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As Solar Industry Grows Prices Fall

Posted by GetSolar Staff In Thursday, February 4 2016 under: cost of solar, solar markets

SEIA_Graph_Price_Drop_Solar_020416.jpgAs the US solar industry grows, prices have fallen virtually across the board for the various customer sectors and regions. This is great news for solar shoppers and for the country as a whole. Like many high technology industries, as a product gets more mature companies get better at building and delivering the product to consumers. We have seen the fall in prices in computers, televisions, mobile devices, telecoms, automobiles, even air travel. Either the product has become outright less expensive to purchase, or the functionality and performance have been dramatically increased while maintaining a rough cost parity or decrease.

In the case of solar electric panels (photovoltaics) we have seen an improvement in performance (efficiency), a big improvement in manufacturing scale and efficiency, and a big improvement in the marketplace such as sales and installation and financing. Additionally as the US solar market has grown, companies are competing harder for business, and constantly refining their operations to deliver a faster, smoother, less expensive shopping experience for clients.

According to a 2015 SEIA/GTM Research Report the average cost of installing solar has dropped more than 73% since 2006 (see graphic above). On the residential side we have seen costs come down by roughly 55% in the last six years. This is due to a combination of the above mentioned economies of manufacturing (the panels alone have dropped roughly 80% in six years), and installation efficiency, and in some markets outright competition. The addition of new and novel financing plans such as Power Purchase Agreements or Leases, has made the decision to install solar easier, more affordable, and in reach for more Americans.

One question we get all the time at GetSolar and at our partner EnergySage is "with prices falling, should I wait to get solar"?  This is an excellent question, and when viewed in the context of some of the other high-tech industries where prices have fallen dramatically, a very reasonable one. The answer boils down to one of finance and economics. The answer holds true today as it did last year, or two years ago; if it makes economic sense to do the project today, ie you will be saving money on your electric bill and the system will pay for itself over its lifetime, then it makes sense to do the deal. The deciding factor in answering these questions is how long, and how much, and at what cost of money (cost of capital).

This is what companies do when they look at building a factory or buying technology, or exploring for natural resources. They plug in the expected costs, and the expected benefits, and the cost of capital over a period of time (years) and see if the analysis shows a net benefit (NPV positive), or a net loss (NPV negative). Another word for this is Project Finance. Luckily for solar shoppers the numbers and assumptions  are very well known, easily quantifiable and entail very little technology or operational risk. Solar PV is now a well-known, "mature" technology with most high quality panels warranted for 25 years of service at a documented rate of electricity production. So the answer to our question is that if the project is NPV positive today, then it will remain so (unless the cost of electricity dramatically decreases) and it makes sense to do it. The sooner someone starts saving money on their utility bill, the sooner the economic benefits accrue.

The recent 2016 extension of the 30% Federal Investment Tax Credit (ITC) for solar adds one of the strongest single inputs to the above purchase/acquisition analysis. 30% of the system cost is a big reduction in outlay. While we can expect to continue seeing the price of solar decrease each year, much of the "low hanging fruit" in terms of costs has been pulled out, resulting in a steady albeit incremental improvement in cost structures across the various parts of the solar value-chain. Even with a (hoped for) dramatic breakthrough in solar panel performance (above the current 20-22%) it will take several years for any new technology to make it through the certification and warranty gauntlet. So waiting for the "next great thing in solar" to come along probably doesn't make sense if the economics already work today. In general, the value of a dollar saved today is worth more than the value of a dollar saved at some point in the future.





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