What’s Driving Down the Cost of Solar Power?

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For most of its history, solar power hasn’t been seen as real competition by the fossil fuel industry. It was always too expensive to get a real foothold. But now prices for solar have fallen so far, it’s become one of the cheapest kinds of energy on the market and has reached grid parity. In a recent article, Renewable Rayna discussed Grid parity, the point where the cost of alternative energy (such as solar or wind) is equal to or less expensive than conventional forms of energy such as fossil fuels, but now, the question is, what is driving down the price of solar power?


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Solar system costs are falling across the United States, primarily driven by lower prices for solar panels, the main component is a solar system. According to the National Renewable Energy Laboratory (NREL), solar panel costs dropped from $10 /W to around $2/W between 1980 and 2010, a decrease of 80 percent over 30 years. As the industry matures, this rate of price reductions has decreased in recent years; however, solar panel prices have fallen from $0.70/W to $0.35/W by an additional 50 percent from 2015 to 2019.


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Solar inverters make up the other primary cost component of solar equipment, at around $0.21/W, or 8 percent of total solar installed cost, according to NREL. The costs of solar inverters have decreased similarly by around 50 percent since 2013. Inverters are now also being produced at a much higher voltage and are more technologically advanced.

As a result of falling solar module prices and increased efficiency, US solar photovoltaic ( PV) modules shipments hit a record-high 16.4 million kW in 2019, 2.9 million kW higher than the previous record of 13.5 million kW set in 2016. The average value of shipments from solar PV modules declined from US$ 3.50 per peak watt in 2006 to US$ 0.40 per peak watts in 2019.


Other than technology driving down costs, market-stimulating policies have played a central role in decreasing solar prices. The federal ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. A series of extensions pushed the expiration date back to the end of 2016, but experts believed that an additional five-year extension would bring the solar industry to its full maturity. Thanks to the spending bill that Congress passed in late December 2015, the tax credit is now available in some form through 2021. As predicted by the experts who pushed for the federal ITC extension, the solar industry is entering into maturity.


Solar technology and manufacturing processes are evolving and reaching a point where they are now very efficient, which means that there will be less opportunities to reduce the cost of solar equipment in the future – as a result of growing efficiencies in installation processes, decreases in permits and interconnection rates in the future, solar costs will continue to decrease in the future.