Solar costs set to plummet 50% by year’s end

The cost of solar equipment has been falling over the past several months, but now it looks like cost of solar-generated electricity will drop about 50 percent from where it was at the end of 2008, according to a new report from research firm New Energy Finance.

The firm’s prediction is based on two observations: First, that prices for solar modules, panels and components have been getting lower and lower; and second, that as the economy rebounds, investors will feel more secure sinking capital into expensive solar projects, like plants and larger panel arrays.

The 50 percent drop refers to the cost of generating solar power over the lifetime of a solar plant. This cost is now at $160 per megawatt-hour in sunny locales like Arizona.

Another recent report claimed that solar equipment prices will soon begin to stabilize as demand for rooftop and other systems catches up with supply (a shift spearheaded by Germany). But even if prices flatten out, electricity costs are sure to drop more.

Without government incentives, solar would still be more expensive than energy generated by traditional coal-fired power plants, or natural gas plants. But subsidies and other favorable policies are expected to ramp up — even in the U.S. — in the next year. The difference is that they might be implemented on a slower, state-by-state basis here.

The decline in costs for solar energy could have several major repercussions for average consumers. First, it could become much easier to install your own rooftop solar system, especially with aid from the government and companies with power-purchasing agreements like Solar City and SunRun. Second, with new legislation in place in California, it might become common practice for utility companies to pay for the solar energy generated by their customers’ solar systems. This would fundamentally change the dynamics of distributed power production from sources like wind and solar.

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Companies: Solar City, Sunrun