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How did solar become the cheapest energy in history

Solar is the Bitcoin of the energy industry — it’s “the next big thing” and soon it will become the gold standard for new energy development. Don’t miss out — there hasn’t been a cheaper electricity source in history. In this article, we’ll discuss the cost of solar energy, what are we paying for when it comes to photovoltaics and what awaits the solar industry in the future.

Solar went from being the most expensive to the cheapest


cost per watt of solar capacity in 1956

In the 1950s solar cells were something we thought we would use only for satellites in space. One watt of solar capacity cost $1,825 in 1956. We saw a steep decline in just a few years: the price of a solar module went down to $76 per watt in 1977, $10 per watt in 1987 and around $5 per watt in 2000.

Still, just 10 years ago, solar was the most expensive option for building a new energy development. You had to pay around $350 for one MWH of solar energy while you could get the same MWH using coal, wind or nuclear power for a little over $100.

But over the last decade, the cost of solar energy has dropped by 90%. Solar can generate electricity “at or below” $20 per MWH. The cost per watt can get below $0.3. “For projects with low-cost financing that tap high-quality resources, solar is now the cheapest source of electricity in history,” claims IEA.

So how did solar energy get so cheap? There are several reasons.

Reason #1: Manufacturing costs dropped

As time went by, making solar panels has become less and less costly. Materials have gone down in price. We’ve developed new manufacturing technologies. The efficiency of panels rose from 6% in 1954 up to almost 23% in 2023 which means that you need less space and fewer panels to build a powerful installation today. All of this can be summed up to a phenomenon known as Wright’s Law.

Theodore Wright was studying the relationship between the production of airplanes and their manufacturing costs. He came to the conclusion that for every cumulative doubling of units produced, costs will fall by a constant percentage. The more we make something, the easier and cheaper it becomes to produce.

Y = aXb

Wright’s Law Formula:
Y = cumulative average time (or cost) per unit
X = cumulative number of units produced
a = time (or cost) required to produce 1st unit
b = slope of the function

Wright’s Law has proven to be valid when it comes to solar panels. Since 1976, each doubling of solar capacity has led to a 20% average decline in the price of PV modules. As a result, solar is roughly 100 times cheaper than in the mid-1970s.

Reason #2: Soft costs dropped

up to 65%

soft costs in total home PV system cost

When we set aside manufacturing expenses, there are also soft costs which include design, siting, permitting, installation, interconnection, and financing. Solar companies also bear sales, general, and administrative expenses related to customer acquisition, workforce training and certification, supply chain and inventory control, and operating overhead.

Soft costs can make up 65% of a home PV system cost. They have dropped by around 50% since 2010, according to the NREL. First, we learned how to streamline the process of installing solar. Second, the government contributed to making permitting and inspections easier.

Reason #3: State incentives are working

Governments recognize solar energy as one of the ways to reach clean energy goals and fight against climate change. That’s why solar owners and manufacturers are eligible for a long list of programs, tax exemptions and incentives in different countries.

In the US the biggest government program for solar owners is the Investment Tax Credit or ITC. It was introduced in 2005 and it allows you to deduct 30% of your system cost from income taxes. States and utilities developed their own smaller local programs which can bring the cost of the solar system even further. 

Solar incentives make solar panels cheaper for manufacturers to make and for customers to buy. IEA claims that the fact that solar prices got so low is largely a result of policies designed to reduce the risk of renewable investments. Since solar became a safer investment, it attracted more people towards it. 

Reason #4: Solar got popular

6-8 years

average payback time of a PV system in the US

Almost every 10th house in the USA has solar panels installed, and 9 in 10 adults are in favor of expanding solar power use. About 40% of U.S. homeowners say they have given serious thought to adding solar panels at their homes, claims Pew Research Center after conducting a survey of 10,237 US adults. Large companies like Amazon, Apple, and IKEA install solar to improve their public image and decarbonize their production. 

The rise in popularity made solar become a popular field for investors. As a result, the market got more capital and the companies have more resources to develop cheaper and more efficient panels.

Reason #5: Market became broader

In the 1970s people thought that solar panels could only be used on satellites. After a few decades, panels became a viable choice for houses in Florida and California where there is a lot of sunlight. But as we move forward, it becomes apparent that the market grows even broader.

Today solar panels are popular in Texas, Colorado, and even in New York. A system in New York produces less energy than in Los Angeles since there is naturally less sunlight. But electricity rates are much higher in New York, thus a system pays for itself quicker.

What’s more, solar panels got really popular with sailors and boondockers. You can now often see boats and RVs with solar panels on top. A broader market means more profits and more capital for manufacturers. 

Expect solar to grow even faster

Solar outdid all kinds of predictions. IEA experts have even decided to reshape their scenario of our future energy development because solar energy turned out to be 20-50% cheaper than they anticipated in 2018. They now expect even faster growth from it. 

Global solar capacity is set to almost triple over the 2022-2027 period, surpassing coal and becoming the largest source of power capacity in the world. By 2050 we might reach over 8,500 GW of installed solar capacity which is 18 times bigger than it was in 2018. Cheap renewable energy will slowly replace fossil fuels in the next few decades, and solar is going to be at the forefront of the battle against climate change.

Illustrations – Darya Vasina

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Andrey Gorichenski
Senior Editor

Andrey had been a news editor and freelance writer for a number of medias before joining A1SolarStore team. Climate change and its impact on people's lives has always been among his interests and it partially explains his degree in Philosophy and Ethics.

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