(Editor’s note: In the last two weeks, three large American solar panel manufacturers including Evergreen Solar and Solyndra have sought bankruptcy protection due to increasing competition from China and plummeting solar panel prices. There’s been a 70-percent decrease in solar panel prices over the last 24-month, according to industry sources.)
By Dan Hofmann, RegenEn Solar
Global competition and Europe’s budget woes are having an unexpected effect on the residential solar-energy business, a trend that’s bad for U.S-based manufacturers, but great for consumers.
The price of solar panels has dropped so dramatically during the first six months of 2011 that now, for the first time, solar is competitive in pricing coal-fired electricity from LG&E.
The way panel prices are falling, even without the federal tax credits that expire in 2016, solar has reached parity with coal-fired plants.
This is a big deal.
Many – if not most – contractors in the industry can install a solar panel system for 8 cents per kilowatt-hour (after tax credits), the same rate that LG&E residential customers currently pay.
And LG&E rates are set to increase by 19.2 percent during the next five years while solar customers would be locked in at 8 cents per kilowatt-hour for 25 years.
The drop in solar panel prices is due to an unexpected reduction in government incentives throughout Europe that caused an oversupply for solar manufacturers worldwide.
Increased production from heavily subsidized Chinese manufacturers that can crank out solar panels at extremely low prices also contributes to the price drop.
As these solar panels prices fall, the U.S. industry is passing those savings directly to the homeowner.
There are economies of scale with solar, so the price per kilowatt-hour can range from 10 cents to 7 cents depending on the amount of kilowatt-hour usage per year.
Some homeowners we talk to use 7,000 kilowatts per year while some people with large houses use 50,000 kilowatts per year,
The average LG&E residential customer uses about 11,500 kilowatts per year. This also applies to large commercial facilities where we can match the cost per kilowatt rate of around 3 cents.
The arithmetic behind the cost per kilowatt for solar is the amount of electricity the solar panels are guaranteed to produce while under warranty.
The industry standard is 25 years on the solar panels and, more recently, some inverters.
So, you take the upfront installation cost (after tax credits) and divide that by the total kilowatt-hour production over 25 years.
Another benefit is that solar panels can produce electricity for 40 or 50 years, so the actual cost per kilowatt-hour could end up being much less.
It will be interesting to see how the panel price war plays out, and whether consumers will proceed with long-planned solar projects, or hang back to see how low prices go.
Homeowners could buy a system now that pays for itself in 10 years, or wait five years for a system that pays for itself over five years – the ROI time horizon would be the same.
The take away here is, we now have an endless clean energy source that costs the same as fossil fuel energy.
About the author: Dan Hofmann is President of RegenEn Solar LLC a solar panel installation company located in Louisville.