The oil industry uses price per barrel as its unit of price measurement. The solar energy industry typically uses price per Watt Peak (Wp) as its primary unit of measurement.  The prices for high power band (>125 watts) solar modules has dropped from around $27/Wp in 1982 to around $4/Wp today.  Prices higher and lower than this are usually dependent upon the size of the order. To find out more about current solar module prices across all power bands at the Retail level, please click here.

As a rule of thumb, the solar module represents 40-50% of the total installed cost of a "solar system". This percentage will vary according to the nature of the application.  A complete solar system includes all the other components required to create a functioning system, whether it be to feed energy in to the grid or to be used in stand alone off-grid applications. In 2003, a residential solar system costs about $8,000-$12,000 per kWp installed.

A complete "Solar System" includes all the other components required to create a functioning system, whether it be to feed energy in to the grid or to be used in (stand alone) off grid applications.

The graph shows the progression of price reductions over the last ten years for the cost of 4 kWp residential solar system in Japan in money of the day. Japan leads the world in PV prices as a result of being the largest country market and hosting the largest PV cell manufacturing companies.

In order to translate, kWp (a standardized measure excluding solar conditions) to kWh (a measure which takes account of solar conditions), an adjustment for the actual location of the solar panel is necessary in order to take into account how much sunlight would be expected in that location over the period of a year.

Some simple examples are that a 1kWp System will produce approximately:

· 1800 kWh/year in Southern California
· 850 kWh/year in Northern Germany
· 1600-2000 kWh in India and Australia

Solar Electricity Prices are today, around 30 cents/kWh, which is 2-5 times average Residential electricity tariffs.

This precise calculation will depend on the location of the solar installation and the local electricity tariff rates (see section below regarding the latter).Then in order to determine what proportion of total energy solar will provide, one has to take in to account the size of the solar energy system and the energy demand of the customer.

Typical kWh usage by homes in three selected US average homes is shown below. For example, in a Sacramento, California home, it would cost around $16-$20,000 (depending on 8-10,000 above that you may change) to satisfy around 25% of that homes energy needs.

The following table is a very rough guide to the competitiveness of solar PV in the different market segments (A broader description of this solar market segmentation is given in Uses of Solar Energy.  It shows, for example that around 59% of world solar product sales over the last five years were installed in applications that are tied to the electricity grid. Solar energy prices in these applications are 5-20 times more expensive than other energy sources.

Source: PV Technology Roadmap Workshop 1999, modified by Solarbuzz

Explaining the above table: Around 59% of world solar product sales installed the last five years were in applications that are tied to the electricity grid. Solar Energy prices in these applications are 5-20 times more expensive than the cheapest source of conventional electricity generation, although they may only be 3-5 times the electricity tariff that utility customers pay. By contrast, PV can be fully cost competitive on economic grounds in remote (off-grid) industrial and habitational applications.

The cost structure of solar energy has already created significant economic penetration in remote industrial applications (such as remote rural telecommunication, navigation lighting and cathodic protection systems) and in remote habitational markets (developing world village power or home lighting, TV, radio and off-grid homes in industrialized countries). These two market segments have driven the rapid growth rate in solar energy over the last 15 years, because solar PV has been economically competitive.

In remote industrial applications, solar PV can be a cheaper alternative to diesel power generation, especially to power small electrical loads of up to hundreds of Watts.  The economics are driven by a balance between the high initial cost of a solar PV system and very low subsequent running costs compared to the low initial cost of a diesel generator but very high on-going fuel and maintenance costs.  The latter are especially high if site access is difficult (e.g. on a mountain). 

Off-grid homes have an economic reference point in the cost of installing a grid connection to the location.  As a guideline, if a house is further than 1km from the nearest grid line then it is likely to be cheaper to install a PV system.  In developing countries, the source of power for lighting may be limited to candles or kerosine burners.  In this case, solar provides a highly cost effective option and can provide power for a wider range of uses too.  The difficulty comes with the high up-front cost of solar which can make it unaffordable without the provision of funding from developmental aid or micro-finance to provide credit. 

However, it is the grid-connected market that remains the major prize for the solar industry because of the huge scale of the electricity supply market.  Indeed, this is where growth has been strongest recently.  While solar is a long way from competing with conventional power generation costs at 3-5 cents/kWh, it is much closer to reaching electricity tariffs charged to residential, commercial and industrial consumers.  This is especially relevant because when the PV is sited at the consumers' premises then the comparison for the customer is between the tariff rate and the cost of PV electricity from his system.  Precise calculation of solar electricity costs depend on the location and the cost of finance available to the owner of the solar installation, but with the best PV electricity prices (in the sunniest locations) approaching 30 cents/kWh and the highest tariffs now exceeding 20 cents/kWh, the gap is now close.  Funding programs that bridge this gap are causing rapid growth in sales of solar PV, especially in Japan and Germany.  For more information on funding programs in industrialized and developing countries click here.  

An analysis of electricity rates around the world, shows that the solar industry is rapidly approaching the point where commerical on grid market niches will be created in selected countries or regions where electricity rates are high.

Residential electricity tariffs 1999 
(Source: Energy Information Administration)

In order for the solar industry to make a systematic penetration in to the electricity segment, installed solar system costs will need to drop from around $8-10/Wp to $3/Wp. This would continue the trend shown above of falling solar electricity costs over the last twenty-five years. A push to $3/Wp would bring solar energy costs from the present 30 cents per kilowatt-hour to around 10 cents per kilowatt-hour, which would allow it to compete more strongly with other renewables and capture a significant share of the electricity market.

Guideline electricity generation costs today (cents/kWh)