The cost of solar equipment has been steadily dropping over the last decade, but as the economy hit the skids over the past year, the cost to finance solar projects actually increased. In other words it became more expensive for a utility or company to raise capital to build solar projects this year than in previous years. But according to a report out this morning from New Energy Finance, the research firm predicts that by the end of 2009 the “capital markets will loosen up” and combined with the continuing decrease in solar equipment costs, will lead to a 50 percent drop in overall solar costs compared to the end of 2008.
Basically as the economy picks up and access to capital markets improves, the financing hurdle that emerged this year will be removed, while solar equipment costs continue to decline. The average U.S. installed costs of a solar photovoltaic (PV) system — which includes solar panels, inverters, labor and more — declined to $7.50 per watt in 2008 from $10.80 per watt in 1998, a 30 percent drop over a 10-year period, according to a recent report from Lawrence Berkeley National Lab.
Not all solar technologies are showing the same drop in price. Thin film solar PV is currently the lowest-cost option with an average price per watt that’s 25 percent less expensive than traditional PV. Traditional PV equipment prices will continue to drop, though that decline “has tapered,” says the report. And PV systems that rely on tracking systems — motors that track the sun and concentrate light on mirrors and lenses — have seen the least reduction in cost over time due to the fact that the costs of the tracking systems haven’t dropped significantly.
What does all this mean? When it comes to solar PV, and in particular thin film solar PV, the prices are actually meeting some of the necessary cost reductions that many in the industry had predicted. A few weeks ago I spoke with Black and Veatch analyst Ryan Pletka who explained to me that the cost reduction in solar PV has been so dramatic that many in the utility and power industries are rethinking how many new transmission lines need to be built in states like California. While the state has been planning on building a variety of transmission lines to connect solar thermal plants in the deserts to places that need them, given the recent drop in solar PV prices, a lot more renewables will be able to come from solar PV on roof tops — meaning less transmission lines could be needed.