Breaking Down Solar PV Costs and Future Outlook

Declining costs, Increasing Adoption

Solar energy uses the power of the sun to generate electricity.  Solar or light energy is generated when light strikes a photovoltaic cell.  A photovoltaic cell consists of two layers of silicon where the negative layer is doped with phosphorus to create an electric field.  The generated electric field causes loose electrons to flow and generate direct current.  This current is directed to wires and then into a DC to AC solar inverter, so that home devices can safely run on the converted current.

This rather simple technology (in hindsight) is getting cheaper and cheaper over time.  Solar panels in the US can be commonly found on roadways powering traffic lights and signs, while solar farms as seen above provide large amounts of power to the electricity grid.  Solar power got negative press with the bankruptcy of Solyndra in 2011, but since then the price per watt has declined dramatically over the years to become very cost competitive with other traditional forms of power generation.  This is due to a dramatic decline in polysilicon pricing as well as improvements in solar cell efficiency and scale of manufacturing.  There is also intense competition from companies such as First Solar, Vivint Solar, Jinko Solar, SunPower, JA Solar, and many Chinese companies that will drive down price over time to maintain market share.

As you can see below, forecasts from the International Energy Agency suggest that further price declines are expected.  In fact, the IEA’s forecasts are lagging the actual market as reports from IRENA and BNEF are reporting costs of ~$.05/watt.  

As prices drop, solar panels will be extremely appealing to consumers.

Therefore, what is the future of solar and how do its costs compare to traditional oil and gas power production?  As we saw in the last report, solar PV costs are about ½ the cost of natural gas production on a levelized cost basis.  This is quite significant, and the consumer trend shows that PV installations over the years have continually increased as you would expect.  

Residential energy storage installations are also beginning to gain traction.  Battery back-up paired with solar PV will enable a future of decreased reliance on the grid and utility companies. 

The potential for solar technology is still in its infancy.  The below chart displays Swanson’s Law, which is the observation that the price of solar PV modules decrease 20% in price for every doubling of produced volume.

With strong confidence we can expect solar PV installations to continue to soar as prices continue to plummet.  Zero emissions is the goal, and solar will surely be part of the solution for decades to come. I suggest checking out the MIT Solar Forecast Summary for a holistic view of solar’s future.