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Published on June 10th, 2013 | by John Farrell


The Coming Solar Electricity Transformation

June 10th, 2013 by  

Solar cells are unusual in that they were cost-competitive from the get-go. From the Apollo space program to highway signs to lighting for buoys, solar could replace highly expensive power from batteries or other sources and eliminate the need for the construction of electric distribution lines.1

When the Institute for Local Self-Reliance was founded in 1974, the first factory producing solar cells for terrestrial applications had just opened in Gaithersburg, Maryland. The cost of solar power was over $3.00 per kilowatt-hour (kWh), com- pared to $0.03 per kWh for grid electricity. The output from that factory the first year was sufficient to power only a few dozen homes.

By the late 1980s, the price of solar was low enough that solar cells were finding their way to second homes and remote cabins off the grid. In 1990, the total installed capacity of solar was 200 megawatts (worldwide, with about 25% in the U.S.), sufficient to power 4,000 homes.1 During the ensuing decade, federal and later state incentives for solar ushered in the era of grid-connected solar. By 1999, grid connected solar projects exceeded non-grid applications.

This is the first of five parts of our Rooftop Revolution report being published in serial. Download the entire report and see our other resources here.

By 2000, sufficient solar cells were installed to power 135,000 homes (with just over 20% in the U.S).2 The cost of solar was $0.50 per kWh, equivalent to an installed cost of approximately $10 per Watt. Since 2000, solar electricity production has grown exponentially. The annual installed solar capacity first exceeded 1 gigawatt (GW = 1,000 MW) in 2002 (globally).

Electricity Price (Nominal)

Cost of Residential Solar v. U.S. Residential Retail Electricity Price (Nominal)

By the end of 2010, installed solar capacity in the U.S. alone exceeded 2.5 GW (sufficient to power 400,000 homes) and global capacity was over 40 GW, sufficient to power 8 million homes. Annual solar module production exceeded 30 GW worldwide.3

As production has increased the cost of solar has fallen. Since 2006, the cost of solar has dropped by 58% – 10% per year.4 Grid connected solar is on the verge of becoming competitive – without incentives – with conventional electricity.

In 1974, solar electricity cost more than 100 times the residential retail electricity rate, today the differential is 2 times or less in many communities.

A Grid with Solar Parity

The policy and on-the-ground implications of “solar grid parity” are enormous. Even though solar still generates less than one-tenth of 1 percent of the nation’s electricity, public officials, towns and businesses and households will soon have a newly cost-competitive and widespread energy source to develop their own power supply. Locally produced electricity will offer an unprecedented opportunity to connect electricity production with local jobs and economic development.

The opportunity of solar grid parity will also threaten the fundamental nature of a 20th century electricity system. Utilities will have to rethink their role in the electricity network when electricity can be generated by anyone and owned by anyone. No longer will the paradigm of centralized power generation, ownership and distribution make sense when electricity can be economically produced at or near most homes and businesses. Even the concept of backing up solar power is poised to change, as electric vehicles have begun to enter garages and driveways and parking lots, adding a potentially vast number of tiny backup plants and storage systems that will have to be integrated into the grid system.

The nearness of solar grid parity brings urgency to the discussion of electricity policy, from incentives to grid design. Well before any new fossil fuel power plants have passed their infancy, electricity from solar will be cheaper. It means that policies that continue to subsidize a centralized grid and its attendant infrastructure may cost ratepayers for decades. It means that citizens and their elected leaders will have to carefully consider the policies that guide investment in the electricity system.

Solar Grid Parity-definition

This report discusses a nation on the verge of widespread expansion of decentralized electricity generation and on the cusp of a new electricity system that enables more of us to produce the electricity that we consume. We identify the first American cities where solar will be competitive without incentives and estimate the amount of competitive solar that can be generated over the next decade. We discuss the implications of this massive introduction of solar and the urgency of crafting public policy that will support the transition to solar power while maintaining a balanced and reliable grid. We examine the opportunity of redirecting solar incentives – like the 30% tax credit – toward new methods of accelerating solar development that can continue to drive down the cost of solar electricity in ways that can fundamentally change our electricity system for the better.

