Green Technology

Examining the Costs and Savings of Going Solar

The implementation of technology that harnesses the power of sunlight is becoming more and more common throughout the world. In the United States, solar energy systems range from residential water heating solutions to entire municipal electricity grids; this technology is also used to power electric vehicles, provide lighting in off-grid locations, and reduce overall carbon emissions. The costs of generating and delivering solar power to Americans have been gradually lowered since about 2010 thanks to the following factors:

* The cost of manufacturing and installing solar panels decreased significantly in the early 2000s.

* The efficiency of solar panels increased, meaning that they could generate more electricity from the same amount of sunlight.

* Government subsidies for solar power made it more affordable for utilities to install solar power farms.

Before 2010, a few case studies were showing the economic benefits reaped by some regional utilities that chose to go solar. In 2003, the Sacramento Municipal Utility District installed a 1-megawatt solar power farm as part of a pilot program. The farm generated enough electricity to power a thousand homes, and it saved the district about a million dollars over 14 months. By 2021, the solar power generating capacity of the U.S. had surpassed 61,000 megawatts across large grid systems. When we add smaller grids generating about 39,000 megawatts, the entire landscape of American solar power is about 5% of total electricity generation.

With the above in mind, it is safe to say that the economics of solar energy are certainly making sense in the 21st century. The Sun is not the leading source of renewable energy in the U.S., that would be wind power, but solar farms and concentrated solar thermal plants could soon catch up to wind turbines in terms of total generative capacity. Let’s take a closer look at the cost efficiency and savings of solar power now that the technology has greatly advanced and improved.

Historic Costs of Solar Power Generation

In 1954, when engineers at Bell Labs invented the first solar photovoltaic (PV) cell, the idea of using solar power to manage a municipal power grid had only been imagined a couple of times in works of science fiction. One such work was the 1939 novel “Star Maker” by Olaf Stapledon. In this novel, a future society managed to harness the power of the sun to generate electricity, and it was a matter of survival. Neither Stapledon nor the engineers at Bell Labs considered the costs or savings of solar energy systems; that did not become a public concern until two decades later.

The first solar-powered watch, the Synchronar 2100, was an expensive timepiece that sold for $500 when it entered the market in 1972. This was one of the first electronic goods powered by solar energy that American consumers got to purchase, but not many of them did because we are talking about a wristwatch with a retail price higher than $1,475 in today’s dollars. About seven years later, the Sharp EL-8026 “Sun Man” became the first solar-powered pocket calculator sold widely across the United States, and it was priced a bit under $100, which would be $670 today.

As we can see from these two tidbits of solar power history, the initial forays of solar power technology into the consumer market were not exactly consumer-friendly in terms of pricing. If this sounds familiar, it is because it adheres to a process whereby new technologies are initially expensive unless they break out of their limited markets. As the technology becomes more established, the cost of production decreases. This is because the manufacturers can produce the technology more efficiently by negotiating the costs of raw materials, applying smart manufacturing strategies, and gauging demand.

Solar-powered calculators are a good example of the aforementioned process. When they were first introduced, they were very expensive. However, as the technology improved and became more established, production costs were slashed, and the savings were passed onto shoppers. The cost of producing small PV cells to power calculators is negligible nowadays, and their semiconductors do not degrade as quickly as they used to. Paying less than $10 for a Casio FX 60 scientific calculator these days is a testament to the low costs of producing PV cells that will not degrade for the next eight years or so.

In the case of electricity generated from sunlight, the concentrated solar power (CSP) and PV cell technologies have already gone through the process of entering the American market, and their associated costs have been declining rapidly over the last few years. The cost of sourcing the materials needed to manufacture both CSP mirrors and PV cells has been dropping since 2003; moreover, technology has improved significantly over the past decade along with demand for sustainable living solutions. This has led to increased energy density, longer battery life, and reduced manufacturing costs.

Solar Power and Economies of Scale

Every cost advantage that an enterprise can obtain to scale operations can be part of a larger strategy to increase output while driving down prices. A classic example of such a strategy was pioneered by American industrialist Henry Ford, who figured out that larger automotive production plants generated a greater yield even with the same amount of labor utilized. These strategies are known as economies of scale.

As the demand for solar panels has increased, manufacturers have been able to achieve economies of scale. This has led to further reductions in the cost of PV cells, solar panels, CSP mirrors, and batteries. In many cases, economies of scale require thoughtful forecasting as well as considerable capital injections. In the U.S. and other countries where solar energy production has benefited from economies of scale, governments have provided subsidies to help support the development of the solar industry. These subsidies have been used to manage solar energy utilities where average costs start falling as output increases, thus establishing economies of scale.

The Financial Bottom Line of Going Solar

According to the U.S. Energy Information Administration, solar power will account for 22% of U.S. electricity generation by 2030. Some Wall Street analysts who follow the energy markets believe that this EIA estimate is conservative; they think that it should be closer to 40% because the effects of the Building a Better America plan, which started in 2022, will likely accelerate solar energy production across the U.S.

The $50 billion in subsidies and direct financial incentives provided by the White House to stimulate the American semiconductor industry will play a significant role in the expansion of solar power solutions. When we think about semiconductors, it is easy to only focus on microprocessors for personal computing devices such as smartphones. The reality of semiconductor technology is that it forms the basis of PV cells and solar panels. Before the implementation of the Building a Better America plan, more than 80% of solar panels used by utility firms in the U.S. were imported. Once this rate is reduced below 50%, which is expected to happen by 2030, the cost benefits of solar energy will improve even more.

The Solar Energy Industries Association estimates that American homeowners connected to a solar energy grid can lower their monthly power bills by up to $200. Forecasts made to this effect suggest that these savings will continue to improve as the economies of scale in the solar power industry become even more efficient. The bottom line of solar energy is that its underlying industry is maturing to the point of providing significant savings to consumers.