Solar prices dropping fast

By Eoin O'Carroll | 02.25.09

The price of solar panel systems has been plummeting, making installation more affordable for homes and businesses but potentially spelling trouble for manufacturers.

Last week, the San Francisco Chronicle cited a study [PDF] by the Lawrence Berkeley National Laboratory, which examined the costs of installed photovoltaic systems on homes and businesses nationwide, not including the sizable state and federal tax credits or financial incentives. They found that the average price fell from $10.50 per watt in 1998 to $7.60 per watt in 2007, a decline of 3.5 percent per year in real dollars.

As Greentech Media notes, the Berkeley Lab researchers found that the price drop had little to do with the cost of the photovoltaic panels themselves, and more to do with falling costs of labor, solar inverters, and marketing.

And experts say its only getting cheaper. CNET�s Green Tech blogger Martin LaMonica notes a study by Photon Consulting, a Boston company that advises solar manufacturers, that predicts that the cost of a producing (as opposed to a buying and installing) solar power systems will reach $1 per watt by 2012.

This target � a buck a watt � is something of a Holy Grail in the solar industry; first, because it�s a nice round number, and second, because it�s slightly cheaper than the current average cost of electricity in the United States.

When these costs become equal, it�s known as �grid parity.� Of course, it�s not quite fair to compare the costs to a firm that makes the panels to that of a consumer buying electricity, but there you are. A more genuine grid parity will occur when the average person can power a home just as cheaply with sunlight as with coal or gas.

These falling prices look good if you�re a homeowner or business thinking of going solar, but they pose challenges for the solar industry. Part of the reason that prices are so low these days is that supply is greatly outstripping demand.

The clean-energy blog Earth2Tech cites a report by the emerging-technology-consulting firm Lux Research that predicts a major shakeout in the solar industry: companies that can afford it can buy in on the cheap, while companies that can�t will be bought out or shuttered.

But a press release from Lux Research says that those who survive this shakeout will find themselves in a strong position:

While times are tough in the solar industry in the near term, falling module prices in particular will help to make solar energy more competitive, helping to drive costs closer to grid parity, and setting the stage for strong long-term growth.