Will solar panels get cheaper? (updated for 2022)

If you’re interested in solar and renewable energy, you’re probably aware that the price of wind and solar technologies have dropped by an incredible amount over time.

There are a couple questions that homeowners who are thinking of going solar often have. The first is: Is solar power getting cheaper? And other is: If solar is getting cheaper, should I wait before installing solar panels on my house?

The price of solar panels, inverters, and lithium batteries has gotten cheaper over the past 10 years. Prices are expected to continue to drop over the long term.

However, the cost of solar installation will not drop at the same rate because hardware costs are less than 40% of the price tag for a home solar setup. Don’t expect home solar to be dramatically cheaper in the future. In fact, your cost may increase as local and federal rebates expire.

Recent shortages in key raw materials, especially polysilicon, have actually caused the price of solar panels to rise in the past year. While this trend is expected to be temporary, it does illustrate that solar panel prices can fluctuate.

Bottom line: if you’re thinking of adding solar to your home, waiting probably isn’t going to save you money. Install your solar panels now, especially because tax credits do expire.

Data sources for this article

There are four freely available reports that I’m going to refer to here. I’m only pulling some key points from them, so if you want to read them in depth, they’re available here:

• New Energy Outlook from Bloomberg New Energy Finance
• Tracking the Sun from Lawrence Berkeley National Laboratory
• US Solar Market Insight from the Solar Energy Industries Association
• Total eclipse: How falling costs will secure solar’s dominance in power (Wood Mackenzie)

Big news: Inflation Reduction Act increases the solar tax credit and extends it for 10 years

The passage of the Inflation Reduction Act was the big news this summer. It increases the federal tax credit for solar from 26% to 30%, and extends it until 2034. This brings stability to the solar market, which was facing a lot of uncertainty this year because the IRA the credit was set to expire in 2024.

By extending it, the solar industry will have another decade of technology improvements and cost reductions. By 2034, the tax credit might not be needed anymore. Our article on the Inflation Reduction Act covers this is detail.

Supply chain issues have caused prices to rise in 2022

The pandemic caused chaos in the price of everything, from toilet paper to pork chops. The prices of raw materials for solar panels were affected too, especially polysilicon, which is used to make silicon cells.

And it’s not just polysilicon, but silver, copper, and solar glass. We’re seeing a shortage of many materials due to a high global demand for solar panels.

At the start of 2021, the price of polysilicon was $11/kg, but skyrocketed to $28.50/kg by summer. The price reached a peak of about $39/kg in August 2022, but has since started to drop and now sits just under $37/kg (as of November).

There are signs that shipping costs and commodity prices across the economy and dropping, so hopefully this is a trend that will continue.

Good news for solar demand means bad news for prices

After a brief pause during the pandemic, global demand for solar is climbing again and is projected to increase for the rest of the year. That’s great for the solar industry and climate change!

However, it’s not so good for prices, which are already constrained by supply chain issues. China continues to be the global leader in solar deployment and is expected to represent 36% of global demand this year, followed by the European Union at 22%, with the United States coming in third at 12%. The war in Ukraine may accelerate demand in the EU even further as it tries to deploy more renewable energy to compensate for the ending of Russian natural gas imports.

The bottom line? We should expect global demand for solar to continue for the foreseeable future.

President Biden issues executive order on tariffs and Defence Production Act for solar panels - but Commerce Department investigation on tariffs is still happening

One huge issue that was looming over the solar industry is an investigation by the Commerce Department into whether Cambodia, Malaysia, Thailand and Vietnam are circumventing anti-dumping rules that are currently imposed on Chinese solar panels.

The announcement of this investigation immediately put a freeze on major solar projects in the US because the ruling could result in 250% tariffs being placed on solar panels. While the intent of the tariffs is to support American manufacturing, domestic manufacturing is only able to meet about 15% of demand. The result of new tariffs would be skyrocketing prices that would affect all solar projects.

However, to the relief of solar developers, President Biden issued an executive order on June 6th to suspend solar tariffs for Cambodia, Malaysia, Thailand, and Vietnam for two years.

President Biden also authorized the use of the Defense Production Act to increase US manufacturing of clean energy technologies, including solar panel parts. The action was praised by many in the solar industry and should result in stalled projects resuming and lowered costs for the future.

The executive action doesn’t actually suspend the Commerce Department’s investigation, which is ongoing and could still result in tariffs being levied after the executive action expires. They released this statement:

“The Commerce Department’s anti-circumvention proceeding continues uninterrupted, and whatever conclusion Commerce reaches when the investigation concludes will apply once this short-term emergency period is over. In accordance with the President’s declaration, no solar cells or modules imported from Cambodia, Malaysia, Thailand, and Vietnam will be subject to new antidumping or countervailing duties during the period of the emergency. Existing duties on Chinese and Taiwanese imports of solar cells and modules remain in effect.”

