Tech Insights

Solar Energy Costs Flare Up Dramatically in 2022

January 02, 2023 by Kevin Clemens

The price of commercial and residential solar power has increased for the first time in more than a decade.

The only real chance we have to control global climate change is to replace fossil fuels used for electrical power generation with renewable energy sources including hydroelectric, geothermal, nuclear power, wind, and solar. Of these, wind and solar energy continue to be strong contenders, with photovoltaic (PV) solar finding favor for distributed power generation in both commercial sites and on residential rooftops.

 

Despite higher costs, solar energy remains a likely source of renewable energy.

Despite higher costs, solar energy remains a likely source of renewable energy. Image used courtesy of Pixabay
 

NREL’s Annual Solar Summary

The National Renewable Energy Laboratory (NREL) produces a yearly summary of the costs of installed PV solar and battery energy storage systems (BESS) that make solar power practical even at night. NREL’s U.S. Solar Photovoltaic System and Energy Storage Cost Benchmarks, With Minimum Sustainable Price Analysis: Q1 2022 details costs for solar power as of the first quarter (Q1) of 2022. The NREL has been publishing its solar and energy storage reports since 2010.

 

PV Solar, Energy Storage Markets Costs Have Risen

Unfortunately, the news isn’t good. Thanks in large part to the COVID-19 pandemic, supply chain constraints, including a price increase for lithium-ion storage battery raw materials, trade policies, and increases in inflation, the prices for the PV solar and energy storage markets showed dramatic increases. The 2022 first-quarter PV and battery storage numbers are as much as 15 percent higher than the first quarter of 2021 benchmarks.  It marks the first time solar costs have increased since 2010.

 

NREL Report Shows Two Ways to Look at Costs

To help better describe the market volatility, the NREL is now reporting two benchmarks in its report.  Minimum Sustainable Price (MSP) represents the minimum price needed for a PV technology to cover production and overhead costs and pay investors back at their demanded rate of return. MSP shows the theoretical long-term national average price for solar without considering the market disruptions in 2022.

Modeled Market Price (MMP) estimates the nationally averaged sales price under market conditions in the first quarter of 2022. It is consistent with the information provided in the NREL’s previous benchmark reports. MSP reflects PV technology and soft costs and helps determine research and development investments, while MMP is more useful for near-term policy decisions as it includes third-party data as well as tariff and supply chain market dynamics.

 

 

The NREL is using two different benchmarks to describe market volatility.

The NREL uses two different benchmarks to describe market volatility. Image used courtesy of NREL
 

Comparing the MSP with the MMP shows how much solar costs have increased due to market disruptions in the first quarter of 2022 relative to the expected national average costs. The year 2022 is the first time that the NREL has reported MSP allowing users to distinguish between the impacts of long-term technology trends and the effects of short-term market distortions.

 

Higher Costs Affect New Solar Power Projects

The increase in cost has a negative effect on the installation and planning of new solar power projects. In California, Pacific Gas & Electric (PG&E) obtained permission to pay more for solar and battery storage projects thanks to the 2022 cost increases. A North Carolina city is re-examining a solar power project after prices increased by 25 percent. Industry analysts have suggested that the price hikes could delay or even cancel more than half of the upcoming utility-scale solar projects.