Updated November 1, 2016

The viewpoint that solar energy is an expensive form of electricity is dwindling, undone by significant cost reductions in recent years. And although the industry itself remains in its infancy, costs have dropped so dramatically that cost parity has been in achieved in certain areas.

According to Citi Research (Rising Sun: Implications for U.S. Utilities, 2013), the historical average solar module price declined from $74.48 per watt in 1972 to $0.97 a watt in 2012 (factory price, not installed price).  This price drop coincided with a dramatic increase in solar deployment.  In fact, Citi has advanced a “Moore’s Law” for solar energy, documenting that for every doubling of installed solar capacity the average price of a module will fall by 22 percent.

Much of this progress is attributed to favorable state legislation and regulatory policies, and a worldwide supply surplus as major production factories are placed in operation. While these laws and rules governing solar use and utilization vary across the country (and worldwide), the trend, like prices, continues to swing in favor of strengthening solar markets.

But the emergence and expansion of third party financing (leasing) can’t be overlooked as a major contributing factor to the huge cost reductions since 2010.  In the 22 states where third-party financing is permissible, leases comprise a majority of the installs.

DSIRE Map of states with leasing

The Arizona solar market has embraced the leasing model that has essentially eliminated the large up-front costs associated with going solar. Solar leases made up just 27 percent of installations at the beginning of 2011.  By the end of 2012 that percentage had grown to 90 percent of all rooftop installations.

In addition to the solar cell, a solar array is made up of 13 major component parts. Historically, these components comprised less than 40 percent of the total installed cost for a residential rooftop solar system.  However, according to the Citi Research report, these Balance of System (BoS) costs have not kept up with the plummeting prices for solar modules.  BoS costs now typically stands at around 50 percent of the total cost of a residential rooftop system. 

Still, Citi projects by 2020 the factory cost of a solar module will decrease to between $0.25 and $0.53 a watt and the installed cost of an entire rooftop system is projected to drop from $2.40 a watt today, to between $1.12 and $1.40 a watt.

The real game changer, however, may be yet to come. The biggest remaining barrier to widespread solar adoption is the ability of solar power to provide electricity 24 hours a day – a realization that is inspiring innovation into how to bundle on-site generated solar power with on-site energy storage.  An energy storage solution will allow consumers to shift excess solar energy from when it is generated to on-site use during peak periods and at night. For this to become routine, the costs of battery storage need to be reduced by 70-80%.  Investments being made in factories to produce batteries for electric cars are likely to produce the lower costs required for economic storage of solar energy.

If distributed power generation/energy storage systems gain a foothold in the rooftop solar market, the impact on the US power industry will be unprecedented.

A report issued earlier this year by Cambridge Energy Research Associates, gives a glimpse into just how large this development would be: The energy storage business could grow from $200 million in 2012 to a $19 billion industry by 2017.  

For more information:
Rising Sun: Implication for U.S. Utilities, Citi Research, August 8, 2013 (Jan 2017 seems no longer available)