New economic cost perspectives for valuing solar technologies

Abstract

Utility planning models evaluate alternative resource options using engineering oriented, discounted-cash-flow (DCF) methodologies to find least-cost options. Although DCF has been widely used for decades, recent capital budgeting experience in manufacturing suggests that more sophisticated procedures are required for comparing passive, capital intensive solar technologies to expense-intensive fossil generation. DCF techniques, which ignore financial risk, have a dismal record for correctly valuing new manufacturing process technologies such as robotics and computer-integrated manufacturing, in part because the benefits cannot be easily measured using traditional accounting concepts. This paper illustrates the application of capital-market theory to the valuation of conventional fossil resources as well as photovoltaics (PV). The paper also explores the importance of technological progress and critically examines the widespread practice of evaluating energy technologies on the basis of their levelized costs. 73 refs., 16 figs., 18 tabs.