Is Solar Energy Getting Cheaper?

Is solar energy getting cheaper, or in other words, will a solar energy system cost you less than it did a few years ago? Although the solar panel prices have been coming down in price, they only constitute a portion of the total installed cost. When you get a quote from an installer, you may be surprised to see that the overall price doesn’t reflect the media stories about plummeting panel prices. There are a few key reasons for this seeming disconnect.

It is a fact that the prices of solar panels decreased considerably over the past few years, mainly due to an influx of Chinese manufactured panels on the market. Where Europe, Japan and the U.S. used to be the main players in solar panel manufacturing, China and Taiwan have now taken the lead. The rate of reduction in panel prices is nothing short of astonishing: prices were about $4.00/watt in 2007 and they came down to $0.74/watt in 2013, a decrease of approximately 80% (for more details, check out this article in The Economist).

However, the solar panel is just one part of the whole system, where the inverter, the battery, and the charge controller make up the rest of a solar photovoltaic installation. These other components, also called the “balance of system”, account anywhere from 50% to 70% of a system’s overall cost. Unlike the price decreases seen for the panels themselves, the prices of these other components have remained relatively stable over the years. Furthermore, one has to take into account the cost of installation itself, which can vary drastically depending on your city. For smaller residential systems, reductions in panel prices have even less of an impact, since a small number of panels are used per installation.

We got too used to hearing stories about decreasing panel prices, and you might be wondering if the extraordinary price decreases will continue in the foreseeable future? It seems that policy makers are taking action against cheaper imported panels to protect domestic industries. As indicated by today’s Reuters article announcing that the European Union’s trade chief will recommend placing punitive import duties on billions of euros of solar panels from China, and the recently imposed U.S. tariffs on Chinese solar panels, the days of drastic price reductions may be coming to an end.

However, these recent events don’t take anything away from the long-term economic rationale of your solar investment. The trend is your friend: as production volumes grow, economies of scale will keep overall prices in check. The reliability and performance of the photovoltaic systems will improve through innovation and stricter quality control. Best of all, your cost of “fuel” will continue to be free as long as the sun keeps shining!

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