How Expensive Is Solar Power?

Ask the average person what they think of solar power, and you're likely to hear about how expensive solar power is and that it's a pipe dream to think it will ever reach grid parity. But if you ask them to back up that claim, they probably won't have many facts to support that position.

Few people know that the price of polysilicon of the type produced by LDK Solar (NYSE: LDK  ) and MEMC Electronic Materials (NYSE: WFR  ) has fallen 48% since March. Lower costs for the main raw material for solar modules make it vastly cheaper for JA Solar (Nasdaq: JASO  ) , Trina Solar (NYSE: TSL  ) , SunPower (Nasdaq: SPWRA  ) (Nasdaq: SPWRB  ) , and a variety of other manufacturers to produce them.

But another driver of the falling cost of solar power for consumers and pushing its path toward grid parity is falling feed-in tariff rates in countries around the world. Below, I have compared ground-mounted and rooftop solar feed-in tariff rates to retail electricity prices for a number of countries and two key U.S. states. As you can see, solar isn't as expensive as it may seem to those who don't follow the industry.

Country or State

Ground Mount

Rooftop

Retail Price

Germany 0.21 euro 0.22 euro 0.27 euro
Italy 0.17-0.26 euro 0.20-0.30 euro 0.20 euro
Spain 0.18 euro 0.23-0.32 euro 0.20 euro
France 0.27-0.35 euro 0.51-0.58 euro 0.14 euro
Japan Residential: $0.50 $0.26
California Varies: $0.09-$0.25 $0.13             
Hawaii $0.19-$0.22 $0.25

Source: Greentech Media; Energy Information Agency; Europe's Energy Portal.

Also consider that the retail price is an average and doesn't consider peak rates, which are implemented in some areas. Solar electrical power production corresponds very closely to the time that peak rates are paid by utilities for natural gas plants or other peak sources, so the retail price above may be a low comparison.

Most countries lower their feed-in tariffs periodically, but the most telling state of solar may come from California later this year, when the state does a reverse auction for solar projects. That will provide a more market-based pricing structure. Expect SunPower and First Solar (Nasdaq: FSLR  ) to lead the bidding as they leverage local expertise and other companies build large-scale power plant development units.

Foolish bottom line
Half the challenge in following solar stocks is staying educated on the fast-moving costs and feed-in tariff rates in the industry. As you can see above, solar power isn't as expensive as many people think and is less expensive than retail power in some locations.

Use that as a talking point next time someone questions you about solar.

Interested in reading more about solar stocks? Follow our Foolish analysis by adding your favorites to My Watchlist, and be sure to sign up for My Fool Daily, our daily email with free articles on stocks you've picked.

Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2011, at 5:27 PM, hrametz wrote:

    Utility-scale solar in California is pricing out at $0.10/W. SDG&E rates are $0.14 to $0.32 per kWh. Residential solar in San Diego county is at parity, even at $0.20/W.

  • Report this Comment On October 19, 2011, at 5:29 PM, hrametz wrote:

    Utility-scale solar in California is pricing out at $0.10/kWh. SDG&E rates are $0.14 to $0.32 per kWh. Residential solar in San Diego county is at parity, even at $0.20/kWh.

  • Report this Comment On October 19, 2011, at 10:56 PM, maiday2000 wrote:

    Oh great, then I guess we can stop all of the government subsidies now!!

  • Report this Comment On October 20, 2011, at 8:50 AM, MrsCathyGF wrote:

    You can say THAT again, maiday2000 ! And, may I mention. This is one of the shortest articles in Motley Fool history. Ok, so when one does compare, it's with the HIGH end, and no real apples to apples comparisons ? Sure.

  • Report this Comment On October 20, 2011, at 10:30 AM, Brettze wrote:

    Solar Power comes in different flavors.... Watts, Btus, sunburns... you name it... What is Btu? Aha, Btu is what you get from natural gas or heating oil. Btu is a measurement unit of heat energy that can also be created with electricity.. So Solar Power can be cheaper if we are focused on the Btu aspect of solar power... We are too obessed with electricity generation from solar power.. Photovoltaics is nice to have but we can also generate heat from solar power that we generate the same heat from natural gas or heating oil , too.. We can develop solar devices to capture sun heat and use it to heat our homes , dry clothes, and even cook food as long as the Sun shines.. We can switch back and forth between natural gas and sunlight to help stretch our supplies of natural gas and heating oil.. This is something that Big Oil and Gas ought to help instead of holding back in order to maximize profits for oil and gas... Th is is very wrong!! Investors , you know better than to be abusive with energy opportunities.. We need to stretch our fossil fuel supplies with sun heat ...for Btu generation... We have to stop being too obessed wtih electricity generation from the Sun alone.. Time to diversify is now.. Solar stocks is too obessed with electricty which is very stupid!! Solar stocks should diversify their portfolios to expand through solar heat ... Solar heat or so called solar thermal is much lower in cost than electricity generation... Time to start bending sunlight with mirrors and fresnic lenses is now!!!!!!!!!!!!!!!!!!! Solar investors, shut up your stupid mouths and start investing in solar heat now!!

