Inexpensive Solar Panels are Essential for the Energy Transition. Here’s What’s Happening With Prices Right Now

From Inside Clean Energy newsletter

One of the keys to feasibility of the energy transition is that the new sources of electricity cost less than the old ones—hopefully a lot less.

For years, it was reasonable to expect a reduction in costs because key components, like solar panels, kept getting cheaper.

But as the global economy recovered from the coronavirus pandemic, things got weird. Certain materials, like silicon for solar panels, had supply bottlenecks that led to a spike in prices. The global average price for solar panels had a clear upward trend for the first time in about five years.

The question I asked in 2022 was, “How long is this going to last?”

Now, the answer is becoming clear: Global panel prices have peaked and are now falling. This is good for people buying solar panels and good for the transition to clean energy, although—as I’ll explain—the price drop hasn’t yet reached the United States.

“The solar industry is undergoing a price correction, as undersupply of key components and materials ends and it becomes a buyer’s market for panels,” said Jenny Chase, a solar analyst for BloombergNEF, in a note to clients.

The global average price was 19.9 cents per watt as of June 7, down from 23.7 cents per watt at the beginning of this year, and down from a high during this price spike of 27.8 cents per watt in late 2021, according to BloombergNEF.

One of the reasons for the drop in prices is that the supply of silicon—the material that absorbs solar energy on the surface of a panel—has rebounded and its prices have fallen.

“2021 and 2022 were characterized by polysilicon demand exceeding supply,” Johannes Bernreuter, a market analyst based in Germany, said in an email. “The high prices have induced (too) strong build-up of new production capacity, leading to oversupply.”

Most of the silicon in the world comes from mines in China, but the United States and others are working to broaden the base of supply.

So far, I’ve been talking about global prices. Prices are higher in the United States, largely because of tariffs and other trade barriers that apply to solar components from China.

At the same time, the Inflation Reduction Act offers incentives for companies to build clean energy manufacturing plants in this country. Panel manufacturers have responded with announcements that they will build new factories here, but it will take time for them to get up and running.

The average price for a solar panel delivered in the United States was 38 cents per watt as of June 7, which is double the global average, according to BloombergNEF. The U.S. price has been about the same, going up or down just a penny or two, since last fall.

So, the drop in global prices has yet to translate into a drop in U.S. prices.

I asked Chase what the IRA will mean for prices in the near future.

“The IRA subsidizes both supply and demand for modules, while various trade barriers make the U.S. a uniquely high-priced market,” she said. “The domestic supply, however, will ramp only in a year or two even for modules assembled in the U.S. from cells from abroad.”

A solar cell is a squarish sheet, about the size of your hand, covered with silicon. A solar panel, or module, is a bunch of solar cells arranged next to each other within a glass casing and a metal frame.

Even if a solar panel is assembled in the United States, it is likely getting its cells from factories in Asia, at least for now. The Biden administration would like to see a clean energy economy in which all parts can be obtained from sources within this country.

It’s important to specify that the cost of solar panels is just one part of the cost of building a solar array, and the costs of all of those components are shifting.

The National Renewable Energy Laboratory said last year that the cost of panels was roughly one-third of the price tag for a utility-scale solar project, the largest component. The rest was a variety of costs for other parts, labor and land, and some of those costs were rising.

LevelTen Energy, a firm that runs a marketplace for buying and selling contracts for renewable energy, has reported rising prices for about the last two years. These are all-in prices that reflect the costs of panels and everything else.

It will take time for the drop in global panel prices to affect the United States, and it will take time for the IRA to affect the costs of projects.

But it looks like the period of rising panel prices has ended. And that matters a lot considering how much solar is being built.

The International Energy Agency said in December that the world is set to add as much renewable power in the next five years as it did in the previous 20, which would include a tripling of the amount of installed solar power.

At that scale, with a forecast of more than 100 gigawatts being added each year, small shifts in prices have big ramifications.

Top Photo Credit: VCG via Getty Images

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