The cost of solar panels continues to drop every year with the advancements in solar cell technology as well as increases in production capacity. In the United States, solar panels are expected to fall in price to 50 cents per watt. Are you thinking about making the switch to solar? Read on for the information you need on the cost of solar panels.
The cost of production today
Deutsche notes that total module costs of leading Chinese solar companies have decreased from around $1.31 a watt in 2011 to around $0.50/W in 2014. It says this was primarily due to the reduction in processing costs, the fall in polysilicon costs and improvement in conversion efficiencies.
That represents a fall of around 60 per cent in just three years. Deutsche Bank says total costs could fall another 30-40 per cent over the next several years, with the greatest cost reductions are likely to come from the residential segments as scale and operating efficiencies improve.
It sees a precedent for this in the oldest major solar market in the world – Germany. “Costs today are well below costs in the United States and other less mature markets, and total installed costs have declined around 40 per cent over the last 3 years in the country. The exact drivers behind cost declines may vary between countries, but we believe the German example continues to prove that overall system costs have yet to reach a bottom even in comparatively mature markets.”
Total cost reduction will not come from polysilicon
While much of the cost reduction over the last 5-10 years has resulted from polysilicon price reductions, future cost reductions will necessarily come from non panel related balance of system costs. Polysilicon price reductions have accounted for significant portions of cost reductions, and were once the largest single cost component in panels, but this has changed drastically and rapidly over the last decade. It now represents no more than 10- 11 cents per watt so even if costs are halved, the effect on the total system cost would be incremental – not revolutionary.
Panels to fall in price to $US0.50/watt
Deutsche Bank says that while overhangs like trade cases or minimum price agreements could cloud the near term, market inefficiencies will be worked out over the long term and the clearing price will reach $0.50 or lower within the next several years.
Companies like SunEdison have publically targeted $0.40 cent per watt panels by the end of 2016, and many Tier 1 Chinese manufacturers are achieving sub $0.50/w already in 2014. :Given that most manufacturers are improving 1-2 cents per quarter, less than ten cents improvement (to reach $0.40) over the next 12 quarters is likely conservative.
If panels are sold at a 10 cent gross margin for a total cost of $0.50/w, manufacturers would achieve 20% gross margin – well above recent historic averages. Furthermore, transportation costs and ‘soft costs’ which inefficiently raise the price of panels should gradually improve as governments work through trade issues
Inverter and racking cost are also declining
Inverter prices typically decline 10-15 per cent per year, Deutsche Bank says, and it expects this trend to continue into the future. Large solar installers are already achieving $0.25/w or lower on large supply deals, and additional savings will be found over the next several years. Component cost reduction, next generation improvements, and incremental production efficiencies will drive savings on the manufacturing side, while new entrants and ongoing price competition will keep margins competitive.
Racking and other balance of system costs are often overlooked as a source of cost reduction, ongoing efficiency improvements, streamlining, and potential advances in materials to lead to incremental improvements, from around $0.25/w to around $0.17/w.
Installation costs will fall by one third in the US
Cost reduction on the installation side will come primarily from scale benefits, and could fall from $0.65/w to $0.45/w. In fact, solar installation jobs are likely to increase substantially to keep pace with demand, but more experienced installers using better tools and techniques on larger systems are likely to more than offset any wage growth through efficiency gains,” Deutsche Bank says.
Sales/Customer Acquisition Cost will fall even further
Deutsche Bank sees substantial room for improvement over the longer term in cost per watt terms – from $0.50/w to $0.20/w – as solar gains mainstream acceptance, is recognized as a cost competitive source of electricity, and companies develop new/improved methods to interact with customers.
(source: Giles Parkinson via reneweconomy.com.au)
As the solar industry becomes more streamlined and efficient, the costs for a solar system will continue to decrease. It is smart to plan a solar system taking into account the current price of a solar install while taking into consideration future expected price.
The California Case Study
Let’s take a look at a typical 5KW system installation and savings of a Los Angeles home in California.
An average cost for 5KW of system will cost you around $20K to install. (Panels, labor, connections etc.). This is just our starting point. Now we need to subtract the incentives and solar federal tax breaks as follows: Subtract the rebate you’ll receive for each KW, which is totaled at $3750.
Now we need to subtract the federal solar tax credit at an amazing 30% to reduce the bill by another $4875 dollars. That brings your total savings to $8625 dollars!
So, all of a sudden, a $20K investment turns to $11,375. That is almost half of the original cost, and that’s big.
Again, each state has a different policy and each municipal, has different incentives like rebate program. For example, the LADWP (Los Angeles Department of Water and Power) rebate program is much different than the SMUD (Sacramento Municipal Utility District) rebate program.
One of the main reasons people tend to not get very excited about the prospect of installing a solar energy system to their home is their perception of the costs involved.
The truth is, over the long term, a solar energy system will pay for itself, and will actually generate you money in the form of lower utility bills, tax incentives, and selling back a proportion of the energy you produce but do not use to utilities companies.
How much you stand to make depends upon where in the US you live, how much sunshine you typically see, and how electricity costs you. Naturally, the more money you pay for your energy supply, the more money you will save when you switch to solar.
The costs involved depends upon what kind of system you install. You can even have solar panels installed for free by allowing a solar energy company to lease your roof space off you so they can install their panels there.
They sell the electricity the panels generate back to you at a cost that’s typically much lower than mains electricity, but you will not receive the tax breaks and long-term benefits available to you if you go down this route.
With the decreasing price of solar panels plus the ability to apply tax credits to your purchase, now might be the perfect time for you to make the switch. The long term financial benefits are undeniable. Going solar today will also make you part of the solution to the environmental crisis us humans have created with our reliance on dirty energy forms. Is now the time for you to switch?