Solar Generation Costs Falling, Conventional Could Rise

As of 2012, the power generated from residential solar power systems cost an average of between $0.12 per kilowatt hour (kWh) to $0.30 kWh (depending on the region) in the United States and prices are likely to be still lower this year, given the falling systems prices. The average retail price of electricity in the U.S as of June 2013 stood at close to $0.13 per kWh, with prices across states ranging from between $0.09 per kWh to around $0.37 per kWh, implying that solar has reached grid parity in some cases.  We believe that the relatively low system prices and a potential increase in residential electricity rates by utility companies could help to boost residential solar installations. Utility companies are facing an increase in generation costs, particularly for fossil fuels, as more stringent environmental norms come into place.

Falling Systems Prices, Builders Offering Solar As An Option

Average installed solar systems prices in Maryland fell by around 11.5% over the past year.  Assuming that the average home in Maryland requires about 4 kW of capacity, it would translate to average system prices of less than $20,000. Given the fact that the median new home price in Maryland stands at around $257,200, it would cost the typical home buyer an additional 7% to 8% to include a solar power system. Many home builders are also beginning to take interest in adding solar power systems to their new developments. This works well for both customers and builders since it costs about 20% less to install solar power systems at the time of construction rather than after a home is built. At least 6 out of 10 of the largest U.S. builders now provide an option for solar power panels in their projects.

Financing Is Improving

Financing for solar power systems is also becoming more streamlined. While new homeowners can choose to include the costs of solar systems to their mortgages, many customers have also been opting to lease rather than buy solar systems. According to the SIEA, more than 65% of new residential installations over the past year in California and 85% of new installations in Arizona were third-party owned systems. Leasing makes solar power more accessible to low income customers (small tax appetite) since it allows them to stagger their payments  and allow an investor capitalize on tax incentives.

Incentives At The State And Federal Levels

While the incentives for the U.S. residential market are not as generous as those offered in countries such as Japan, we believe that they are quite attractive nevertheless. At the federal level, the government offers an investment tax credit (ITC) which gives installers a 30% tax credit for solar systems on residential properties. Additionally, there are incentives at the state and county level as well. For instance, net energy metering allows owners of residential solar systems to sell excess electricity that they generate back to the grid at rates that are close to the full retail rate.