Economic performance of grid-connected photovoltaics in California and Texas (United States): The influence of renewable energy and climate policies

Various public policies in the United States are providing financial incentives for installation and generation of electricity from renewable resources. This article examines the influence of investment subsidies, greenhouse gas (GHG) prices, and renewable energy credit (REC) prices on the economic performance of grid‐connected photovoltaic (PV) systems. Our model integrates PV output, capacity‐factor‐based dispatch, and cost‐benefit financial components to evaluate new PV installations in California and Texas. Relative to the base case, the benefit–cost ratio increases between 5–53% in California and 5–38% in Texas for the policy‐derived cases of GHG and REC prices. The economic performance of PV is higher in California due to higher grid electricity prices and the profile of displaced marginal fuels. A sensitivity analysis demonstrates the electricity and GHG prices required to achieve profitability. A key element of the economic analysis demonstrates the importance of assessing the marginal fuels displaced by the PV system, not the average mix of displaced fuels, in terms of accurately monetizing the GHG abatement embodied in the displaced fuels. In California, for example, the discounted benefits derived from pollution abatement under the marginal displacement approach were 1.6–3.0 times higher than under the three average fuel mix cases.