By Josh Mann, Yale University
Consider these statistics: in the year 1977, the price of solar photovoltaic (PV) was $76.67/watt. By the end of this year, that price will have dropped to about $0.74/watt (see figure 1). That is a 99 percent reduction in price over 36 years. Let’s compare this technology to another popular device over time, say, an automobile. In the year 1977, the average price of a new domestic car, after accounting for inflation, was $19,910. In the year 2011, the average sale price of a new domestic car was $28,771. This is a 44.5 percent increase during that 36-year time span.
Despite these percentage differences, the automobile industry continues to drive national business, a staple of the American economy. The auto-parts industry is the nation’s biggest manufacturing employer, accounting for 2.3 percent of U.S. GDP. Despite public alternatives like trains and buses, most American families continue to consider new cars a necessity for transportation. Solar PV, on the other hand, is still establishing a foothold in the U.S. market. The vast majority of the American population still relies on fossil fuels for their daily energy expenditures.
The dramatic fall in solar PV prices can be attributed to a variety of causes. Modern solar cells are more efficient; they use fewer raw materials to generate a watt of power. Economies of scale play a major role, as well. Better technology and research methods are available today. Governments subsidize various forms of clean energy. Regardless of these probable causes, there is a more pragmatic idea. Forms of sustainable energy are becoming more accessible to the modern homeowner every day. Actually making the clean energy transition to solar PV opens up an entirely different can of worms. Taking a mere interest in solar and turning it into concerted action is the true ambition of all clean energy activists and entrepreneurs. If accomplished, this goal could lead to a vast sustainable energy market with stabilized costs over time.
Now is the time for a new paradigm in residential solar and this post will provide areas for potential improvement and “know before you go” background industry analysis. It is imperative to understand the current state of solar PV in America and why more homeowners should make the leap to clean energy. Here is what you need to know.
“What stuff costs” is falling fast; “What it costs to install stuff” has room to improve
Generally, two types of costs are associated with the manufacturing and retail of a product. Hard costs are those tangible assets of a production line. Within solar PV, hard costs include modules, inverters, monitors and other equipment. Soft costs, on the other hand, are indirect construction costs. They include engineering and design costs, permitting fees, installation labor costs, and inspection fees. The hard and soft costs combined form the total systems cost (TSC).
In today’s solar markets, many studies indicate the largest hindrance to increased installations is soft costs, not the modules and inverters themselves. Observe figure 2 to see how much the total systems cost of residential and commercial PV has dropped in recent years. The graph displays the latest data on U.S. solar PV installation prices. It also shows the Global Module Price Index, which has a similar price progression as total installation prices. The good news is that the TSC is going down, on both the residential and commercial scales. The price drops follow a uniform pattern whether you’re looking at a 5 kW residential system or a 20kW solar commercial array.
TSC, however, does not tell the whole story. See figure 3 below, comparing module costs with soft costs side-by-side. Here, we are separating the two key factors that contribute to TSC. Note that from 2009 until 2011, the hard costs for solar PV (the dark blue line) dropped over 70 percent. However, the soft costs represented by the dotted yellow line, have remained constant and even increased at given points in time.
As figure 4 and table 1 show, analysts predict that module prices will continue to fall, but not at the same rapid rate as during the years of 2009 to 2011. The key takeaway from these predictions is that while hard costs appear to be plateauing, soft costs still have plenty of room to fall.
The German case study. They are not beating us; they are outsmarting us.
Germany recently set a new world record for national solar power output on July 7th, beating their previous record by 1.5 GW. On that day, electricity output from solar PV systems reached 23.9 GW. This incredible output would not be possible without the approximately 1.4 million solar PV systems installed across the country. Correspondingly, 8.5 million Germans live in buildings that incorporate solar PV systems. Solar PV continues to line residential rooftops, yet Germany is far from the sunniest of countries. Spain, despite being the sunniest country in Europe, has the third highest national solar power output in Europe, after Germany and Italy. See figure 5 below, showing a map of areas with the highest electrical output in Germany, along with a graphic interpreting their record-breaking moment in time.
The German solar industry shows a fascinating contrast to its U.S. counterpart when their consumer marketplace and their hard costs are placed in direct comparison (see Table 2). The retail prices in the two countries are, after accounting for Euro-USD, almost exactly the same. The technology employed in both Germany and the U.S., in fact, come from the same supply chain, largely from Chinese manufacturers. So why has solar taken off so much faster in Germany and Europe than in the U.S.? The answer is not the sunny climate, but the amount of their soft costs. Regulations and permit processes are significantly simpler in Europe. Simply put, European homeowners face less red tape between the idea of installing solar and its final implementation.
This comparison highlights a conundrum of American policy efforts. Since the 2008 financial crisis and ensuing recession, U.S. policymakers have focused on supporting small business and development. Regulations are supposed to be easing in order to increase market transactions and employment opportunities. The general perception would be that the U.S. has the perfect atmosphere for new business, like solar PV, to prevail. Future U.S. energy policy has much to learn from Germany’s efforts, particularly in their streamlining of paperwork and their decentralization of power generation.
You have the power to bring solar programs to your hometown
The Department of Energy (DOE) is not satisfied with the current state of American solar PV. They want solar energy to be as cost-effective as possible. Their SunShot Initiative was created to, “foster a sustainable market for solar energy in the United States by dramatically lowering the cost of solar energy so that it is cost competitive with other forms of energy by the end of the decade.”
With the DOE’s SunShot initiative, there is no better time than now to get in the game and become a solar PV supporter. Through this initiative, nonprofit marketing and financing firms are creating special programs in U.S. towns to help bridge the communication gap between homeowners and installers. The unifying idea is that the economic and policy climate around solar in the US has never been better. Encouraging solar development is now a matter of connecting the dots by taking advantage of existing structures. If you’re interested in reducing the soft costs of solar in your own town, you can start by getting in contact with members of your local government. I encourage you to contact First Selectmen, mayors, and members of your town’s building department. Make an effort to understand the permit structure in your town and try to find solar installers in your area— it’s a more competitive industry than you’d think!
The overall goal of the SunShot initiative, paraphrased, is to make the solar PV environment in America cost-effective and widespread, similar to that in Germany. With hard costs equal to those in countries with far more developed solar industries, only soft costs and communication stand in our way. Individuals have the power to influence the future of the American energy industry, and towns have the tools to solidify change. The decision is yours to make.