David Crane quote


  1. We assume that 1 MW of solar can supply approximately 200 energy efficient homes with annual electricity consumption of approximately 6250 kilowatt-hours.
  2. Trends in Photovoltaic Applications. (International Energy Agency, August 2010). Accessed 12/20/11 at
  3. Renewable Energy Focus staff. Solar PV module capacity outpaces demand. (Renewable Energy, 1/7/11). Accessed 1/18/12 at http://
  4. Preisindex Photovoltaik / Photovoltaic Price Index. (Bundesverband Solarwirtschaft / German Solar Industry, 2011). Accessed 12/20/11 at http://ti-

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About the Author

directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (, and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at

  • Pieter Siegers

    I think the comparison of solar energy without subsidies and fossil fuels with subsidies is trying to compare apples with pears. It would be good to correct this and re-publish.

    • one of those liberal “appease the critics” things that drives me crazy. include all the subsidies, or cut them all out!

  • SecularAnimist

    John Farrell wrote: “in 1974, the first factory producing solar cells for terrestrial applications had just opened in Gaithersburg, Maryland”.

    I believe this refers to Solarex. I applied for a job there not long after it opened. To call it a “factory” is a bit of an exaggeration. It was more like a workshop. The solar panels were assembled BY HAND, one at a time — no automation, no assembly line, just technicians in a clean-room environment, meticulously hand-building one panel at a time. The solar industry has come a long, long way since then.

  • S.Nkm

    Now, when *did* we *actually* reach solar grid parity if you include the cost of externalities and remove subsidies for the fossil fuel industry?

    • Ross

      Probably when James Hansen was testifying to Congress in the 1980s.

  • JamesWimberley

    A niggle on John Farrell’s definition of grid parity: “when the cost of electricity – without subsidies – is equal to the residential retail electricity rate.” This holds only for a residential installation, or ceteris paribus a commercial one. A utility solar installation has to be competitive with a wholesale rate, before distribution costs.

    What’s a subsidy? Fossil fuels get tax breaks too, and also have large unpriced externalities (i.e. destroying civilization). For public policy (not the individual householder) parity should be calculated on a hypothetical level playing field, with no or equal tax breaks. It should also include a price for carbon.

    • Bob_Wallace

      If we want to consider grid parity at the wholesale level then the comparison needs to be made based on the cost of electricity during those hours solar produces.

      Utility solar is competing against gas peakers, load-shifting, and stored power. Not against the generic 24/365 supply.

      We’re seeing a small amount of solar in Germany knocking the heck out of sunny hour wholesale electricity costs. All the grid needs is enough solar input to offset the need for expensive peaking power and grid parity is reached and redefined.

    • Matt

      Also as for corps, many pay based on peak rate (normally when PV is producing).So using PV they can drop from a high tier to a lower one.

    • The same thing crossed my mind about grid parity.

      The subsidy thing… ugh, include them all, or cut them all — do a full comparison.

  • mds

    I thought solar in the USA was more like 1.4% now, not a tenth or a percent.
    Solar pv is below half of parity in the state of Hawaii which is leading to an explosive transition. It is well below parity in some places in S. Cal. when you take into consideration tiered prices. Solar PV outputs when peak electricity prices are highest in the afternoon for AC on hot days. What is important is not so much grid parity, as about half grid parity. At half grid parity home owners and businesses can afford to finance the new PV system and still be saving money. This is the requirement for a disruptive transition in technology. We’re already seeing it in Australia and Hawaii. It’s close in S. Cal, maybe there in some areas. This disruptive growth situation will continue to expand into other areas (all of S. Cal?) as solar PV panels and solar PV install costs continue to drop.

    • Bob_Wallace

      Grid parity is generally calculated at a price that includes financing. LCOE includes interest costs. One starts with installed price per watt/kW and adjusts for capacity and financing.

