The cost of solar panels can vary dramatically depending on your location, and the type and size of the system you purchase.
This article discusses the cost considerations involved with residential solar power, including recent cost stats, to give you an introduction before investigating the specifics for your location.
Current data about the cost of solar power have some inconsistency for a variety of reasons.
These reasons include a lack of standardized reporting due to the relative infancy of the solar industry, geographical differences in sun exposure, geographical differences in costs of equipment and solar panel installation, and different government policies.
A report on worldwide prices , published in Renewable & Sustainable Energy Reviews, estimates the average costs of recently installed systems (2009) at $7.70 per watt installed capacity in Germany, $4.70 per watt in Japan, and ranging from $5-$10.50 per watt across the United States . The figures are for residential (2-5kW) systems, and before any government incentives.
2011 was a majorly turbulent year for the solar industry, with early indications showing average solar panel prices dropped by 50%.
Solar Power Cost Per kWh
A useful figure to use when looking at solar is cost per kWh, as this can be directly compared to your current power bill. A National Renewable Energy Laboratory report spanning 7 U.S states, gives a levelised cost of solar of between $0.28 and $0.46 per kWh for residential solar systems. This excludes the U.S federal tax credit and other subsidies .
Solar costs per kWh hour are calculated by dividing the total expected cost of a system (modules, inverters, installation etc) by the expected total energy output. Obviously there isn’t an ongoing per kWh cost as the electricity trickles in.
Government incentives for solar panels
The capital cost of solar panels must be considered within the context of government grants, subsidies, and loans.
Many countries already have, or are currently developing policies to encourage renewable energy. These include subsidies, rebates, and tax credits for the capital cost of installing solar panels. Incentives differ between countries and states.
An example: the levelised cost of solar electricity in the 7 U.S states calculated earlier drops to from between $0.28 and $0.46 per kWh to between $0.16 and $0.31 per kWh with the federal investment tax credit .
Many U.S residents are eligible for additional federal and local government subsidies on top of the ITC.
Another widely used incentive is feed-in tariffs. These relate to money paid for putting solar-generated energy back into the electricity grid. If a resident’s solar panels produce more energy than is required, it can be connected to the grid and sold to electricity companies.
Feed in tariffs are designed to encourage alternative energy production by guaranteeing a fixed per watt hour price – often above the current market rate. Current capital costs mean solar power is often more expensive to produce than conventional power (grid disparity), so governments top-up market rates to make solar production viable.
Electricity Bill Savings with Solar Energy
Money saved on electricity through smaller or eliminated electricity bills should be factored into your cost of solar panels calculation. Have a look at your last few electricity bills and calculate your expected energy reduction – factor the $30, $50, or $100 expected monthly saving into your solar cost analysis.
Freedom from the fluctuations of electricity prices and from the international politics of fossil fuels is an enormous future cost-benefit of solar energy. As fossil-fuel energy prices continue to rise, solar power users will remain unaffected.
Carbon emission taxes are another factor affecting the long term cost of solar power. As we struggle with the burgeoning climate change crisis, countries are imposing their own per kg carbon taxes and emissions trading schemes to curb pollution. These taxes will increasingly make fossil fuel generated electricity more expensive, thus make the comparative cost of solar cheaper.
Grid Parity of Solar Panels
What we’re talking about above is “grid parity.” Grid parity is the term used to compare the cost of solar power and traditional power. Reaching grid-parity means it costs the same dollar amount to produce a KWh of solar power as it costs to produce a KWh of traditional electricity, e.g coal produced. Solar power has not yet reached grid parity.
Lack of grid parity is a major roadblock in clean energy becoming mainstream – it’s not financially cost effective compared to the model we’re currently using.
However, grid parity is expected in the next few years in places like California and Hawaii , followed by other locations as the technology rapidly develops and economies of scale see cost decreases.
Solar power is in relative infancy, and over the past few years the technology and cost developments have accelerated dramatically. A Lawrence Berkeley National Laboratory research paper shows that among 58,000 installations in various California solar initiatives, the average cost of solar panels dropped from $12.15/watt in 1998 to $8.09 in 2009 .
Price of Solar Photovoltaics Plummets in 2011
While it’s too early for broad global assertions, 2011 was a turbulent year for the photovoltaic manufacturing industry, with average solar panel prices dropping around 50% .
Major contributing factors include oversupply and the growth of extremely competitive Chinese manufacturers being able to leverage cheap labour and cost-efficient manufacturing processes (materials, factories, economies of scale etc) .
