The popular 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 achieved in certain areas.
According to a 2013 Citi Research report, the historical average solar module price declined from $74.48 per watt in 1972 to $0.97 a watt in 2012. 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. While these laws and rules governing solar use and utilization vary across the country, 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.
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.
Citi projects by 2020 the cost of a solar module will decrease even further 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.
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 (CERA) gives a glimpse into just how dramatic this development would be: “The energy storage business could grow from $200 million in 2012 to a $19 billion industry by 2017,” CERA predicts.
Some utilities see the hand-writing on the wall and are already devising new ways to profit from solar. PSE&G in New Jersey has a successful Solar Loan Program. Duke Energy, the holding company for utilities in six eastern states, and Edison International, the holding company for Southern California Edison, have invested in Clean Power Finance, a provider of financial services and software to the distributed solar industry.
These actions by a handful of utilities signals a gradual acceptance for solar energy’s new role in the energy sector and bodes well for a growth pattern that looks like it is here for the long-term.
Jim Arwood
Communications Director
Arizona Solar Center
Question: Is the on-site generation and on-site storage combination a game-changer? What barriers need to be overcome for this new market to establish? How will this new technology pairing impact electric utilities and is there a role for the utilities to play in on-site generation and storage?
