Electricity costs vs solar costs

Cost of solar panels

Whether you’re a commercial energy user, or you simply want a solar panel system for your home energy consumption, the cost of installing solar panels has fallen drastically over the last few decades. Solar PV is now cost-effective without the need for government subsidies or grants.

Since 2009, the cost of solar panels has fallen by 62%. Around the world, many countries have now passed the ‘tipping point’, where unsubsidized solar is beginning to outcompete coal and natural gas.

Graph showing the cost of solar panels compared to the amount of global solar panel installations

Although, fundamentally, photovoltaic technology has changed very little since the 1950’s – the average residential 4kW PV system has fallen in price from roughly £15,000 10 years ago, to an average of c.£5,000 today.

Not only have domestic solar installation costs been squashed, but the cost of solar PV has fallen so significantly that a contract was agreed last August for solar to provide ‘the cheapest unsubsidised electricity ever, anywhere, by any technology’. At a price of $0.029 per kWh, that’s ‘roughly half the price of competing coal’ power.

This enormous reduction in the price of solar panels filters down primarily from initial manufacturing costs. What this means is, it isn’t something exclusive to wholesale. Solar PV has now achieved grid-parity across all levels of generation projects.

Why has the cost of solar panels fallen?

China’s influence

The cost of panels themselves has fallen, in part, as a result of global market forces. “A huge part of this story is China, which has been rapidly deploying solar“. China’s large scale investment in solar panels over the last decade has led to unseen before low prices. So low, in fact, that many European PV manufacturers were forced out of business, and China were accused of ‘dumping panels’ on the EU market.

As a result, the EU introduced a Minimum Import Price (MIP) for Chinese made PV panels: a minimum price Chinese companies could supply panels for in Europe. MIP has had little effect however, as Chinese companies took to assembling panels in countries such as Taiwan or Korea (avoiding MIP) – and the European companies which still existed were forced to catch up with the competition.

Cheaper costs have allowed both domestic and commercial consumers to make savings on their energy bills through solar PV, causing a boom in global installed solar capacity since the millennium. As demand continues to rise, costs continue to fall.

Graph demonstrating the cumulative installed solar capacity globally - demonstrating the growth of the PV industry over the last few decades - as well as the reduce in solar panel costs.

Industry Consolidation

A decade or so ago, there were hundreds of small scale PV manufacturers. Today, that figure is much lower, and instead there are a few key manufacturing companies. These more established companies are increasingly able to streamline and improve their production techniques – producing more efficient panels at a lower cost.

This trend can be seen in, and compared with many past emerging technologies. New industries face a learning-curve as they grow. As they improve, prices fall. Think about laptops, mobiles and DVD players, for example. How much more expensive, less powerful and less practical they used to be only 10 years ago. This same boom in demand, production and efficiency has seen solar PV panels increase in quality whilst falling in cost over the last decade.

The effects of this phenomena have been calculated and described as Swanson’s law, according to which, the price of solar PV falls by roughly 20%, every time global solar capacity doubles.

Swanson's law displayed on a graph. The cost of solar PV modules falling by 20% every time that global solar capacity doubles.

Despite the fact that the government has decimated the Feed in Tariff (FiT) in recent years, the cost of solar panels and associated equipment and services has fallen by so much – that domestic PV installation costs are now a third of what they were 10 years ago.

What is really important is that the cost of electricity from solar panels is now lower than the cost of retail electricity for most people. That means anyone can cut their electricity costs by putting solar panels on their roof – without the need for the Feed in Tariff.

The average 4kW residential solar PV system installed by Solar South West typically costs in the region of £5000, depending upon factors such as roof type, access and quality of components. Generally, a domestic solar installation will pay for itself in about 7 years.

Most PV modules come with a 25-year performance warranty, and a lifetime expectancy of 40 years. So by installing solar PV with an average payback period, you are essentially securing free energy for a guaranteed 18 years, and a likely 33. When you consider rising energy costs, the value of this free energy is set to increase significantly over the coming few decades, making now the best time ever to invest in solar.

How cheap is solar compared to Hinkley Point C and other generation technology?

It’s very well saying solar has fallen in cost by a third, but in order to gauge the actual relative cost of PV technology – it’s important to get some context. Luckily, the UK is in the middle of a very public new nuclear generation project. Namely, Hinkley Point C (HPC).

HPC has been awarded up to £30 billion in subsidies over the project lifetime. Under the terms of the 35-year contract, EDF is guaranteed a price of £92.50 per megawatt hour it generates, twice the wholesale price.

Remember above, when we mentioned that solar would be providing ‘the cheapest unsubsidised electricity ever, anywhere, by any technology’… The contracted price for energy generated by that system was $29.10 per megawatt hour. That means a solar farm in Chile is providing energy at roughly a third of the cost of a heavily subsidised new UK power plant.

Obviously, not all solar installations can offer such low prices. Being in the middle of a Chilean desert, the mentioned system benefits from much higher amounts of solar irradiance than the UK does. On top of this, Chile’s government is planning to complete transmission lines that will let the solar farm deliver power to the entire country – which prompted low bids.

It may also be true that the shift to clean energy is often more costly in wealthier countries, where new solar generation facilities must compete with existing billion-dollar coal and gas plants.

However, while it’s unlikely Britain will be able to install solar for less than $0.03/kWh any time soon, Solar South West are aware of solar projects underway right now in the UK that are offering £48 – £55/megawatt hour. That’s almost half the price of Hinkley already, without subsidy. A clear demonstration of just how inexpensive solar PV is as a competitive generation source.

On top of that, coal and gas power stations in the UK are getting old, and they have a detrimental effect on the UK’s ability to meet carbon emission targets . Once these power stations are decommissioned, it is likely that the cost of building new ones would be far higher than replacing them with renewables.

Whatever the future of UK energy consumption may be, solar photovoltaics are now available at such a low cost that they have achieved grid-parity. Solar panels can now provide houses with energy at a lower cost than suppliers can. As well as providing large scale generation at a cost to rival nuclear, coal and gas power stations.

The best time is now

Soon, it is likely that FiT will be removed entirely. If solar can now provide consumers with the opportunity to undercut their supplier, the need for subsidy is lost. For that reason, Solar South West believe there will never be a better time to install solar than now.

By investing in solar PV now, you will receive FIT income for a system which is economical even without support. The loss of FiT will not prevent the growth of the solar industry. Considering that the UK is yet to start paying for the already over-budget Hinkley Point C, or imminent improvements to the national distribution network (reflected in consumer energy prices), solar is only going to become more cost-effective.

By installing now, not only will you defend yourself against the harsh future landscape of energy bills – you will secure a contract to receive a small amount of income for your generation, before the possibility is removed altogether.