How much does it cost to install solar panels on a home?

There are a lot of factors that go into the cost of a home solar panel system, and a lot of choices you can make that affect the final price you pay. Still, it’s useful to know what the industry trends are.

The table below lists the median price of home solar in different states in the US. The data is from the Tracking the Sun report. Note that these prices are the total installed cost of the system, including all equipment and labor.

(An important detail is that these prices are before incentives.)

(As a reminder, median is the midpoint of the data. This means about half of all systems will cost more, and half will cost less. This is different from the average.)

As you can see, there’s quite a bit of variability from one state to the next, so the price trend where you live may be different from the US overall.

Here’s how the US median price of a home solar installation has changed over the past 20 years:

The price compared to 20 or 10 years ago is impressive, but the recent decline in price isn’t nearly as dramatic, and prices since the pandemic have started to climb for the reasons describe above.

Over the long term, how much have solar energy prices fallen?

The section above describes the drop in installed home solar costs, but what about just the panels?

The price of solar panels has dropped by an incredible amount. Back in 1977, the price of solar photovoltaic cells was $77 for just one watt of power. Today? You can find solar cells priced as low as $0.13 per watt, or about 600 times less. The cost has generally been following Swanson’s Law, which states that the price of solar drops by 20% for every doubling of shipped product.

This relationship between manufacturing volume and price is an important effect, because as you’ll see, the entire global economy is shifting rapidly toward renewable energy.

As you see in the graph below, the past 20 years have been a time of incredible growth for distributed solar. Distributed solar refers to small systems that are not part of a utility power plant - in other words, rooftop and backyard systems on homes and businesses throughout the country.

This graph shows how many systems were installed per year. As you can see, there was a relatively small market in 2010, and it has exploded in the years since. While there was a drop in 2017, the growth curve in 2018 and early 2019 has continued upward.

Swanson’s Law describes how this massive growth has also led to a massive drop in price: solar module costs have dropped by 89% since 2010.

Hardware costs versus soft costs

When you think about a solar system, you might think that it’s the hardware that makes up most of the expense: the racking, wiring, inverters, and of course the solar panels themselves.

In fact, hardware accounts for only 36% of the cost of a home solar system. The rest is taken up by soft costs, which are other expenses that the solar installer must bear. These include everything from installation labor and permitting, to customer acquistion (ie. sales and marketing), to general overhead (ie. keeping the lights on).

Soft costs have been dropping, but not as dramatically as hardware costs, as shown in the graphs below:

You’ll also notice that soft costs become a smaller percentage of system costs as the system size increases. This is especially true as you go from residential to utility scale projects, but large residential systems generally also have a lower price-per-watt than small systems. This is because many costs, such as permitting and customer acquistion, are fixed and don’t vary much (or at all) with the system size.

How much will solar continue to grow in the United States?

The growth of renewable energy has been driven by two things: better technology and an increasing manufacturing volumes. Together, these forces have driven down the price of solar electricity so much that it is on par with gas and coal, or even cheaper in many cases.

Second, the majority of people live in states that have a renewable portfolio standard (RPS). An RPS is a mandate from the state government that a certain percentage of the state’s electricity must come from renewable sources.

Some states have aggressive goals. Hawaii has a target of 100% renewable energy by 2045. Maine is also shooting for 100% by 2050. And California, the largest state, wants to hit 60% as soon as 2030.

You can see map of all the states with an RPS at ncsl.org.

These mandates are important for the price of solar because it means there will be a guaranteed market for photovoltaics in the future. By increasing the demand, we’ll see the price of solar panels to continue to drop.

How much should we expect the price of solar to drop?

Bloomberg New Energy Finance (BNEF) makes some predictions about the price of solar in the future. If these seem far out, keep in mind that historically we have tended to underestimate how quickly green technologies would grow, including solar, wind, batteries, and electric cars. All of these have grown much faster than many people have predicted, so these numbers from BNEF might actually end up underestimating the actual market trends.

Here are some highlights from the BNEF New Energy Outlook 2019:

• Solar photovoltaic module prices have dropped by 89% since 2010
• Solar PV prices should drop by another 34% by 2030
• By 2050, those prices should drop by a total of 63%. This means utility-scale PV will cost only 2.5 cents per kWh.
• The price of batteries have dropped by 84% since 2010
• Residential solar will grow to be 11% of the total electricity by 2050

How much will solar grow globally?

