of being forced to deal with the local utility exclusively. But it's obviously complex.

We also have a wind power company looking to get some windmills installed on the open prairie nearby. The local opposition has been tremendous and two townships where wind farms have been sought passed ordinances restricting their locations to the point where there are only a handful of places where it's even legal to put one up, notwithstanding the need for a cooperative landowner. I've seen this company called every name in the book. If they put together a friendly brochure they're using "corporate propaganda", if they have supporters who stand to gain rent and speak up at meetings they are "bought and paid for stooges". The entire process has been going on for about four years, with nothing but two test windmills erected. In other words, the initial investment is not in equipment, but in lobbyists and lawyers. So just be sure you understand what you're heading in for.
posted by dhartung at 11:20 PM on September 30, 2008