Solar Prices Continue to Decline

Our latest webinar featured Lawrence Berkeley National Lab’s Galen Barbose sharing hot-off-the-presses findings of the 5th annual Tracking the Sun report on solar price trends in the U.S. The report confirmed that solar has never been a better deal for Americans. 2011 brought another year of double digit cost declines, and that downward trajectory continued in the first half of 2012.

The average installed price of residential and commercial PV systems completed in 2011 range from $6.1/W for smaller projects to $4.9/W for larger projects, an 11-14% decrease from the year before. Installed prices fell an additional 3-7% in the first half of 2012. Looking farther back, installed PV prices have declined an average of 5-7% per year from nearly $12/W in 1998. But prices have been undergoing a particularly dramatic decline since 2009. Galen’s slides are available to download here or watch the presentation for yourself . . .

Here are two basic pieces of the PV price reduction pie:

Module costs: The price of solar panels is generally determined by the global marketplace rather than local or regional dynamics. PV manufacturers have dropped panel prices an incredible 80% in the past five years, a rate that nobody was predicting back in 2007. It’s meant tough competition and at least one high-profile bankruptcy. This kind of consolidation is not atypical for a maturing industry. Take a look at dot-com: in just a few years $5 trillion in market value was erased and 5,000 companies were acquired or shut down. Yet few would argue that the internet is anything less than a smashing success. There will inevitably be winners and losers in a growing new industry – but let’s be clear: in the race to low cost solar, the one certain winner is the American energy consumer.

Non-module or soft costs: The remaining cost of going solar is largely associated with business processes like permitting, installation labor, customer acquisition, and other overhead. Unlike module prices, we have the power to significantly impact these “soft” costs through national, state and even local policy. By simply installing more solar you help increase these business efficiencies. Market-building policies like the federal ITC and state level RPSs and net metering help bring about these cost reductions. Removing red tape like arduous building permitting processes at the city or county level, can further lower these costs. Few local governments realize just how much power they have over the pre-incentive price of going solar.

Galen noted that the drastic recent price declines are largely attributable to falling module prices, which fell by $2.1/W from 2008 through 2011 and further still in 2012. Meanwhile soft costs, which declined by roughly 30% from 1998 to 2011, have not declined as rapidly in recent years. These soft costs represent the biggest opportunity for significant continued price reduction, a fact that becomes even more apparent when the U.S. is compared to the much lower soft costs found in larger solar markets like Germany. That’s why industry, advocates and heavy hitters like the DOE are focusing efforts on targeting these soft costs to make solar even more affordable.

Tracking the Sun helps illustrate just how far solar power has come in the U.S., and how much more we can do. Faced with a recession economy, messy election politics and an entrenched electricity marketplace, solar is quietly defying the odds and reinventing our national energy landscape. Thanks to a virtuous cycle of price reduction and project development, we have 15 times more solar installed today than just 5 years ago. Solar now employs 119,000 U.S. workers across all 50 states, with a 13.2% annual growth rate that far outpaces the general economy. And 92% of American voters agree that it’s important to use and develop even more solar. So let’s keep it up!