Will Solar Energy Get Cheaper? An Affordable Renewable Future

July 28, 2020
By John Cole

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If you’re considering installing a solar panel system on your home’s roof, you’re probably aware that the cost of solar energy has dropped drastically over the past decade—making it much more affordable for the average homeowner.

When solar energy was first introduced, it was extremely expensive. Since then, prices have drastically fallen—and today solar power is cheaper than many other forms of energy like coal and natural gas. According to the International Renewable Energy Agency, solar energy costs will continue to decline as the number of installations increase and the technology improves. It’s estimated that the price of solar energy can decline by 59% by 2025—and potentially reach two-thirds of its current cost by 2040!

As a homeowner interested in making the switch to renewable solar energy, you’re probably wondering if you should install your solar system now. Or, should you wait to schedule installation if the costs to install a solar system will continue to decrease over the next few years?

Both are valid questions—and while there might not be a definite answer, we can explore both options and help determine if investing in solar panels now or later is the right choice for you. We’ve already seen the cost of solar energy decline over the past 10 years and it’s likely not slowing down anytime soon. Experts have predicted that the cost of solar energy will continue to drop through the year 2050.

Why Does the Cost of Solar Energy Continue to Decrease?

If you’ve been following energy prices over the past few decades, you probably have whiplash from all the ups and downs! The cost of oil has seen drastic swings from $10 a barrel all the way up to $150. Natural gas isn’t any different—swing from as high as $16 to as low as $1.75. As a homeowner, these variances can be extremely stressful, making it difficult to predict what your monthly energy bill is going to be.

Even though many forms of energy have seen big swings over the years, you might have noticed that the cost of solar power has not only managed to stay consistent but has declined—becoming an astounding 300 times cheaper!

How is this decline possible? And will solar energy continue to decline, or will it begin to vary like other forms of energy?

Unlike oil and natural gas, solar power is not a fuel but is a technology. Like your phone, laptop, LED bulbs, or other forms of technology, the costs of solar energy have continued to decline become of:

  • Increasing efficiencies
  • Manufacturing scale
  • Decreasing prices for raw materials

Increasing Efficiencies

Over the years, solar technology has drastically transformed—leading to increased efficiency and a drop in prices. These efficiencies have made solar energy more accessible for residential and commercial use. Many of these developments have made it possible for homeowners to invest in their home by installing a renewable energy source at an affordable cost. While we’ve seen major developments over the past few decades, solar energy dates all the way back to the 1800s when solar cells were invented.

At that time, the solar cells were less than one percent efficient, meaning they weren't a usable energy source. More than a century passed before the first useful solar panel was invented that was six percent efficient.

Although solar energy had a slow start, it’s been quickly evolving in recent decades. Since then, solar panels have been created that are almost 30 percent efficient! The technology behind solar energy is only going to keep improving, getting more and more efficient. As the PV technology evolves, the costs will only continue declining. 

Manufacturing Scale

Have you ever heard of Bruce C. Henderson’s idea called the Experience Curve? In this theory, he believes that organizational learning increases as manufacturing volumes grow. This means that as the volume of products being manufactured grows, the costs of manufacturing said products would decline by a consistent percentage. In short, the more of something that you make, the cheaper it will be to produce it.

In the solar energy world, there is a similar adaptation of the Experience Curve created by Dick Swanson called Swanson’s Law. Swanson predicts that the price of solar energy drops by 20% for every doubling of shipped product.

These theories have proved to be accurate when predicting the costs of solar energy. For the overall costs of solar energy to keep going down, the manufacturing production must keep rapidly growing. According to Forbes, solar power currently makes up 1.5% of the US grid. As we begin to see this number increase, thus driving up manufacturing, we will see the overall costs decrease.

Decreasing Prices for Raw Materials

Over the years, the materials needed to create solar energy have seen drastic highs and lows—hitting a peak of $500 back in 2008 and has now landed at about $10 (and will likely continue decreasing).

To create solar panels, polysilicon is converted into ingots. These ingots, which are similar to gold bricks, are then shaped into thin, square pieces of silicon. These small pieces of silicon are the underlying material of solar cells. Following the creation of the silicon wafers, electrical busbars are added to transform the wafers into solar cells. Once these pieces are meshed together, they’re mounted and aligned to create a solar panel.

With this process to create solar panels in mind, there are two ways we can expect to see the cost of solar energy decrease:

  • There is a decline in the cost of silicon
  • The manufacturing of each material becomes more efficient (leading to a decline in costs, as noted in the previous section)

Ultimately, we will see a decline in solar energy costs over the next few decades, and it will likely tie back to cheaper or reduced materials.

How Much Will the Solar Industry Grow in the United States?

