I wrote about the emerging business of solar leasing back in June, noting that long-term borrowing costs, as well as favorable subsidies made solar leasing an attractive business model.
Solar power is subsidized heavily by the Chinese and American governments. The Chinese subsidize the manufacture of solar panels. The US government, through the tax code, subsidizes the purchase and installation of new panels on residential and commercial property.
A New Perspective
BusinessWeek ran a story about the booming solar leasing business last week. I’m glad to see this story in the news because it is quietly becoming a major industry. Solar leasing and installation could very well become a major employer in the United States as solar panels become less expensive over time and interest rates ride record lows.
BusinessWeek published a chart of solar panel costs per watt over the 2011-2012 timeframe. In one year, prices fell some 51% in 2011 to 88 cents per watt. Here’s a chart of falling solar prices:
In my original article I referenced a research report that charted the expected payoff of solar panels vs. coal power plants. The chart below shows the cost per watt for each source of energy over time. At $1.25 per watt, solar would be less expensive than coal power from start to finish.
Today, panels are only 88 cents per watt, which means that, pending installation is less than 37 cents per watt, solar panels are now more economically efficient than coal power plants from day 1 to day 1 million.
Solar power still cannot stand on its own two feet. The Chinese government subsidizes tremendously the manufacturing of solar panels. The US government offers 30% rebates for commercial solar investment, and 30% (nonrefundable) tax credits to residential buyers.
As far as the $.88 cents per watt cost, that’s a function of an over-supplied market and Chinese production subsidies. The purchase price for residential users and commercial owners is even further reduced by a lower tax burden.
Falling Prices Forever
Given that solar panel prices fell by 51% in a single year, one has to wonder how low prices might go. We’re reaching a point of at least temporary market efficiency where financed solar panels are less expensive than traditional utility bills. Further improvements in technology and economies of scale should easily enable lower per-watt prices. First Solar originally planned to drive prices to 64 cents per watt by 2014. The company now says it will hit 65 cents per watt by the end of 2012, and push prices as low as 51-52 cents per watt by 2014.
The BusinessWeek article cited above expects 2.4% of all American homes to have solar panels by 2020, up from less than .1% of homes in 2012.
There exist some 125 million homes. The potential for installation business is potentially far greater than anticipated. Given the number of venture-backed firms with ample cash, one would expect the industry to lobby for fewer building codes and regulatory burdens, which add greatly to installation costs. Building codes written many years ago simply haven’t kept pace with solar leasing and installation. It is very easy to ignore regulatory complications on a product that affects less than 1 out of every 1000 homeowners. But, luckily for the industry, 24 out of 1000 homeowners are significantly louder and more difficult to ignore.
Roughly 3 million installations at $5,000 a pop (I’m just picking numbers out of the sky as all-in installation prices vary greatly) comes to $1.5 billion in installation revenues, not to mention the long-run utilities savings from solar panel buyers.
So, while the solar industry isn’t booming from low prices (solar manufacturers are actually losing their shirts to subsidized foreign production and creative destruction) consumers and installers are winning out in a big way. The growth projection by BusinessWeek implies that in the next 8 years at least twenty-four times as many solar panels will be installed on American homes as were installed in every single year leading to 2012.
That’s a pretty big deal. This is going to be a huge industry. Job seekers might want to start thinking about moving west in search of the riches to be made in the new solar rush. It will be in the west, where the sun shines longer and the tax advantages are bigger (California!) that this industry really blossoms. PayScale.com shows total compensation (salary plus bonuses) for solar panel installers at $25-50,000 per year. Given the poor labor environment for residential construction and negligible barriers of entry to employment, those wages are fairly attractive.
The boom is on! Solar leasing and installation are certain to be a major growth story in an otherwise uneventful economy. Enjoy the scenery for now. The early adopter pays too much for new technology. It is quite possible that solar panels will sell at another 40% discount by 2014, and cash flow yields will thus be 66% larger for those with patience. Keep this idea on the backburner – by 2014 the economics of solar panels will provide for huge energy bill savings for the marginal cost consumer.