For the past 100 years, the design of power plants along with the transmission and distribution systems that deliver electricity to customers has remained the same. Indeed, Samuel Insull’s action of buying out his competition, building the largest power plant in the world to then sell electricity, and increasing the demand for power without competition is still practiced. But, this paradigm is being turned on its head thanks to distributed solar energy.
With all the coverage America’s energy boom has received, the increase in natural gas production has dominated the headlines and dictated the political conversations. Corporations and their lobbyists, elected officials, and voters have been making themselves heard on a variety of issues arising from natural gas production. However, there’s another significant boom occurring today: solar energy.
Solar energy’s growth rate in the U.S. over the past four years has been 418 percent. In 2010, America’s total solar capacity was just over 2,000 megawatts (MW), and by 2014 over 12,000 MW of solar electricity generation had been installed across the country.
This boom in solar installations resulted in the energy source being the second-largest source of new electricity generating capacity in the country last year, exceeded only by natural gas. While the solar market is heavily concentrated in particular states, these markets are not just in the South and West. Five of the top 10 states based on installed solar capacity are located on the East Coast: Georgia, Massachusetts, New Jersey, New York, and North Carolina. The other five states in the top 10 are: Arizona, California, Colorado, Hawaii, and Texas.
The recent development of increased solar installed capacity on hundred of thousands of homes, signifies that solar energy is in a unique place in history: it is no longer the technology of tomorrow. Solar energy’s significant expansion has changed the electricity landscape.
Background: Cost of Solar Drops Dramatically
Long ridiculed as too expensive, solar energy is increasing its share of utility’s power generating portfolio thanks to the continued decline of solar technology costs. Regulators, politicians, investors, and consumers are now becoming aware of the economic benefits residential, commercial, and utility scale solar power present to companies and consumers. In 2013, solar panels themselves were half the pricethey were in 2008 and nearly 100 times lower than they were in 1977. The prices of panels, inverters, and equipment are known as hard costs. The figure below illustrates the dramatic decline.
But today, the bulk of the price of solar energy, 64 percent, is a result of the installation, permitting, financing, and other non-hardware costs, all of which are called soft costs. These costs have been harder to drive down over the past couple of years; however, one of the main goals of the Department of Energy’s SunShot Initiative is to help find new ways to make it easier for consumers, businesses, and utilities to install solar projects. Clean Power Finance, a financial service and software company, received funding from the initiative to build an online marketplace for interested residential solar system owners to receive bids from operations and maintenance providers. Concept 3D, a software company, wasawarded funding to develop and bring to market a mobile application designed to reduce permitting costs for solar projects.
Taken together, residential solar system prices have fallen to $3.73/W, while commercial and utility systems have decreased to $2.53/W and $1.77/W, according to the recent SEIA/GTM Research U.S. Solar Market Insight report.
This means that solar energy is beginning to reach grid parity in areas across the country. Grid parity is the point in time at which an alternative energy source generated electricity at a cost matching the price of power from the electric grid.
In fact, a report published by Deutsche Bank in October determined that solar energy has already reached grid parity in 10 states. Those states are responsible for 90% of solar power in the country and will see a sixfold increase the next three to four years. But more importantly, 26 additional states will see solar energy reach grid parity by 2016. The graph below illustrates the 36 total states that will see solar energy reach grid parity by 2016, even if Congress fails to extend the Investment Tax Credit, which is set to expire on December 31, 2016.