The Economics of Solar (in Cyprus)

As recounted to me on Sunday night:

  • Capital cost for panels is 5,000 euros per Kw of capacity
  • Over the course of the year, you can expect 5 full hours of capacity per day
  • The severe summer heat actually reduces panel efficiency, but, overall, given the sunny climate, Cyprus has excellent solar characteristics (not a surprise)
  • You can sell back into the grid at a premium 21 euro cents/KW vs buying at 14 Euro cents/kw
  • Government subsidizes 55% of the upfront equipment cost
  • Panels have a 25 year life

So assuming a 6% discount rate and flat electricity costs (14Kw/h), you have break even with a 13 year equipment life if you include the 55% equipment subsidy.

Even though Cyprus is a favorable location for solar, that does not strike me as too bad, given that: panel costs will clearly drop as volume / scale manufacturing increases and energy costs are probably biased upward over time. I would guess that in 7 to 10 years, in a location like Cyprus, solar is cost-competitive on an unsubsidized basis.

And that does not take into account the pollution externalities of traditional power generation and the explicit and implicit public subsidies oil-based energy receives (e.g. military, road building, etc).

Now, that does not mean 100% solar (you still need electricity at night, you need South exposures for this effectiveness,battery storage is expensive and difficult to maintain, etc), but it should certainly become a meaningful part of the mix.

Posted on June 10, 2008 and filed under Cyprus.