Solar Economics — History, Present, & Future

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Originally published on Renew Economy.
By Sophie Vorrath

How did solar get to where it is today? And how will the solar future pan out? John Farrell at the Institute for Self-Reliant States has written a neat history of solar economics which, along with some interesting charts, illustrates that a key part of solar’s past success will also be key to its success in the future.

Starting at the beginning: the past, says Farrell, is characterised by subsidisation and net metering: a revolutionary concept “allowing smaller scale arrays… to connect to the grid at low cost, and for that solar energy to be credited to the producer’s electric bill as though it were a comparable amount of energy conservation.”


The present, he says, is marked by a new dynamic in solar economics, ushered in by solar growth and falling prices. “For the first time in many places, solar electricity from the rooftop is cheaper than utility-provided power – without subsidies!  And in particularly sunny places, the levelized cost of solar may even be below the ‘value of solar,’ meaning that solar energy producers… could make a return on investment just on these merits.


This ‘present’ phenomenon, says Farrell,  will occur in different parts of the US at different times, but will happen throughout within five to seven years. “What’s important to note is that there’s a convergence: the retail electricity price, the value of solar, and the levelized cost of energy from solar panels are all relatively close.


As for the future, Farrell predicts significant political problems if policies remain unchanged. But the key to “the continued expansion of distributed solar power may rely on modifying a bedrock of distributed solar policy,” he says.


“No matter the changes, it’s important that the future distributed solar policy embrace the same principle as net metering: democratic access to the means of producing local energy with reasonable and equitable compensation.”

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9 thoughts on “Solar Economics — History, Present, & Future

  • interesting to see (again) that the total invested amount of $ is going down while the total added MW is going up.

    and we know there are many imporvements from researchers which are not in the shops jet!

    • Where do you get that? It’s not in the post. I belive you are right for global soar investment and capacity in 2013, but growth in the USA was faster and costs higher,

      • No the amount of MW being installed is going up and the cost to install per W (or per MW) is going down. This means the $/kWh cost of Solar PV is also still coming down. According to data the average cost of PV panels continues to go down, a smaller part now of the dropping installation cost. The only thing going up is the total being spent to install Solar PV …even though those dollars are buying more Solar PV Watts per dollar spent.
        Do you have other information about the cost of Solar PV installations in the US going up recently? …or is everybody just getting a little confused here?

        • Here’s what GTM has to say about prices in their 2013 EOY Summary…

          “Quarter-over-quarter, the national average system price declined by 15%, falling from $3.05/W in Q3 to$2.59/W in Q4, while dropping 14.8% from $3.04/W a year earlier.

          This capacity-weighted number is heavily impacted by the volume of utility-scale solar installed in a given quarter. Utility PV capacity accounted for more than two-thirds of all new capacity installed, and for that reason, it had a relatively larger impact on the blended average system price. Individually, the residential, non-residential, and utility segments all saw price decreases on a quarter-over-quarter basis. (It should be noted that prices reported in this section are weighted averages based on all systems that were completed in Q4 across many locations and that the weight of any individual location can influence the average.)

          From Q4 2012 to Q4 2013, residential system prices fell 8.8%, from $5.03/W to $4.59/W. Quarter-over- quarter, installed prices declined by 3.2%. Installed prices came down in most major residential markets including California, Arizona, New Jersey, and New York. Non-residential system prices fell by an impressive 16.3% year-over-year, from $4.26/W to $3.57/W, while quarter-over-quarter installed costs decreased by 11%.

          Higher-priced school and government projects with prevailing wage requirements drove up average installed costs in Arizona’s non-residential market. Amidst this uptick, however, the non-residential market on the whole benefited from an influx of large ground-mount systems completed in Massachusetts and New Jersey, with $3.00/W average installed prices and prices that ranged as low as $1.94/W. Utility system prices once again declined quarter-over-quarter and year-over-year, down from $2.27/W in Q4 2012 and $2.04/Win Q3 2013, settling at $1.96/W in Q4.”

        • Sorry, typo:
          “” should be “”

    • You may be looking at the cost per kwh going down as installed capacity goes up?

      • yes i was looking at the third picture. and that reminded me about the total amount of solar investment in money was going down while here it is clear to see the W are going up.

  • John concedes that a fair VOST will be below the net-metered rate in a few years. The problem is one of trust: many US utilities have lost the trust of solar homeowners by their outrageous lobbying for punitive taxes. So VOSTs must be set by strong regulators at arm’s length from utilities (Hawaii’s PUC has shown an example), transparently, and with security for the future.

    • “The problem is one of trust…”
      I disagree. The problem is one of:
      (a) Inertia of inflexible incumbent utilities. (Some cannot see beyond a century of the same central generation model.)
      (b) Loss of revenue to customers who are generating their own power using Solar PV …and coming to an installer near you, over-night storage.
      (c) Long term investments in coal and nuke that will become stranded costs if their current model changes …and they don’t seem to realize it has to change.

      The only way to make the old central utility model work, in some areas, is to do what the Abbott government is doing in Australia: Give utility customers no choice and tie them by the nuts to grid dependence with no solar. That is not going to work. A new model is needed. Utilities need to wake up and smell the coffee. They need to to become distributed Solar PV electricity RE-distributors AND rainy week power providers …or otherwise develop new business models.

      You mention Hawaii. Here was a good opportunity missed:
      They should revisit this plan again.

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