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Innovations Spur Era of Rapidly Declining Solar Costs

In the midst of the dramatic headlines that have accompanied the solar energy sector in recent months, it’s easy to forget about the remarkable progress that the sector has enjoyed in this decade alone. Much of this growth can be attributed to the array of industry-specific innovations that have put substantial downward pressure on solar energy costs for the average residential consumer.

Plummeting Costs Translate to Soaring Residential Generation

In economics, the law of demand states that as the price of a good decreases, demand for that good will increase. This economic truism explains how the once nascent solar energy sector in the U.S. grew by leaps and bounds over the span of just a handful of years.

The National Renewable Energy Laboratory (NREL) released a report last year modeling the all-in cost for solar energy systems, accounting for all system and project-development costs incurred during installation. The report provided time-series cost benchmarks dating back to 2010.

In modeling residential system costs in the study, the NREL assumed a 5.7 kWh system using 60-cell, multi-crystalline, 16.2%-efficient modules from a Tier 1 supplier on a standard flush mount, pitched-roof racking system. According to NREL estimates, total installed systems costs for residential solar PV systems have dramatically declined since 2010. The estimated all-in cost for residential solar systems in Q1 2017 were $2.80 per direct current watts (Wdc), a decline of 61% since 2010.

Meanwhile, total solar PV capacity and solar generation from residential sources in the U.S. have skyrocketed over the same time period, as the industry has scaled up. According to the U.S. Energy Information Administration, total solar PV generation from residential sources in the U.S. stood at just under 14 billion kWh in 2017, which is more than 14 times where it was in 2010.

Source: Data from National Renewable Energy Laboratory & U.S. Energy Information Administration, graphic by Solar Tribune

Declining Residential Costs by Sub-Group

The steady decline in the costs associated with residential solar PV systems, for both the developer and the end-user, have been driven by cost decreases across an array of component sub-groups. Costs of solar modules, solar inverters, and related electrical/hardware components in particular have plummeted since 2010, while the declining cost of installation labor has been the predominant driver of declining “soft costs” associated with residential solar energy systems.

Source: Data from National Renewable Energy Laboratory, graphic by Solar Tribune

The decline in recent years of the hard costs associated with residential solar systems has been especially significant in making solar a more financially feasible investment for U.S. consumers. NREL cost benchmarks estimate that solar module prices have plummeted from $2.57 per watt DC (Wdc) in 2010 to a mere $0.35/Wdc in Q1 2017, representing a decline of over 86% in just 7 years. The cost of inverters and the cost of associated electrical/hardware component parts per watt DC declined by 59% and 37% respectively over the same time period.

Source: Data from National Renewable Energy Laboratory, graphic by Solar Tribune

What follows is a more detailed look at some of the major innovations that have helped significantly bring down costs for residential solar energy systems.

Solar Module Cost Trends

The affordability of solar energy systems today versus roughly a decade ago is owned in large part to the stunning decrease in the price per kWh of solar PV panels themselves. In the mid-70’s, the price of a solar panel exceeded $100 per watt. Fast forward almost 30 years later, and that price is now under $0.40 per watt.


So, what happened in those 30-some years for solar panels to become so much cheaper? The primary answer is that the solar industry benefited from experience curve effects, like improvements in technology and economies of scale. The experience curve effect basically describes the dynamic that causes the price of a good to decrease when the cumulative volume of that good increases.

The continuous improvements in solar cell technologies also explain why mainstream solar panel prices have fallen so much in recent decades. The one-upmanship between solar cell manufacturers seeking to make their solar cells more and more efficient has broadly helped drive down the price of solar panels.

More efficient panels are also able to capture more of the sun’s energy while taking up less rooftop surface area. This allows for greater opportunities to sell more solar generation capacity, which in turn helps to further bring down solar costs.

The following chart from the NREL of best-in-class solar cell efficiency rates shows the marked improvement in efficiency rates of high-end solar cells over the years.

Source: National Renewable Energy Laboratory

Emerging PV technologies like perovskite cells, solar thermophotovoltaic devices, and quantum dot solar cells, are just now beginning to have their potential realized. As these PV technologies mature, the average solar customer will benefit from the added efficiencies that these products will bring to the solar module market.

Solar Inverters Cost Trends

Historically, solar inverters have always comprised a small share of the total cost of a solar energy system. Even so, the cost per watt of this critical piece of hardware continues to steadily decline. The $0.19 cost per watt DC for solar inverters in 2017 was more than half of what it was just 7 years ago. According to Deutsche Bank, solar inverters typically decline in price each year by about 10-15%. This matches the average 9% year-to-year decline that the NREL noted in their cost benchmarks from 2010-2017.

