February 13, 2017

Solar Electricity Prices Continue Significant Descent

Maya Gilchrist, Solar Incentive Program Fellow

The eighth edition of Lawrence Berkeley National Lab’s Tracking the Sun report, released last month, reflects rapidly falling solar photovoltaic (PV) prices in 2014 that are consistent with previous years’ trends and seem on track to continue into 2015. Data shows that from 2013 to 2014, the national median installed prices dropped by 9 percent for residential systems, 10 percent for small (500 kW or lower) residential systems, and 21 percent for large non-residential systems (greater than 500 kW). 2014 marks the fifth consecutive year that prices have declined at such a steep rate.  

Historical precedent might lead us to conclude that falling prices correlate to reductions in the cost of physical system components; however, the report notes that national costs of PV panels have remained relatively flat since plateauing in 2012.  Instead, the report finds that decreases in soft costs — that is, costs not related to hardware pricing — are the responsible. Trends such as improved panel efficiency and larger system size play a significant role — more efficient panels reduce the cost per watt with regards to balance-of-system (BOS) costs, and a larger system spreads fixed installation costs over a greater array. These technical changes make up around 25 percent of the drop in prices; the rest can be attributed to reductions in soft costs. Policymakers and industry representatives alike have developed strategies to focus on reducing soft costs specifically, such as the Department of Energy’s SunShot Initiative and other programmatic efforts like Solarize Mass.

Massachusetts is no exception to these trends. The report finds that the 2014 median installed price of residential systems in the Commonwealth dropped to a low of $4.4/W, representing over a 50 percent  decrease since 2009. Because of this steep price decline, incentives have been scaled back as well. The Commonwealth Solar II rebate program, administered by MassCEC, moved from financing an average of 20 percent of the total system price to 5 percent at the end of the program. Incentives in other states have dropped at similar rates, but as the authors of the report note, “[the decline] in incentives is both a cause and an effect of the corresponding installed price reductions.” Either way, this interplay demonstrates the historical significance of incentive programs within the world of solar energy.

All in all, the data seems promising. Due in part to the combined efforts of the solar industry and effective programs, solar PV may be on its way to becoming more cost-competitive with traditional energy sources. Therefore, as prices continue to decline, incentives are becoming less and less necessary to ensure the accessibility and affordability of solar power. It’s all in the numbers.