Thursday, December 9, 2010

Solar Prices Fall, Bigger Investment Needed

Solar panel prices haven fallen by a fourth in the last two years. Solar panels compete with grid electricity. Electric prices are trending up in the long run, though they have held steady over the last two years. As solar panel prices fall and electric prices rise, it becomes easier to make the financial case for replacing grid electricity with solar electricity.

At the prices of two years ago, a home solar installation was already a good investment for some people. It worked best in the ideal case, for a household that doesn’t have to borrow the money and expects to live in the same house for the expected life of the solar installation. In other words, if you’re out of debt and saving for retirement, and you’ll be retiring in the same house where you live now, a solar installation is a better investment than adding money to your retirement account. This makes sense if you think of the payoff of lower electric bills throughout your retirement.

With solar prices falling, solar installations are easier to do in less than ideal cases — for example, for people who are not completely out of debt, and people who are likely to sell their houses after ten years. The falling prices don’t really mean you can spend less money on a small home solar installation. The cost of the other components, which synchronize the solar electricity with the grid electricity, haven’t moved much, so the price of a practical entry-level installation is about the same. However, it will generate more electricity than before, resulting in greater savings on the electric bill. As an example, a $3,000 installation in 2010 might generate $37 of electricity per month, instead of $29 per month from a comparable installation in 2008.

This kind of lump-sum investment won’t catch on quickly in a financial culture based on monthly payments, and as long as equipment costs are falling this rapidly, you don’t lose much by holding out and hoping for a lower price next year. Still, this year’s prices are low enough that, as a nation, the United States should be moving much faster with solar installations, in order to reduce the trade deficit caused by energy imports. Price are low enough now for homeowners and other building owners to take action without government subsidies. The U.S. government could well discontinue tax incentives for solar installations at this point and spend the money instead on solar installations for its own buildings.