Solar Cell Costs Dropping: What This Means for You

Photo credit: Premier Power

Barrier #1 to residential solar installations: up-front costs. For years now, and in spite of many states’ attempts to incentivize the industry, initial costs have barred many homeowners from installing home solar energy systems. A big reason for this was the high cost of solar panels, stemming from the high production costs of solar cells due, in turn, to the high cost of solar-grade silicon. Demand far outstripped silicon capacity, resulting in big bucks for many solar companies but preventing a true solar revolution.

In response, solar cell manufacturers the world round ramped up production of silicon at a frenzied pace to catch up to demand. Then the housing and credit market crashed, resulting in some sizable losses for solar companies. At the same time, however, supply suddenly outstripped demand and prices dropped — and are dropping — resulting in some big gains for solar-enthusiastic homeowners. And that’s just the start of it.

Supply

Photo credit: Treehugger
Again, supply increased in a major way, compounded by a drop in demand. Now solar suppliers are pushing product at reduced rates thanks to economies of scale. On the other hand, falling demand could easily stagnate the industry as well, crushing many solar startups that thrived during the housing boom and a stint of incredibly high oil prices.

Technology

So solar manufacturers are pressing to reduce production costs further by improving and refining the manufacturing process; and to some success, especially in the thin film sector. Even with lower efficiencies, thin film manufacturers such as First Solar and Nanosolar are pushing the $1.00/watt production barrier. First Solar already claims to have refined production to $.98/watt. Meanwhile conventional silicon solar cells, with higher conversion efficiencies, are dropping as well, mostly due to increased supply and low priced silicon.

Competition

The solar industry is also very competitive, which will drive costs as low as manufacturers and suppliers can handle. In 2008, the top PV supplier controlled only nine percent of the market, with 13 other suppliers holding four percent or more. This will almost certainly change over the coming years, but in the meantime it’s good news for economically-strapped but energy-aware homeowners.

Government Incentives

Even though the entire solar industry is taking a big hit in 2009, most studies point to a resurgence in growth in the following year, aided and abetted by increased or continuing incentives in the United States, Asia, and Europe.

The biggest difference will be made here in the United States, especially for you the homeowner. Last fall the feds renewed and increased (for residential systems) solar tax credits through 2016. On top of that, the industry and states will be receiving some decent funding — to the tune of billions of dollars nationwide — from the American Recovery and Reinvestment Act, commonly known as President Obama’s economic stimulus package, which focuses heavily on energy efficiency and renewable energy.

What this means for you.

Quite simply, all of this signifies lower costs for homeowners, making the next few years the best time in history to go solar. Between federal and state incentives, half or more of a system’s cost can be recouped almost immediately, with much cheaper or free energy to come making up for the rest at ever increasing rates.

If up-front costs are still an issue, there are plenty of ways to finance a solar system as well. This includes newly available energy efficiency mortgages from the federal government and even solar leasing from companies like SolarCity.

Increased demand in the coming years, thanks in large part to the factors described above, will slow the rate at which solar cell costs drop. But this is not a bad thing, it will bring stability to the industry, allowing improved technology and production to further bring costs down at a reasonable rate, hopefully relieving strapped governments from carrying as much of the load. All while creating high quality jobs and cleaning up our very dirty energy history.

Posted on May 27th in Solar Funding by Dan.