      • mds

        Fair enough and thank you for pointing that out. I’m still saying you need to get to financed parity WITH A MARGIN before you start to see explosive self-sustained replacement of conventional sources. We are already there in some areas, as I stated. That will increase going forward. This is a disruptive transition in power sources that we are going into here… just as disruptive as cell phones, home computers, the internet, etc. …difference is this is a change in our energy supply source and is tightly coupled to our standard of living (yes, energy conservation, nega-watts, is important too). If we don’t blow ourselves up over the last fossil fuels, or stupid/blind religious intolerance, then we could actually see a golden age going forward …golden like the sun itself.

        • Bob_Wallace

          It’s going to be disruptive, but not life changing like computers, the internet, etc. Most people will not be aware of the transition. I doubt if 1 in 100 Americans are aware that our coal use for electricity has dropped from over 50% to 35%.

          And I doubt more than a few percent realize how efficient our appliances and gadgets are becoming. Refrigerators use about 25% as much electricity now as they did 20-25 years ago. Try to find someone who knows that.

          The real cost savings from renewables won’t appear very rapidly. First, almost no one knows what we spend in external costs for coal pollution. The tax dollars saved will go elsewhere. The health insurance cost savings will be mixed in with all the other increases and decreases in health care.

          And the real savings are two to three decades down the road when we have an appreciable amount of paid off wind and solar.

          People 30 or 40 years from now are likely to see their monthly utility bills as an insignificant cost. They’ll look back at how much we paid for electricity and gas and smile at their good fortune.

    • mikgigs

      infact tenth of percent is corrct, because it is for generated electricity but not for installed power installation. differences between mwh and mw is does not work and night and on full scale only for few hours.

      • Bob_Wallace

        0.11% for the first 11 months of 2012. Up x2 from 2011.

        Should start taking off now that prices have dropped so much.

        • mds

          Thank you both for that clarification. I will recalibrate myself.

  • agelbert

    One of those “it’s not hard to figure out” enigmas of our economy: A solar panel lasts longer than a car but the banks don’t want to give super low interest rates for them like they do for cars. Low interest PV panel 20 year loans would make them affordable to most people. For the Federal Reserve that is a logical extension of housing finance but they won’t go there. Centralized power company influence, perhaps?

    We’ll get there. But you can safely ASSUME that powerful vested interests delayed us at least TWO DECADES (and as many as 8 Decades!).

    Did you ever wonder why the photoelectric effect was known to science since 1905 but, until we needed it in space, wasn’t developed? The timing wasn’t right, you say? Baloney! We had the brains and industry in the 1930s to develop nuclear energy. The photoelectric effect is a snap in comparison. Decade after decade, Big Oil kept us on fossil fuels until THEY COULD DO IT NO LONGER. The entire 20th century was FOOT DRAGING on steroids!
    Don’t let them get out of paying for their pollution. Big Oil OWES us!

  • Marion Meads

    So, the total cost of installed retail solar panel should be at most $2.40 per Watt in order to produce electricity at $0.12/kWh retail. This is based on the following statement from the article: “The cost of solar was $0.50 per kWh, equivalent to an installed cost of approximately $10 per Watt”

    And by extrapolation, $0.12 per kWh should cost $2.40 per Watt. This is only achievable if you DIY.

    • Bob_Wallace

      12 cents at $2.40/watt is roughly correct. It’s going to vary depending on how much sunshine your site gets and how much you pay for financing.

      Right now residential rooftop is being installed in Germany, England and Australia for $2/watt. We will get there in the US.

      I would think you could pretty close to $2/watt if you shopped carefully and played the ‘general contractor’ role.

  • Juan Pelotas

    The cells are cheap already. You can get a palette with 5KW worth of panels for $5,000. Add another $2K for electronics.

    The problem is the installation. Its cost ends up putting the final price tag of your working system at $20K-$30K.
    We need installed systems that will paid for themselves in 4-6 years.

    • arne-nl

      It is easy to install yourself.

      I believe the US is very restrictive in permits, which is throwing even more money down the drain. Europe has more liberty, no permits needed in most cases.

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