Rooftop solar's growth has slowed nationally, but its price to customers continues to fall, leaving market watchers questioning its future.
In 2017, the installed price of residential photovoltaic (PV) solar continued its 20-year price decline, but at a slower pace than the 2009 to 2013 glory years. Tariffs on imported solar products and the rising cost of finding customers slowed the price decline and flattened growth, leaving installers, policymakers and utilities asking if the price will keep falling and, if it does, how low it will go. Changing solar incentives make this question especially important.
The 30% federal investment tax credit will begin phasing down in 2021, which could offset any benefit of tariffs being lifted. In addition, retail rate net energy metering is already slowly being replaced with successor tariffs that provide lower compensation for exported solar generation.
"Utility executives say they can wait out the growth of PV, now that incentives are being reduced and the price is leveling," Yale University Associate Professor of Economics Kenneth Gillingham told Utility Dive. "But a lot depends on technology costs and it would be a mistake to write rooftop PV off just because of incentive changes."
Research shows falling incentives can drive new approaches to customer acquisition, new ways to install solar and new utility engagement, Gillingham said. "If prices keep dropping, adoption will continue and a smart utility CEO would watch the market and think about ways utilities can have some control over distributed resources."
The market
The U.S. solar industry is bouncing back after being slowed by the 30% tariff on imported solar modules and cells, imposed in 2018. Utility-scale solar procurement returned to record levels in H1 2018, but residential PV was essentially flat year-over-year, the Q3 Wood Mackenzie-Solar Energy Industries Association market report found.
That was "an encouraging sign of market stabilization" after installation of residential PV dropped 15% from 2016 to 2017, according to the report. But seven of 2017's top 10 markets remain down from highs in 2016. Emerging markets, including Nevada and Florida, will somewhat offset residential solar's stagnation, but 2018 is expected to be another zero-growth year, despite PV's still-falling installed price.
The installed price varies by state, system size, installer and customer characteristics, according to September's Tracking the Sun, the annual report on price trends from Lawrence Berkeley National Laboratory (LBNL). The national median installed price of residential PV at the end of 2017 was $3.70/W and had fallen to $3.50/W by Q2 2018.
Other analysts reported even lower prices. Wood Mackenzie Power and Renewables found the national average Q2 2018 residential PV installed price was $2.89/W, Austin Perea, a senior solar analyst, emailed Utility Dive.
Across the biggest national online marketplace for residential solar, the average installed price fell to $3.12/W in June 2018, according to September's Solar Marketplace Intel Report from EnergySage.
The price went up when the import tariff was announced by U.S. International Trade Commission (ITC) in late 2017 but the price drop "restarted" at a slower rate early in 2018, according to EnergySage.
Across these various statistical calculations, the trend is a consistently falling price But the big questions unanswered by the statistics are how far down the price can go and what that means to the solar and electricity markets. Two key LBNL findings suggest answers.
Hard costs, soft costs and game changers
There are factors that can impact prices and drive them significantly lower, according to analysts, installers and utilities that administer solar programs.
Installers everywhere face similar costs for modules, inverters and other residential solar hardware, LBNL reported. Yet the U.S. installed price was twice that of Germany's $1.50/W and significantly higher than Australia's $1.80/W, although both countries are comparable to the U.S. in other factors, like labor and safety standards.
This affirms findings in "numerous other studies" that "soft costs" of PV installation "tend to be considerably higher in the U.S.," LBNL added.
But these soft costs, including permitting, interconnections and finding customers, can be reduced, according to a number of solar experts who spoke to Utility Dive.
"If panels and inverters were free, we would still be seeing total installed costs of about $2/W because of high soft costs," Barry Cinnamon, president and CEO of Cinnamon Energy systems told Utility Dive in an email. They add "a pernicious factor" to U.S. projects, but other places "have reduced these cost factors to effectively zero," he said.
The solar industry launched major initiatives this year to address soft costs. The Installation Best Practices Guide for Residential Portfolios is aimed at cost effective installer standardization. And the Solar Automated Permitting Process is aimed at showing authorities how processing and issuing permits can be streamlined.
"Integrating new construction and re-roofing with solar is normalizing solar."
Eric O'Shaughnessy
Research scientist, NREL
Another effort to address high soft costs is channeling customer acquisition through quote platforms, which increase market transparency, installer competition and result in lower prices, according to a landmark October 2017 National Renewable Energy Laboratory (NREL) paper.
"Customers that receive seven quotes may save as much as $0.48/W more than customers that receive a single quote," the paper concluded. That could save as much as $2,500 on an average residential installation.
