Installing photovoltaic (PV) panels to generate electricity from sunlight is already a good investment for families, businesses, communities and power companies. As the grids to which these PV panels are connected get bigger, the panels will become even better investments.
PV panels sometimes can produce more electricity than is needed locally. Since supply and demand for electricity must always be exactly balanced, these power producers must often "curtail" production — produce less electricity than the current sunlight could generate. This reduces the value of the investment in PV panels.
When PV panels are connected to a large grid, their production is less likely to be curtailed because surplus electricity not needed locally can move through the grid to where it can be sold and used.
Building bigger grids is itself expensive, and the speed with which they are built will therefore depend on cost-benefit analysis by entrepreneurs and investors.
Cost-benefit analysis compares the benefits with the costs of an action, and the rational actor only takes the action if the benefits are expected to outweigh the costs and no better action is available.
With many billions of dollars at stake, it is especially important to get an accurate idea of what the actual benefits and costs of additions to the grid will be.
Estimating costs of building additional grid is the more straightforward part of the problem, although the cost of materials and labor can increase unexpectedly, especially if serious inflation breaks out.
Predicting the benefits that will be produced by the additional grid is more difficult and is complicated by the fact that not all of the benefits will accrue to the investors who paid to build that grid.
The investors will benefit from money paid for transporting electricity from where it is produced through the grid to its ultimate consumers.
Other benefits of the new grid, however, will be captured by those who invest in the PV panels that convert sunlight into electricity. The value of these panels depends on how much electricity they produce. Since they use no fuel the cost of these installations is basically fixed, increasing little if at all when they produce more electricity.
Since a bigger grid makes investments in PV panels more attractive than they otherwise would have been, the additional value of the PV panels is an "externalized benefit" of the investments made in expanding the grid.
But everything else being equal, this benefit will not be considered by the people who are thinking about investing in a bigger grid, who will be interested only in benefits that go into their own pockets.
This could be a case where making everything else not equal could be generally beneficial. If PV owners agreed to pay part of the extra value of their panels to the grid owners whose investments create that extra value, it would encourage construction of more grid. Whether we considered this an increase in the benefits of building more grid or a decrease in its costs, it would make grid-building more attractive.
Before the world can convert entirely to solar energy we will need a worldwide grid. This grid will allow electricity produced where sunlight is abundant to be transmitted to anywhere power is needed. It will eliminate or minimize the need to store electricity for times when adequate sunlight is not locally available.
This grid is already being built, bit by bit. As grids get bigger, PV panels will be increasingly attractive investments.
When the whole world is connected to a single grid, the value of PV panels will be maximized since major curtailment of their production will become a thing of the past.
Paul F. deLespinasse is a retired professor of political science and computer science at Adrian College. He can be reached at email@example.com.
This article originally appeared on The Daily Telegram: Paul deLespinasse: Grid investments increase value of photovoltaic panels