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Should you wait for solar power prices to come down?

Analysts project that between 2014 and 2020, residential solar power system prices will fall by 16–33%.1 Let’s take the higher number of 33%, which works out to an average yearly price decline of 5.5%. We’ll round up and assume that over the next year, solar power system prices could fall by as much as 6%.

Here’s the problem with waiting:

At today’s Florida electric rates of around 13 cents per kilowatt-hour, an 8 kilowatt home solar power system (28 285-watt solar panels) can produce about $1,500 worth of electricity per year.2 At a 2016 installed system price of about $27,000, after subtracting a 30% solar tax credit of $8,100, the value of the electricity produced is about $1,500 / ($27,000 − $8,100) = 8% of the net system cost.3 So the solar electricity production we would lose by waiting a year is worth more than the price savings from waiting a year—and that’s true even if system prices fall by the largest percentage in the range forecasted by the experts.

Also, our example above assumes that electric rates, which increased at about 4% per year between 1970 and 2015, stay the same. They might. But any unexpected spike in electric rates could make the savings missed by waiting even greater.

The bottom line is that the sooner you buy a solar power system and start saving, the better off you’ll be financially.

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Notes

  1. Feldman, et. al. (2015). Photovoltaic System Pricing Trends: Historical, Recent, and Near-Term Projections. 2015 Edition. National Renewable Energy Laboratory, U.S. Department of Energy. NREL/PR-6A20-64898. Golden, CO. August 25, 2015. p.30. Expected per watt price declines include both actual hardware, and other cost reductions and effective price reductions from improvements in solar energy conversion efficiency.
  2. U.S. Department of Energy PVWatts Calculator, Version 5. Roof-mounted solar power system with 8 kilowatts of DC power output and 19% panel efficiency at standard testing conditions, facing due south (180°), roof slope 26°, 11% average system losses, 96.5% inverter efficiency, DC to AC power ratio of 1.14. For Jacksonville, Florida, expected annual AC electricity production is 11,860 kilowatt-hours, worth $1,542 at $0.13 per kilowatt-hour. For Orlando, Florida, the expected annual production increases to 12,559 kilowatt-hours, worth $1,633 at $0.13 per kilowatt-hour.
  3. This example does not consider loan interest expense if the system is financed. However, at the most popular solar power system loan interest rate of 2.99% per year, the annual interest rate is less than the 3.968% historical average yearly increase in U.S. residential electric rates from 1970 to 2015.