The second LBNL insight on price is that California data shows residential PV installed in new construction is priced significantly lower than PV retrofitted onto existing homes. The median price was $2.30/W in new residence construction and $3.90/W for retrofits.
The savings likely come from economies of scale, shared installation costs and cutting customer acquisition costs, LBNL reported.
Incorporating solar into new construction and roof replacements could be the most effective way to reduce costs, Eric O'Shaughnessy, a research scientist at NREL and co-author of the 2017 paper, told Utility Dive, based on a January 2018 research-based NREL thought exercise.
Researchers estimate a potential 30 GW/year U.S. rooftop solar installed capacity through 2030. Cost modeling estimated the installed price for that growth could be reduced to between $1.21/W and $1.82/W for replaced roofs and between $1.10/W and $1.62/W for new builds in 2030.
"Integrating new construction and re-roofing with solar is normalizing solar," O'Shaughnessy said. The objective is to "treat solar as one element of a home energy management system in a broader array of smart, customer-owned products designed to save people money on energy."
That idea "could be a game changer," Gillingham agreed. "But the NREL research, though cautious, was based on extrapolations of price declines which may not be as steep going forward," he added. "On the other hand, there easily could be a surprise like those that have changed the pace of price declines in the recent past."
A practical, cost-effective integrated solar roofing product would be necessary to get to the numbers in the NREL study, EnergySage VP Georg BettenHauser said. "That is an aspirational assumption. Tesla, DuPont and others have made good efforts to do it, but their products' market share is almost zero."
How low, really?
Rooftop solar advocates across the country agree the installed price will continue to drop and three major regulated utilities that administer rooftop solar programs agree.
Driven largely by falling hardware costs, the price could go "as low as $2.15/W in a couple of years," Stew Miller, president of North Carolina-based Yes! Solar Solutions, emailed Utility Dive.
At that low price, "more utility customers will self-generate with solar and storage to reduce electricity costs," Miller said. In response, utilities should focus on "supporting more distributed generation, providing additional services, reliability and customer support, and possibly offer some form of revenue sharing."
The installed price can "fall by around half," Institute for Local Self-Reliance Energy Program Director John Farrell told Utility Dive in an email. By reducing the soft costs of permitting and financing, rooftop solar prices can be "competitive with retail electricity prices," he said.
"Utilities should not bet against technology but leverage it."
Georg Bettenhauser
Vice President, EnergySage
Arizona Public Service (APS), the biggest of the three regulated utilities that administer rooftop solar programs, sees the NREL thought exercise as the best reference on future installed prices, spokesperson Anne DeGraw told Utility Dive in an email.
"Rooftop solar generation is still far from being cost-effective compared to natural-gas resources" and is "more than 2X the levelized cost of energy of grid-scale solar," APS's most recent 15-year integrated resource plan reported. However, the plan also details expansion of APS's capabilities to manage a "nearly 200 MW" increase in rooftop solar through 2032.
CPS Energy in San Antonio, which has a utility-administered 5 MW rooftop solar offering, recognizes a lower rooftop installed price would be "more attractive" to its customers, spokesperson Nora Castro emailed Utility Dive.
Its retail load forecasting now "includes an hourly rooftop solar forecast that simulates the magnitude and timing of the rooftop solar output." Additionally, the utility has refined its peak demand planning to recognize when rooftop solar is and is not available.
Tucson Electric Power has managed its 3.5 MW rooftop solar program at approximately $2.25/W and should be able to "approach $2.00/W or less" through leveraging utility advantages, Director for Emerging Technology and Innovation Ted Burhans emailed Utility Dive. Utilities' large-scale purchasing power, administrative capabilities, and existing customer relationships all offer pathways to reduced costs, he added.
But even at that low price, rooftop solar "may not be attractive" compared to the less than $0.03/kWh cost to utility ratepayers for larger-scale solar projects, he added.
NREL's most aggressive projections of $1.21/W for solar with roof replacement and $1.10/W for solar in new construction brought the levelized costs to only $0.055/kWh and $0.05/kWh, respectively. "Rooftop solar is not a critical path to a renewable energy transformation, and if it is too expensive, we should be honest about it and pursue more economic alternatives," Burhans said.
EnergySage's Bettenhauser disagreed. "Utilities should not bet against technology but leverage it," he said. "New technologies and rate designs and the falling cost of solar will soon enable a distributed network universe, built on a home energy management system. A utility executive's biggest challenge then might be getting a piece of that action."