2011 also saw record numbers of photovoltaic installations in the US, the insolvency of major US manufacturers Evergreen Solar and Solyndra (with a reported $1 billion of sales contracts) , and a backpeddling on government tarrifs in European countries.
This highlights the rapid cost reduction developments taking place in the industry, the power of economies of scale, and the sometimes fickle nature of young and rapidly expanding markets.
Geographic Considerations – Cost of Importing Solar Panels
Geographical location is an important factor. Beyond the obvious fact that some locations get more sun exposure, location has a big impact on the cost of solar panels due to importing costs and lack of competition in some areas.
If you live in an area where solar panels are not yet common, it’s likely that prices will be higher – both in terms of purchasing the hardware, installation, and the government incentives available.
If you live in such a location, get plenty of quotes and investigate all options – such as using a commercial installer, buying a kitset and getting a solar-experienced builder to do the installation, looking for a syndicate of others to do a bulk import, and finding out what government programmes or incentives are available.
Balance of System and Net Metering Struggles
A majorly problematic area in terms of bringing down costs of solar is the balance of system costs.
These are the additional components required for a system – inverters, cabling etc.
While solar panels are constantly becoming more competitive, there has been little movement on the price of peripherals. This is a major concern and needs to be addressed if solar is going to achieve true market competitiveness .
Furthermore, net metering (selling power back to the grid) is an exciting potential of solar which has had its own challenges. Particularly in the US, it has been reported that while power companies may have the ability offer net metering, the required two-way-meters aren’t necessarily being installed in homes – meaning some private owners may not be getting paid for the power they put back into the grid .
Some power companies are reportedly introducing “standby” fees for customers who are generating their own solar power. These are where customers are charged a monthly fee for being grid connected, regardless of whether or not they use any grid power – cutting away at savings made through solar panels .
These are important kinks or obstructive forces that need to be addressed if solar is to continue its momentum in becoming a legitimate and accepted piece of the energy puzzle .
Criticism of Solar Subsidies and Expense
Alternative energy production methods are commonly criticized as being idealistic but not cost-effective.
An interesting consideration regarding cost-effectiveness and subsidies is that in its early years, nuclear fission technology received subsidy support of $19 per kilo watt hour produced, compared to $8.90 per kilo watt hour for solar, and just $0.57 per kilo watt hour for wind power .
This highlights how subsidy support in the early years can result in better, more cost effective, and more socially beneficial technology in the future.
 Branker, K., Pathak, M, J, M., and Pearce, J, M. (2011). A review of solar photovoltaic levelized cost of electricity. Renewable and Sustainable Energy Reviews, 15, 4470-4482.
 Badcock, J., and Lenzen, M. (2010). Subsidies for electricity-generating technologies: A review. Energy Policy, 38, 5038-5047.
 National Renewable Energy Laboratory. (2009). National PV cost values, for: NARUC 7-member consortium for PV resource characterization. Colorado: Author.
 Barbose, G., Darghouth, N., Wiser, R. (2010). Tracking the sun III: The installed cost of photovoltaics in the United States from 1998-2009. Lawrence Berkeley National Laboratory. Retrieved from http://escholarship.org/uc/item/1w76j75q#
 Bloombergy New Energy Finance. Solar surge drives record clean energy investment in 2011. Retrieved from https://www.bnef.com/PressReleases/view/180
 Green Tech Media. Top Ten Solar (April 2009). Retreived from http://www.greentechmedia.com/articles/read/top-ten-solar-companies-3794/N4/
 Green Tech Media. Surviving as a solar manufacturer in today’s market. Retrieved from http://www.greentechmedia.com/articles/read/Surviving-as-a-Solar-Manufacture-in-Todays-Market/
 Solar Energy Industries Association (SEIA). Solar energy facts: Year in review 2011. Retrieved from http://www.seia.org/galleries/pdf/Solar_Energy_Facts_Year-in-Review_2011.pdf
 Green Tech Media. Visionary roundtable: Navigating the U.S. PV market. with Shayle Kann (GTM Research), Alan Yuan (Astronergy), Rhone Resch (Solar Energy Industries Association), Tim E. Hemig (NRG Energy), Todd Glass (Wilson Sonsini Goodrich & Rosati). Retrieved from http://www.youtube.com/watch?feature=player_embedded&v=8QRQO88dDoI