HOW MUCH DO SOLAR PANELS COST?
The Levelized Cost of Electricity (LCOE)
In order to understand the cost of solar panels, one must be familiar with The levelized cost of electricity (LCOE).
It is fundamentally a “break-even sales price (in dollars per kWh)” needed to justify an investment in a particular power generation facility. It is the primary measure used to compare the cost effectiveness of different electricity sources.
Why do we need LCOE? The reason is that traditional methods of determining electricity costs from fossil fuel power plants unfairly represents the cost of renewable energy. Renewable energy such as solar power have a very different capital cost, operating cost, and tax structure than fossil fuels.
For example, the ongoing fuel cost for a natural gas plant is around $0.40/kWh while the fuel cost for a solar panel power plant is $0/kWh. However, the capital cost of a solar panel power plant can be over $2/Watt while the capital cost of a natural gas plant is around $0.90/Watt. The LCOE calculation allows us to make a useful economic comparison between the natural gas power plant and the solar power plant over their lifetimes.
LCOE Values of Solar Panels
When considering the cost of solar panels, we should analyze two scenarios. One scenario is residential/commercial installations, and the other scenario is utility scale installations.
Residential/commercial installation can typically be found on the roofs of homes and buildings, while utility scale installations are dedicated solar energy power plants.
The two most popular types of solar cell configurations are silicon and thin film. As of 2018, the LCOE cost of solar energy for these two types of panels are:
- Silicon Solar Cell: $0.10 / kWh
- Thin Film Solar Cell: $0.11 / kWh
It is important to note that in general, commercial scale installation have a better cost position than residential due to economies of scale. However, they are close enough that we have grouped them together for the purposes of this calculation.
If you are a solar energy enthusiast, you will know that there are a lot of assumptions that feed into this calculation. Let us fully declare them below so that you can see what numbers we used.
Click on the links below for the definition of the more technical terms.
The two most popular types of solar cell configurations are silicon and thin film. As of 2018, the LCOE cost of solar energy for these two types of panels are:
- Silicon Solar Cell: $0.065 / kWh
- Thin Film Solar Cell: $0.07 / kWh
If you are a solar energy enthusiast, you will know that there are a lot of assumptions that feed into this calculation. Let us fully declare them below so that you can see what numbers we used.
Click on the links below for the definition of the more technical terms.
The numbers are a simple average of regional values for plants entering service in 2022.
WHAT ARE THE CRUCIAL FACTORS IN SOLAR PANEL COST COMPETITIVENESS?
There are three crucial factors that affect the competitiveness of solar panels.
- The amount of sunshine available.
- The energy policies in the region.
- The cost of solar panels.
The following map shows the hours of sunshine per year in various locations. The capacity factor of the solar panels is roughly proportional to the solar irradiance.
Cutting the capacity factor in half roughly doubles the LCOE. Not surprisingly, location is key!
The energy policies in the region can have a massive effect on the viability of solar power.
For example, the federal investment tax credit (ITC) and the modified accelerated cost recovery (MACRS) are two policies that have a very positive effect of the cost of solar.
The Modified Accelerated Cost Recovery System (MACRS) and Double Declining Balance (DBB) are both tax depreciation schedules in the United States.
In 2010, Dick Swanson (the founder of sunpower) proposed that the solar photovoltaic industry follows the 80% experience curve. This means that the price drops by roughly 20% every time the cumulative volume of something doubles.
As can be seen from the graphs above, the cost of residential solar installations has dropped approximately 60% between 2010 and 2017. Over the same time period, the cost of utility scale installations have dropped over 75%.
If this trend holds, then solar photovoltaics will soon be able to match the cost of a natural gas power plant in most areas of the country – without subsidies.
CAN WE GET TO GRID PARITY?
The current consensus amongst industry experts is that we can get to grid parity without any additional technological breakthroughs in solar cells. Increases in manufacturing efficiency and capacity should continue to drive prices down.
The trend of cost decreasing as the cumulative production volume of something increases is a common one in many industries, and is called the “80% learning curve”.
Here are some additional information to keep in mind:
- Silicon-based solar PV on track to grid parity – without tax subsidies – within a decade if historic 80% learning curve holds up.
- In favorable U.S. locations, commercial-scale solar PV power is already cost competitive with retail commercial rates.
- The average LCOE of utility-scale PV currently 10% above the comparable cost of generation facilities powered by natural gas.
- Tax subsidies crucial to sustain new PV installations which, in turn, ensure continued cost reduction down the learning curve.
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