The United States is actually not the largest market in the world for solar. China is outpacing the US by far, installing solar at about double the rate of the US. China, like most US states, have a renewable energy target. They’re aiming for 20% renewable energy by 2030. That’s a big shift for a country that used coal to power much of its industrial growth.

Here some more highlights from the reports:

• By 2050, 69% of the world’s electricity will be renewable.
• In 2019, solar power supplies only 2% of the world’s energy, but it will grow to 22% by 2050.
• Massive, grid-scale batteries will be a key catalyst for this growth. Batteries will be 64% cheaper by 2040, and the world will have installed 359 GW of battery power by 2050.
• The cumulative amount of solar investment will hit $4.2 trillion by 2050.
• In that same period, coal usage will drop by half globally, down to 12% of the total energy supply.
• In the United States, we will have nearly stopped building new coal and nuclear power plants. Both technologies will basically disappear from the electric grid by 2050.
• India is projected to continue to build some coal power to meet its growing electricity demand, in part driven by air conditioning which will double globally. India is projected to add 170 GW of coal capacity by 2050, but this will be dwarfed by renewables which will be 1,500 GW in the same time period.
• 67% of India’s electricity will be zero carbon by 2050, and 70% of that will come from solar.

The effect of soft costs on the price of home solar

So far, we’re shown how the hardware costs of solar have dropped by an incredible amount in the past few decades. However, one component of the cost of a solar array that has remained relatively high isn’t affected by the dropping cost of solar technology, which is soft costs.

What are soft costs?

Soft costs are the part of a solar installation project that include everything except the hardware. This means labor, marketing and sales, company overhead, profits, and the work involved in applying for permits with City Hall and interconnection applications with the utility company.

On average, soft costs are 64% of the total cost of a home solar installation. For a residential solar installation, soft costs take up a much larger portion of the project cost than with a utility-scale project, and are a larger part of the overall project cost for a small solar installation than a large one.

This is because if you’re doing a small home solar project - say, a 3 kW installation - the amount of work required to apply for permits, get interconnected with the utility company, and get inspections done is the same as if you were doing a much larger 20 kW project. This is why commercial and utility-scale solar is cheaper on a per-watt basis than home solar.

According to an analysis by the Department of Energy, soft costs break down like this:

• Permit fees: 2%
• Permitting and interconnection work: 2%
• Sales tax: 5%
• Transaction costs: 6%
• Installer profit: 9%
• Indirect corporate costs: 9%
• Customer acquisition: 9%
• Installation labor: 11%
• Supply chain costs: 12%

Because of the nature of these costs, they are harder to reduce than the cost of solar hardware. For example, “indirect corporate costs” may include things like paying rent for your building, the cost of insurance, the cost of support staff, and other things that are required to keep the lights on for a business. These are costs that are hard to reduce.

Increased competition in places like California that have high competition has squeezed the profit margins of installers, so there isn’t much more wiggle room to reduce these costs.

Residential solar installed costs have stopped dropping, but people are getting better equipment

The latest report from Berkeley Lab shows that the installed cost of residential solar has flattened out in the past couple of years. In fact, in 2019, the median price rose by about $0.10.

On the face of it, that might make it seem like solar has actually started to get more expensive. It hasn’t: costs continue to drop every year. In fact, what’s happened is that residential customers are installing better equipment, and getting more value for the same money.

For example, in 2018, 74% of residential customers choose microinverters or power optimizer-based inverter systems over less expensive string inverters. In 2019, this number took a big jump to 87%.

Similarly, in 2018, the average solar homeowner was installing solar panels with 18.8% efficiency, but in 2019 the efficiency rose to 19.4%.

So while the invoice price that homeowners are paying for solar these days is flat or even slightly increasing, they’re getting better equipment for the same money.

Should you wait for solar to become cheaper?

Over the long term, you can probably expect solar to continue to get cheaper. However, because of inflation, supply chain issues, and the stubborn nature of soft costs, prices in the near term won’t decline much and might even increase. For this reason, if you’re sitting on the fence about getting solar installed on your home, we would recommend not to wait.

By going solar now, you’re effectively locking in your electricity costs for the next couple decades. By starting the payback period sooner, your investment will start returning dividends to you sooner.

This transition is driven by cheap renewable-energy technologies. Today, either wind or PV are the cheapest new sources of electricity in countries making up around 73% of world GDP. And as costs continue to fall, we expect new-build wind and PV to get cheaper than running existing fossil-fuel power plants. In China, unsubsidized renewables undercut coal in 2023-24, and in the U.S. they undercut natural gas in 2024-25.