What Are the Economics of Solar Energy?

Andrew Kirmayer

As of 2011, the price of solar energy has declined somewhat. The cost, often measured per kilowatt, can include sales taxes. Local or regional programs, however, sometimes assist customers with the cost of installing a solar power system, while other incentives enable excess power to be returned to the energy grid for financial savings. A return on investment is often factored in with the power a photovoltaic system generates, the cost of financing it, and weather. In addition to the cost for homeowners, the economics of solar energy are also driven by energy utilities as well as manufacturers of solar equipment.

Solar panels pointed at the sun to absorb solar energy.
Solar panels pointed at the sun to absorb solar energy.

The electricity used by a photovoltaic system can replace the energy use from utility companies. A return on investment generally occurs in less time if the system is not as expensive and the rates for regular electricity are relatively high. The amount of sunshine in a local area typically has an impact as well, in contrast to using power from a utility. Promotional programs by regional agencies sometimes aim to get people to invest in solar energy. Often impacting the economics of solar energy, they can provide subsidies that cut the cost of equipment installations, while financing programs can lower the rates for electricity.

A solar panel.
A solar panel.

Technological development can offset economic theory because several different solar system types continue to be improved, as of 2011. Future improvements as well as the possibility of new, unforeseen breakthroughs generally make forecasts in energy economics difficult. Another factor affecting the economics of solar energy is the availability of materials. Many solar panels use silicon wafers, but have limited capacity; advances in technology could raise the costs of production.

Fewer materials are generally needed for thin-film photovoltaics, and low material costs and future high-efficiency technology breakthroughs may make this choice more economical. Concentrated solar thermal power is typically less expensive to transmit and distribute, but often uses equipment that is high in cost. In addition to material costs availability, the economics of solar energy are also dependent on the expenses of production, as well as the infrastructure of utility companies.

Investment in technologies that have not yet reached their peak, versus waiting for breakthroughs to occur, often affect the decision for many businesses to use solar power or produce equipment. The economics of solar energy are also dependent on the cost potential of these different technologies, as well as how regulation affects prices. Investments and competition among manufacturers can also affect the use of solar technologies from an economic perspective.

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