Solar Power 2012: Year in Review Part 1
We know this much about the solar industry as we approach the end of the year. It was another year of fast moving changes in the industry. The good news is that in 2012, there were a whole lot of solar panels going up on homes and businesses in the U.S. And there were some setbacks for the industry. At the beginning of the year, few had even heard of Solyndra—but by the end of the year, Solyndra had become a household name.
As the New Year approaches, we want to reflect back on what 2012 meant for the solar industry. In our blog, we will discuss some of the highs and lows for the solar industry this past year. In this first of two blog posts, we will reflect on the decrease in the price of solar panels, on the effect of natural gas and coal on the solar industry, and finally on the dwindling incentives available to support solar energy. In the next blog post, we will talk about the Department of Energy grant program and the tariffs imposed on Chinese-manufactured panels.
Solar panel prices continued to decline
The Department of Energy’s Lawrence Berkley National Laboratory recently published its annual Tracking the Sun report. If you like cheap solar panels, then you will like reading the report. The price of solar panel continues to decline yearly, making solar power more affordable for homeowners and businesses. According to the Midwest Energy News, the report states that “the median installed price of residential and commercial PV systems completed in 2011 fell by roughly 11 to 14 percent from the year before, depending on system size, and, in California, prices fell by an additional 3 to 7 percent within the first six months of 2012.”
The authors of the report conclude that reduced installation prices are attributable primarily to significant decreases in the price of solar modules. Unless you have been living under a rock, you would know that solar module prices have dropped rather significantly in the past few years. Balance of system components such as racking and inverters have also come down but nothing compared to the reduction in price of solar modules.
One may find it surprising that the installed prices of solar panel installations vary widely throughout the country. New Hampshire has the lowest installed average price at $4.90/watt, while Washington, D.C. has the highest, at $7.60/watt. The range of prices is most likely the result of differences in state and local factors. The DOE report attributes the differences to several key factors such as market size, permitting requirements, competitiveness of the installer market, labor rates, sales tax exceptions and incentive levels.
While many solar-related costs have declined, there is still plenty of room for improvement, as demonstrated by the significantly lower prices per watt in other countries. Residential solar panel installations in Germany cost approximately $3.20/watt, and $4.00/watt in Australia, while they are $6 in the US. As we move into the New Year, reducing the costs of solar remain at the top of industry priorities. Doing so will allow solar to become even more attractive.
Cheap natural gas throws cold water on solar energy
If one of the chief drivers to the growth of the solar industry is declining prices, the cheap prices for natural gas represent a huge threat to the solar industry. According to American Recycler, “despite phenomenal growth, both wind and solar companies have recently been hitting turbulence due to a sluggish economy inhibiting investment, an oversupply of equipment, cheap natural gas prices and uncertainty regarding the renewals of government incentives.”
The fracking boom has resulted in lower natural gas prices and when the cost of natural gas goes way down, then the enthusiasm for solar wanes as well. Even with subsidies for solar, natural gas is less expensive and more desirable for a number of people. For solar and other renewables to become more cost competitive in the eyes of more consumers, the price of natural gas would have to go up substantially.
Waiting for major innovation in solar
The major technology that is prevalent today in the industry is the same as what is was 25 years ago, and every year we see a new technology that may or may not (usually the latter) gain traction in the marketplace. A recent Clean Technica article highlights one new innovation, a new low-cost solar cell manufactured with gallium arsenide. Recent laboratory demonstrations showed that these new cells “have the potential to produce electricity at a cost as low as 45 cents per watt, far below the grid standard of $1 per watt.”
This innovative panel was developed by New Jersey-based Global Photonic Energy Corporation (GPEC) and Dr. Stephen R. Forrest, Vice President for Research at the University of Michigan. In order to be more cost competitive, the researchers found a way to cut manufacturing costs as well, by using a reusable gallium arsenide wafer to create multiple thin-film solar cells. Dr. Forrest, also conducted research on how to make smaller, more efficient, yet still low-cost panels.
The research was funded by a grant “awarded through President Obama’s SunShot Initiative, which launched last year with the mission of bringing the cost of solar power down to fossil fuel parity within a few years,” according to Clean Technica. The SunShot program provides funding for research on new, high-efficiency modules, as well as, researching how to reduce the soft costs of solar (for example, installation fees).
Incentives dwindling
The major incentive for solar energy still is and will be until the end of 2016 the 30% renewable energy tax credit. We have described in detail the array of incentives for solar energy. As solar energy becomes more competitive, we would expect that these incentives will decline. During the last decade, solar incentives have decreased approximately eighty percent. According to Sustainable Business, “the value of incentives slipped 21%-43% between 2010-2011 alone, depending on the state, and in 2011, average pre-tax value ranged from $0.90/W to $1.20/W, depending on system size.”
Instead of offering monetary incentives, a number of states with Renewable Portfolio Standards (RPS) have established markets for solar renewable energy certificates (SRECs). However, investors have become discouraged due to drastically reduced SREC prices. New Jersey serves as an example of a state which recently passed legislation to help support SREC prices.
Beginning in January, Wisconsin will be one of the states who will suffer from the decreasing number of solar incentives in America. According to Midwestern Energy News, “the price of purchasing renewable energy voluntarily through monthly utility bills will spike to all-time highs, thanks to recent decisions rendered by the Public Service Commission of Wisconsin (PSCW) on two popular “green pricing” programs.” For the thousands of citizens who utilize Madison Gas & Electric’s Green Power Tomorrow (MGE) program, their premiums will increase sixty percent, for a total of approximately ninety dollars more in the coming year for the same amount of energy they consumed in 2012. Customers of We Energies (WE) through the Energy for Tomorrow program will have an even larger premium increase of seventy-three percent due to the disappearing incentives in the state. Midwestern Energy News also revealed that, “come January 1st, MGE and WE will likely share the dubious distinction of being the only utilities in the country offering renewable energy at a higher rate than they did in the 1990’s.” Elimination of renewable energy programs is moving the solar industry in the state backwards.
While incentives are disappearing on the state level, they are also preparing to vanish on the federal level. CNN has reported that “federal support for clean power ‘will have been largely dismantled by the end of 2014,’ a new report by a trio of think tanks warns. More than 70% of the programs now on the books…are set to expire in the next two years, the report concludes.” The Report, entitled “Beyond Boom and Bust,” was produced by Brookings, a Washington-based World Resources Institute, and the California-based Breakthrough Institute.
CNN also reported the findings of a recent report done by the Pew Charitable Trust stating that “about two-thirds of the $24 billion Washington spent on energy subsidies in 2011 went to support energy efficiency and renewable sources such as wind, solar and biofuels. In addition, private investors poured another $48 billion in renewable energy last year.”
Many in the industry, including the researchers responsible for the Pew Charitable Trusts’ report, believe that the government should continue to fund research and provide solar subsidies. However, the GOP will likely not support research and solar subsidies and the lack of bipartisan support for continued solar incentives will make it increasingly difficult to implement additional financial support before the expiration of the 30% tax credit in 2016.
For Part 2 of this blog on the solar energy year in review, please click here.