Solar Induction Melting Economics: When Does It Pay Back and How Long Does It Take
The economics of solar induction melting are increasingly attractive in markets with good solar resources and high grid power costs. The levelized cost of electricity from a solar-plus-battery system has dropped from 0.15 to 0.20 USD per kWh in 2018 to 0.05 to 0.10 USD per kWh in 2024, and it is forecast to drop to 0.03 to 0.06 USD per kWh by 2028. The crossover with grid power is happening now in many markets, and the question is no longer whether solar induction makes sense, but when the payback is short enough to justify the investment.
Cost Components
The cost of a solar-plus-storage induction melting system has three main components: the solar PV array, the battery energy storage system (BESS), and the power conversion system (PCS). Each component has dropped significantly over the last 5 years.
Solar PV cost: 0.4 to 0.6 USD per Watt installed for utility-scale single-axis tracking systems. A 10 MW PV array costs 4 to 6 million USD, including the modules, the mounting, the inverters, and the grid connection.
BESS cost: 200 to 350 USD per kWh installed for LFP battery systems with the BMS, the thermal management, and the fire protection. A 10 MWh BESS costs 2 to 3.5 million USD, including the batteries, the containers, the HVAC, and the safety systems.
PCS cost: 0.10 to 0.15 USD per Watt installed for utility-scale bidirectional inverters. A 5 MW PCS costs 0.5 to 0.75 million USD, including the inverter, the transformer, and the switchgear.
Total system cost for a 5 MW solar-plus-storage installation (10 MW PV, 10 MWh BESS, 5 MW PCS): 6.5 to 10 million USD, depending on the site and the system design. The cost per kW of furnace capacity is 1.3 to 2.0 million USD per MW.
Levelized Cost of Electricity (LCOE)
The levelized cost of electricity (LCOE) from a solar-plus-storage system is calculated as the total cost of the system over its life divided by the total electricity produced. The formula is:
LCOE = (CRF * CapEx + OpEx) / AnnualEnergy
where CRF is the capital recovery factor (a function of the discount rate and the system life), CapEx is the total capital cost, OpEx is the annual operating cost, and AnnualEnergy is the annual electricity produced.
For a 5 MW solar-plus-storage system with 10 MW PV, 10 MWh BESS, 25-year life, 8 percent discount rate, and 0.5 percent annual OpEx as a fraction of CapEx:
CRF = 0.08 * (1.08)^25 / ((1.08)^25 - 1) = 0.0937
LCOE = (0.0937 * 8 million + 0.005 * 8 million) / 18 GWh = 0.046 USD per kWh
The LCOE of 0.046 USD per kWh is competitive with grid power at 0.05 to 0.10 USD per kWh in most markets. In markets with grid power above 0.08 USD per kWh, the solar-plus-storage system has a clear cost advantage.
Payback Calculation
The payback period is calculated as the additional capital cost of the solar-plus-storage system divided by the annual savings on grid power. For a 5 MW solar-plus-storage installation in a market with 0.10 USD per kWh grid power:
Annual energy production: 18 GWh at 0.04 capacity factor, but only 60 percent of the furnace consumption is supplied by solar = 18 * 0.60 = 10.8 GWh
Wait, this needs to be reversed. If the system produces 18 GWh per year, and the furnace consumes 30 GWh per year, then the solar contribution is 18/30 = 60 percent. The annual energy cost savings are 18 GWh * (0.10 - 0.046) USD per kWh = 0.97 million USD per year.
The payback on the 8 million USD system is 8 / 0.97 = 8.2 years. This is acceptable for a 25-year asset, but it is longer than the typical industrial payback target of 3 to 5 years. To shorten the payback, the system size must be optimized, or the grid power cost must be higher.
If the grid power cost is 0.15 USD per kWh (high-cost market), the annual savings are 18 * (0.15 - 0.046) = 1.87 million USD per year, and the payback is 8 / 1.87 = 4.3 years. This is competitive with most industrial investment criteria.
Sensitivity Analysis
The payback is sensitive to several parameters. The most important are:
Grid power cost: payback drops by 1 year for every 0.02 USD per kWh increase in grid power cost. In markets with 0.15 USD per kWh or higher grid power, the payback is 4 to 5 years.
Solar resource: payback drops by 0.5 to 1 year for every 10 percent increase in annual solar yield. In high-insolation sites (Middle East, the southwestern US, Inner Mongolia), the solar yield is 25 to 35 percent higher than the average, and the payback is 1 to 2 years shorter.
BESS cost: payback drops by 0.5 year for every 50 USD per kWh drop in BESS cost. The BESS cost is forecast to drop by 30 to 50 percent by 2028, and the payback will drop by 1 to 1.5 years over that period.
PV cost: payback drops by 0.3 year for every 0.10 USD per Watt drop in PV cost. The PV cost is forecast to drop by 20 to 30 percent by 2028, and the payback will drop by 0.5 to 1 year over that period.
Carbon pricing: in markets with carbon pricing (EU CBAM, US IRA, China carbon market), the effective grid power cost rises by 0.01 to 0.05 USD per kWh. The payback drops by 0.5 to 2 years depending on the carbon price level.
Optimal System Size
The optimal system size is not always the largest possible. A system sized to supply 100 percent of the annual energy has a higher capital cost and a longer payback. A system sized to supply 60 to 80 percent of the annual energy (with grid backup for the remaining 20 to 40 percent) has a lower capital cost and a shorter payback.
The optimal size depends on the grid power cost and the carbon pricing. In markets with high grid power cost and high carbon pricing, the optimal size is 80 to 100 percent of the annual energy. In markets with moderate grid power cost and no carbon pricing, the optimal size is 50 to 70 percent.
MONTE INTELLIGENCE uses a financial model to optimize the system size for each project. The model considers the site solar resource, the local grid power cost, the carbon pricing, the BESS cost, and the discount rate, and it outputs the optimal PV capacity, the optimal BESS capacity, and the payback period.
Financing and Incentives
Several financing options and incentives can shorten the payback on a solar-plus-storage induction melting installation. The most common are:
Green bonds: 10 to 20 year bonds at 3 to 6 percent interest, used to finance renewable energy projects. The interest rate is lower than the cost of capital for the foundry, and the savings are shared between the bond issuer and the foundry.
Power purchase agreements (PPAs): 10 to 20 year agreements with a third-party developer that finances, builds, and operates the solar-plus-storage system. The foundry pays a fixed rate for the electricity (typically 0.05 to 0.10 USD per kWh), and the developer takes the performance and the credit risk.
Government incentives: many countries offer tax credits, grants, or feed-in tariffs for renewable energy projects. The US Investment Tax Credit (ITC) covers 30 percent of the system cost, and the EU has similar programs under the Recovery and Resilience Facility.
Development bank financing: the World Bank, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank all offer concessional financing for renewable energy projects in developing markets. The interest rate is typically 2 to 5 percent, with 15 to 25 year terms.
Talk to MONTE INTELLIGENCE About Solar Induction Economics
For buyers considering a solar-plus-storage induction melting installation, MONTE INTELLIGENCE engineering can run a financial model with the local grid power cost, the solar resource, the BESS cost, and the carbon pricing. The model outputs the optimal system size, the annual energy cost, the payback period, and the IRR. Visit www.cnlymonte.com/products-solar-induction-furnace.html for product specifications. For a project discussion, email helenxu@cnlymonte.com with subject line solar induction economics and details on your site, furnace size, grid power cost, and carbon pricing.