From string inverters to micro inverters to power optimizers, technological advances in the solar inverter market continue to result in more efficient and less costly options for the average solar user.

Solar Racking Cost Trends

In addition to the solar panels themselves, the cost of installing solar PV systems in the form of racking system costs and labor costs constitute the bulk of what you pay for when get a solar energy system placed on your rooftop.

Just like solar panels and solar inverters, efficiency improvements in how solar racking systems are manufactured and in how they are eventually installed are helping to reduce the overall cost of a residential solar energy system. Integrated-racking systems and pre-assembled rooftop racking systems are among the innovations that have significantly reduced the costs of installing rooftop solar energy systems.

The new generation of rooftop solar solutions that includes solar shingles, solar roof tiles, and similar roof-integrated solar solutions are further helping to reduce otherwise unnecessary costs unique to rack-mounted panels. These solar products almost entirely eliminate the abundance of nuts, bolts, wires, and assorted metal components that make traditional rack-mounted solar energy systems both more expensive and laborious to install.

Soft Costs Trends

While the bulk of the decline in residential solar costs can be attributed to hardware cost declines, soft costs have also declined steadily over the years. Solar soft costs from the end-user’s perspective are comprised of install labor and all other soft cost sub-groups like sales tax, overhead, net profit, and fees associated with permitting, inspection, and interconnection (PII).

Since 2010, costs associated with install labor have declined by 73%, while all other soft costs declined by a combined 37%. Despite these declines, soft costs have been markedly more stubborn than hardware costs, where price declines – especially for PV modules – have been more pronounced. Soft costs actually increased marginally from 2016-2017. More importantly, the proportion of total residential solar costs tied up in soft costs was 68% in 2017, compared to 2010 when the share was just 50%.

Source: Data from National Renewable Energy Laboratory, graphic by Solar Tribune

With hardware prices falling nearly as low as they can go and government subsidies for solar likely to decrease, future reductions in solar costs will almost assuredly have to come from a reduction in soft costs. The soft cost category is ripe for innovation, and there is evidence that the growing synergies between IT and solar will help chip away at solar soft costs. Companies like Geostellar, which uses an online platform to reduce customer acquisition costs, and EnergyBin, a B2B online marketplace where solar industry players can buy and sell products, are among the creative tech-based solutions to the solar soft cost predicament.

Both Geostellar and EnergyBin have received funding from the Department of Energy’s SunShot Initiative, which is pursuing a multi-pronged program to lower solar soft costs. Supporting tech innovators and other software-based cost-cutting solutions is a top SunShot priority.

Solar Financing Tools

While widespread cost reductions in the actual manufacturing and installation of solar panels have made them more affordable for your average American consumer, the availability of solar financing tools have also lowered the financial barriers to entry for prospective customers. These tools – often backed by governments, financial institutions, and solar companies – are a sign of an industry that has scaled and matured in recent years.

-Solar loans: Solar loans, both secured and unsecured, are now more ubiquitous than ever before, with traditional banks and solar companies themselves being the typical source of the lending. Other solar loans, like Property Assessed Clean Energy (PACE) loans are backed by a municipal government, and typically come with low rates like traditional secured solar loans.

-Federal/State Incentives: The 30% federal Investment Tax Credit (ITC) for solar has long been the mainstay government-backed financial tool for making solar energy investments affordable. An array of state and local governments offer their own incentives, that when combined with the ITC, can significantly bring down the cost for the consumer.

-Solarize & crowdfunding: Initially pioneered in Portland in 2009, “Solarize” programs allow for the cost of solar to be driven down through bulk purchases that often benefit whole neighborhoods or communities. Solarize programs are typically sponsored by a local nonprofit organization, in partnership with area commercial solar installation companies. A number of solar-specific crowdfunding platforms, like Mosaic and SunFunder, have also revolutionized how solar energy is financed, opening doors to under-served consumers in the process.

The myriad of financial tools that are available to subsidize solar investments have done wonders to ease the cost burden for the average consumer. These innovations in the solar industry are generally recent phenomena that underscore how mainstream and affordable solar has become this decade alone.

Although the solar tariffs, and steel and aluminum tariffs implemented by the Trump Administration will likely raise solar costs for U.S. consumers in the short-term, the long-term trend is unmistakable – solar energy costs are rapidly declining. This fact is due in large part to the constant innovation taking place in the industry that is leading to more efficient and affordable products for the solar energy user. Here’s hoping this long-term trend continues.

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