Solar power is more affordable and accessible than it has ever been before, making it a popular choice amongst homeowners looking for a more affordable form of renewable energy. Since 2014, the average cost of solar photovoltaic panels has significantly dropped—an almost whopping 50%.

The growth of the solar industry has had two driving factors. The invention of improved technology and increased manufacturing volumes have caused the manufacturing  costs of solar energy to go down—making it a comparable option to gas and coal, and sometimes even cheaper!

How Did Solar Power Make It to Homes?

Solar energy has seen major improvements over the past few decades. Over the past 20 years, the efficiency of solar energy has risen and installation costs have decreased, making installation of residential solar panels much more popular. As solar energy became more popular, the price of solar panels also declined and became a popular renewable energy source. By 2016, the U.S. was producing enough energy from solar panels to power 6.5 million households—and this number has only increased more recently!

The Soft Costs of Solar Energy

Solar energy soft costs are the costs associated with permitting, inspection, interconnection to the electric grid, installation, taxation, and system financing. In other words, soft costs are the non-hardware costs associated with installing solar panels on your home. As a homeowner, these soft costs will be included in the cost of your home’s solar energy.

While we’ve seen a major decline in the costs of the solar panels because of increased production, the non-hardware costs still add up. Soft costs can make up to 64% of the total cost of installing your home’s solar system. These costs are especially high for homeowners, rather than commercial solar installation projects. According to the Department of Energy, your solar energy soft costs are broken down as follows:

  • Permit fees: 2%
  • Permitting and interconnection work: 2%
  • Sales tax: 5%
  • Transaction costs: 6%
  • Installer profit: 9%
  • Indirect corporate costs: 9%
  • Customer acquisition: 9%
  • Installation labor: 11%
  • Supply chain costs: 12%

Soft costs are much harder to reduce than the costs of the solar hardware. If the soft costs don’t decrease (or worse, increase) over the next few years, solar energy likely won’t become adopted by many more homeowners. The reduced rates of solar hardware has created fewer opportunities for companies to reduce the cost of solar equipment. 

How Much Can You Save with Solar Energy?

The number one reason homeowners invest in a solar system is for the cost benefits. How much you save with solar panels will depend on where you live for a few reasons. The first is that different cities will charge different amounts for electricity. Additionally, different cities receive more sunshine than others, and some offer more rebates than others cities as well. These three factors will impact exactly how much you’ll save.

For example, a homeowner in Austin might save $14,000 on average, while in Miami homeowners might save $31,000 on average, and in Seattle homeowners could save an average of $55,000 over 20 years. How much you save with solar panels will depend on where you’re located in the United States.

How Declining Solar Costs Are Impacting the Planet

According to the Solar Energy Industries Association, solar energy only handles 2% of the United States’ total electricity needs. Because solar energy is becoming even more accessible, it’s changing the way the world powers homes, buildings, and vehicles. Over time, the cost of solar energy is expected to decrease, and the percentage of the United States powering their homes and buildings with solar panels will increase drastically. The decline in solar costs is predicted to result in a shift toward renewable power sources like solar and away from fossil fuels such as oil and coal.

Will Solar Energy Costs Continue to Decrease?

Would you believe us if we told you that the cost of residential solar has dropped by 89% since 2010? It’s true! This number will likely continue to decrease over the next few years as solar equipment increases in quality and efficiency.

The Future of Solar Energy

Solar technology has already seen many advancements in recent years, and this is only going to become more apparent over the next decade. Some upcoming developments to solar energy include:

  • Solar paint that absorbs water vapor and splits it to generate hydrogen
  • Solar paved roads that generate electricity from highways and streets
  • Solar shingles to reduce the space taken up by solar equipment
  • Photovoltaic glass glass to install on outdoor furniture and windows

With the continued advancement and developments in the solar industry, you can expect solar usage to increase and become a reliable power source for residential, commercial, and industrial uses—all while reducing in costs!

Should You Wait to Install Solar Panel Systems?

Although the cost of solar energy will continue to decrease over the next few decades, it isn’t clear when it will reach its lowest price. Only 36% of the cost of solar panel installation is related to hardware costs—the majority of the installation costs go towards the soft costs. That being said, waiting a few years won’t result in the kind of dramatic price drops we’ve seen in the past.

If you’re interested in making the switch to solar energy, there isn’t a reason to wait for the costs of solar energy to decrease even more. Hardware costs are at an all time low, while soft costs will likely remain consistent over the next few years. These low costs are way down from only a decade ago. If they continue on the trajectory that they’re headed and you decided to wait a few years before making your investment in solar energy, you’ll likely get your solar panels at an even lower cost than they’re at today!

However, if you decide to invest in a solar panel system now, you’re still getting a great deal (an 89% decrease over the cost from a decade ago!). There’s no reason to wait to install your solar panels, and you can make use of tax incentives and rebates available to homeowners for additional savings!

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