Solar now costs 6¢ per kilowatt-hour, beating government goal by 3 years

On Tuesday, the Department of Energy (DOE) announced that utility-grade solar panels have hit cost targets set for 2020, three years ahead of schedule. Those targets reflect around $1 per watt and 6¢ per kilowatt-hour in Kansas City, the department’s mid-range yardstick for solar panel cost per unit of energy produced (New York is considered the high-cost end, and Phoenix, Arizona, which has much more sunlight than most other major cities in the country, reflects the low-cost end).

Further Reading The economics of energy generation are changing; more metrics favor solar, wind Those prices don’t include an Investment Tax Credit (ITC), which makes solar panels even cheaper. The Energy Department said that the cost per watt was assessed in terms of total installed system costs for developers. That means the number is based on "the sales price paid to the installer; therefore, it includes profit in the cost of the hardware," according to a department presentation (PDF).

The National Renewable Energy Laboratory (NREL), a DOE-funded lab that assesses solar panel cost, wrote that, compared to the first quarter in 2016, the first quarter in 2017 saw a 29-percent decline in installed cost for utility-scale solar, which was attributed to lower photovoltaic module and inverter prices, better panel efficiency, and reduced labor costs. Despite the plummeting costs for utility-scale solar, costs for commercial and residential solar panels have not fallen quite as quickly—just 15 percent and 6 percent, respectively.

In 2011, the DOE started the SunShot Initiative with the stated purpose of reducing solar panel prices to certain levels by 2020. For utility-grade solar panels, that level was six cents per kilowatt-hour. According to the National Renewable Energy Laboratory (NREL), the DOE is 85 percent of the way to meeting its SunShot goals for 2020 for residential and commercial solar panels. Although much of the decrease in solar panel cost came from market competition outside of the DOE’s control, the department contributed to those price reductions by funding panel efficiency research.

Now that utility-grade solar panels have crossed the finish line almost three years early, the DOE says that it’s setting a new goal line for 2030—those goals will focus more on reliability than affordability. Through the DOE's Solar Energy Technologies Office (SETO), the federal department says it will start funding early stage projects focusing on "grid reliability, resilience, and storage."

From here, there are a few factors that could change how solar panels are priced in the future. NREL's report reflects that hardware cost has come down dramatically, while “soft” costs like labor and overhead now make up the bulk of the price tag for new solar projects. “In the first quarter of 2017, soft costs accounted for 68 percent of residential system costs, 59 percent for a commercial system, and 41 percent of a utility-scale system,” NREL wrote. Further reductions in price will have to target those soft costs.

The cost of solar projects could also increase in the future. Currently the International Trade Commission (ITC) is considering a complaint from two US-based solar module manufacturers who say that foreign-made panels are unfairly driving down the price of panels in the US and threatening their business. If the two complainant solar companies win a judgment from the ITC, the industry would likely see tariffs that could raise the price of panels considerably, which could slow the growth of the solar industry. The US solar manufacturers are calling for a 40-cent-per-watt tariff on imported cells and a 78-cent-per-watt floor price for imported modules. US solar installers are firmly opposed to this tariff proposal, saying that increased panel prices would cause the US' 260,000-person solar industry to shed 88,000 jobs.

According to NREL, “Approximately 13.7 gigawatts (GW) of new PV systems were installed in the US last year, with the largest share coming from 10.2 GW in the utility-scale sector.”