  • Report this Comment On October 20, 2011, at 10:35 AM, Brettze wrote:

    Solar stocks are mostly one trick ponies which is very vulnerable !!! Solar stocks can learn new tricks with mirrors and lenses... do it now!! No more baloney about expensive solar power... Photovoltaics is more expensive than solar heat collectors of any sorts.. Solar heat collectors cannot be measrured in watts but can be measured in Btus.. We pay to our beloved utilities for watts as well as Btus (therms) for natural gas . 100,000 Btus is equal to one therm.. You pay about $1 for every therm of natural gas... Btu by solar collectors can cost far less than natural gas!!! We still need natural gas when there is foul weather... When the sun shines even in snowy mountains, we can capture solar energy in any temperature as long as it pass through a glass panel...

  • Report this Comment On October 20, 2011, at 11:02 AM, bigbrewdaddy78 wrote:

    Solar power is not always the answer. So, many people think you can change the way you live by throwing up a solar panel on your roof or office building, and that simply isn't the case. Now granted you made a convincing argument that solar power is becoming cheaper and cheaper. But, if prices keep dropping like they do why would I want to buy solar now? Why, not wait for the next drop in price? Your thrifty consumer would never buy now if they expect they can pay less in the future.

    Does this sound like a familiar argument (maybe the inverse of an argument you have heard before) ?

  • Report this Comment On October 20, 2011, at 11:06 AM, TMFFlushDraw wrote:

    @veryverda

    How would you prefer that I do this comparison?

    Travis Hoium

  • Report this Comment On October 20, 2011, at 4:34 PM, ThoughtfulOne wrote:

    As I understand it, the feed-in tarrif rate is the amount paid to the solar electric producer for their contribution to the electric grid.

    I don't see how this relates to the actual cost of the electricity generated.

    Solar electric power would be generated by using a certain amount of square footage of space, combined with the cost of the solar panels, inverter, and other equipment needed to tie it to the grid, along with lifetime maintenance costs. You must then estimate the total power potentially generated over the life of the equipment (considering that it's dormant during night or low-light conditions) to determine the average cost per kilowatt-hour. Then you would be able to compare your production costs to the retail price of electricity generated via other means.

    You will probably find that the solar panel prices must come down to about 40% of their current price to break even with commercially generated electricity.

  • Report this Comment On October 20, 2011, at 5:26 PM, Brettze wrote:

    We are still obesssed with electricity from the Sun.. Sunrooms is an excellent source of solar energy in form of heat... going indoors .. People do not understand what Btu is... It is not all about watts... It is also about Btus.. people dont have time to bone up on the terminology of solar energy.. So solar marketers keep quiet as they keep conning people !!

  • Report this Comment On October 20, 2011, at 5:27 PM, Brettze wrote:

    Too OBESESS E D` WITH SOLAR ELECTRICITY!!

  • Report this Comment On October 21, 2011, at 11:34 AM, TMFFlushDraw wrote:

    @ThoughtfulOne

    You're exactly right. That's why FIT rates are a good proxy for what solar costs, aka it's levelized cost of energy (LCOE), the number you are talking about.

    If a developer is paid 0.21 euro per kWhr in Germany and LCOE is $0.19 (this includes capital cost) then the installer would build as much solar as possible.

    If on the other hand the LCOE is $0.24, no one would build solar.

    Since solar is in fact being built on a GW scale in Germany, Italy, and the U.S. we can then make the assumption that the LCOE is lower than the numbers I've given above.

    I hope that helps,

    Travis Hoium

  • Report this Comment On October 21, 2011, at 11:40 AM, TMFFlushDraw wrote:

    @ThoughtfulOne

    In relation to your 40% number, the comparisons are squishy at best. Like I stated above, we should really be comparing to peak energy costs, which would be more along the lines of $0.25 - $0.40 per kWhr.

    But in general your point is correct, solar is still more expensive than commercial generation because FIT costs don't include transmission, margin, etc. for the utility. What I wanted to do was put solar's costs into context.

    Now if you consider that Poly-Si costs have fallen 48% in six months, solar module prices continue to plummet, balance of system costs continue to fall, and it's easy to see how the 40% number you brought up could be closed in a couple of years.

    Travis Hoium

  • Report this Comment On October 21, 2011, at 4:52 PM, xetn wrote:

    "How expensive is Solar Power?" is the wrong question. The real question is how reliable is it? Here the answer is not so obvious. Wind energy is intermittent based on wind speed. Solar panels obviously require sun light. Wave energy is probably more consistant in delivery, but fairly expensive to implement. Each aspect of solar has its own limitations. At best, solar can be an adjunct source of energy buy can never replace more conventional sources. (Unless there is a break through in alternative sources such as solar panels that generate in darkness. :)

    The best solution is nuclear but nobody wants to consider it.

  • Report this Comment On November 04, 2011, at 1:30 AM, thidmark wrote:

    How Expensive Is Solar Power?

    Very, if you are an American taxpayer.

  • Report this Comment On November 04, 2011, at 2:11 AM, MichaelDSimms wrote:

    Solar energy is a joke it generates approx 1% of useable energy int the US.

    Gas, baby Gas. And the U.S has plenty of it.

    Natural gas, as the cleanest of the fossil fuels, can be used in many ways to help reduce the emissions of pollutants into the atmosphere. Burning natural gas in the place of other fossil fuels emits fewer harmful pollutants, and an increased reliance on natural gas can potentially reduce the emission of many of these most harmful pollutants.

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