The price of solar panels is slowly coming down, and we hear a lot of people say they’re in “wait and see” mode, wondering just how much the financials are going to change for the average solar photovoltaic system in the coming months and years.
But if people want to take the PV plunge, frankly they don’t gain much by waiting.
As we’ve analyzed the different ROI scenarios, we’ve found that the fiscal metrics of Payback and Internal Rates of Return move surprisingly little even with the anticipated decline in module pricing. Why? Because the price of solar is not just about the panels themselves; there are many other local variables like site prep and interconnection costs, which are factors in any installation, and there are commodity costs, too, like the rising price of copper wire, which is the primary wiring material used in solar PV installations.
Community Market Building in Danville, VA.
While the payback on a typical solar system won’t change all that drastically as module prices fall, it’s still interesting to understand what’s actually causing the decline in solar module pricing. There are a lot of factors, including basic issues of global supply & demand.
For example, in 2009, the global demand for solar modules started to slow because of the recession and the planned ratcheting down of incentives in key markets in Europe and the US. At the same time, the industry experienced a surge in new production facilities for solar modules, many of which were scheduled prior to the recession. The demand for solar modules picked back up again, but still lagged behind the growth in new production capacity. This mismatch of demand and supply pushed pricing down over the past year and a half. Another factor is that the increasing supply of modules has created economies of scale, where module manufacturers’ cost per unit continues to drop, supporting the ongoing downward trend in PV pricing.
For the moment, the PV module market is experiencing a temporary shortage of modules for immediate delivery. This is a short-term imbalance caused by two factors. The first is the rush to install systems in Germany, the world’s largest PV market, before its feed-in tariff starts being reduced this month; this is pulling modules from other markets. The second factor is an increased demand in the US as people and companies try to complete projects before the end of year because of tax incentives. This shortage is temporary, though, and there will be plenty of panels available at the end of the year.
SEM team members install PV on a residential roof.
I think we will see module prices fall slightly in early 2011 as manufacturers catch up from the bubbles of 2010. While demand continues to grow, the supply and economies of scale will continue to keep pricing on a long-term downward trend. If you’re really interested in the pricing and economic forecast for solar panels, here’s an in-depth article posted recently at RenewableEnergyWorld.com.
Now that we’ve got a good picture of some of the economic factors driving panel prices, let’s focus on what the falling price of solar modules really means for people. If we see a 10% module price reduction, overall prices for solar systems (designed and installed) would fall by about 5%. Meanwhile, a 20% drop in module prices (which is higher than most analyst predictions) would result in closer to a 10% drop in system price, all other things being equal.
In North Carolina our main incentives are federal and state tax credits that are based on a percentage of the sales price: you get a 30% federal tax credit and a 35% state tax credit. With current prices and incentives, an average payback period for a typical solar PV system can be from five to six years for a large commercial system when you take into account depreciation and the income you can earn from your system (which comes in two forms: electricity sold to the power company and environmental attributes sold as Renewable Energy Certificates to utilities and other entities such as NC GreenPower). For a residential system, payback typically ranges anywhere from 5 to 14 years.
So with either commercial or residential solar PV, even if module prices fall 20%, the payback moves up less than a year. That means those who wait an extra six to eight months simply aren’t doing themselves any favors. The longer wait time essentially cancels out the quicker payback — and during that extra six to eight months they’re missing out on producing clean energy.
Solar PV field on the QVC campus in Rocky Mount, NC.
Bob Kingery is the Co-Founder of Southern Energy Management. Read more about him here.
Tags: panel prices, PV, solar
