Cheaper Solar Installations-Watershed Moment for Distributed Generation and Renewables

The decrease in solar module prices is causing a drop in solar installation costs - this is creating a tipping point for the renewables and distributed generation.
Published: Mon 10 Mar 2014

Falling module prices are seeing a reduction in the cost of solar installations. The cost of installing photovoltaic solar arrays has dropped to US$3 per watt of electricity- this is about the same it would cost to build coal-powered plants.

Due to the reduction in solar installation costs, balance of system (BOS) components like racking and mounting are key targets of cost reduction, as distributed generation system prices fall by between 15% and 30% by 2020, depending on geography, says Lux Research.

Along with continuing module efficiency improvements, these advances will make the levelized cost of electricity (LCOE) for solar between $0.04/kWh and $0.08/kWh cheaper in 2020 than it is currently.

Balance-of-systems costs are in developers’ radars as the pressure to reduce costs extends downstream. Incremental cost reductions from racking and mounting, coupled with innovative system electronics changes, will accelerate system cost reductions and help reduce levelized cost of electricity. This is according to Matthew Feinstein, Lux Research Senior Analyst and the lead author of the report titled, The Squeeze: Trends in Solar Balance of Systems.

The research shows that project volumes will continue to drive merger and acquisition activities in the balance of system industry. This gives new market entrants significant opportunities.

Lux Research analysts evaluated the factors driving balance of system cost reductions in various geographies and application segments. They discovered the following:

  • The residential segment can expect to receive the biggest gains. By 2020, residential balance of system costs is set to drop more than any other application segment. This is driven mainly by cuts in labor costs, thanks to the increasing adoption of time-saving best practices. Commercial systems will see cost reduction due to new, lower-cost racking and mounting hardware.

  • Thin-film systems’ costs fall fastest for utility scale solar. Standard utility-scale balance of system costs fall fastest for CdTe systems. This is due mainly to increasing module efficiency lowering the cost of racking and mounting hardware on a per-watt basis.

  • Electrical innovations hold out hope for further reductions. Innovations targeting the electrical side of the balance of system industry have the highest potential for cost reduction. In distributed generation, the high-voltage trend will go as far as code allows, up to 1,500 V, while utility-scale system developers will pursue automated installation technologies and high-voltage configurations.

The reason for lower installation and module costs

The average price of a solar panel has plummeted by 60% since the beginning of 2011, according to GTM Research.

Last year, solar power was the second leading source of new electricity. The amount of power produced by solar arrays in the US is escalating as installations soar. This year, it's expected that the amount of power solar arrays produce will be equal to that of 10 nuclear power plants or 10 gig watts (a GW is equal to 1 billion watts), according to GTM.

As a whole, the U.S. installed 4.3GW of PV solar arrays this year, a 27% increase over 2012. This year, the US is expected to surpass Germany in solar installations.

One of the reasons for the huge drop in price has been a massive increase in PV manufacturing around the world over past five years. China is one of the main manufacturers of these modules.

The overcapacity of PV modules during the recession is another reason for cheap installations and modules. In order to cover costs, solar cell manufacturers are selling off their inventory at reduced prices and profit margins.

Better financing from banks have also led to the price reduction in solar installations. Financial institutions have come to realize the relatively low risk in funding solar power projects.

Low costs attract major investments

Big corporate business such as Intel, Google and Apple are flocking to invest in solar and other renewable energy sources as the long-term savings are so attractive. These companies have huge power bills and by investing in renewable power, they will save the company billions. Added to this, companies are reducing their carbon footprint. We cover this business development in our article, Google Sees Green.

To date, Google has committed more than US$1 billion to wind and solar power plants that create clean energy and generate "attractive financial returns."

Businesses are only one segment of the solar power industry. Residential installations are also booming. GTM forecasts that by year's end, residential solar installations will have hit a 52% growth rate over last year.

This development is certainly creating a watershed moment in the development of clean energy and distributed generation.