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Published on August 30th, 2011 | by Guest Contributor

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Falling Solar Panel Costs are Great for Buyers, Bad for Producers (sort of)

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August 30th, 2011 by
 
A recent industry analysis by Lux Research projects the amount of solar power installed is to grow 15.5 percent per year, but revenues are to stay flat, until 2016. A report from Navigant Consulting discovered that the price of solar panels is down almost 20 percent as of August 2011. The information derived from these two reports show that the consumer is poised to benefit from the price reduction, while manufacturers can expect an almost flat profit margin for the next few years.

Manufacturers of solar panels are in a constant price competition. This boils down to shaving prices-per-watt by pennies in order to beat out competitors. The reports mentioned above mean shrinking profit margins with concerns over demand for panels staying strong. Manufacturing capacity for solar hardware is increasing, but the unknown factor is if there will be enough buyers to consume the increased output.

Consumers stand to benefit from the softening in prices, as it translates into more solar capacity for the same amount. The lower prices give rise to the idea that solar leasing, an alternative to purchasing panels outright, may gain more traction. However, lower prices go beyond that. A solar industry analyst feels there is an ultimate benefit in the falling prices. It makes solar power leasing viable in states that have been written off in the past.

Solar power leasing is designed to provide an alternative to purchasing a solar panel array upfront. Instead of buying the solar panels, consumers pay a monthly fee that reduces their electric bill. In a lease situation, a predetermined fee is set for 20 years. The consumer can also participate in a power purchase arrangement; the consumer buys power from the solar panels. A purchase arrangement is cheaper than buying from traditional grid suppliers.

A consumer can expect to pay $30,000 for the purchase and installation of a complete rooftop solar power array. A 30 percent federal tax rebate and possible state incentives serve to lower the cost. The solar panels make up less than half of the total price, with the rest of the cost going towards labor and necessary hardware. Consumers are going to see little, if any, benefit in the price competition from producers. The price change is going to be seen mainly by installers and solar power lease companies.

It is thought that solar power has the potential to reach what is known as “grid parity,” wherein the paid cost of solar power is cheaper than traditional grid suppliers (not taking into account health, environmental, and other externalities that already make solar power cheaper than fossil fuels). This theory can become reality if the price of solar panels continues its precipitous drop.

Lux Research projects that grid parity will reach commercial solar panel installations first, and that ten countries will reach that point by 2016. For the time being, state subsidies and the cost of retail power are key to allowing solar power to undercut grid power. Anticipated increases in the cost of wholesale and retail electricity will serve to increase demand for solar power.

Kriss Bergethon is a solar expert and writer from Colorado. Visit his solar panels site for more information.

Photo courtesy Sharp solar

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  • Anonymous

    15.5% growth would be a horrendous public policy failure. We need 100% growth per year.

  • sola

    This projection seems very conservative to me.

    If they are right, the growth rate has decrased significantly compared to the 60% annual compound growth rate of the last 5 years. This would be pretty bad news.

    Of course, it is nice to see that panel prices have come down 20% from the start of 2011 because that is a huge step forward.

  • Edward Kerr

    One can almost see a light at the end of the tunnel. I just hope that this issue doesn’t affect panel manufacturers too negatively. Even though most people would find installing panels cost prohibitive and new building is down, leasing, as noted, could help to stimulate panel production while helping to make the necessary transition away from (not really cheap) coal. What I rarely hear is any talk about the idea of saving all those precious carbon atoms in coal for use in the emerging carbon fiber technologies that will in time revolutionize the world as we know it. I just wish that I was going to live long enough to see it unfold like the petals of a beautiful Rose on clear summer morning.

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