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Last updated: 10 June 2024

The Decrease in Solar Costs: A Game-Changer for Renewable Energy

Over the past decade, solar energy has transitioned from an expensive alternative to a viable mainstream energy source. A remarkable decrease in solar panel costs has spurred this transformation.

This shift has fundamentally changed the energy landscape. Therefore, it empowers homeowners and businesses to take control of their energy bills and environmental impact. As a result, a typical three-bedroom house can achieve potential annual savings of up to £871.

Let's delve into the factors behind this price drop and explore the benefits it brings to consumers.

An array of solar panels installed on a rooftop, capturing sunlight to generate renewable energy. The image symbolises the significant reduction in solar costs, making it a pivotal development in the renewable energy sector.

Evolution of Solar Panel Costs

The cost of solar panels themselves has dramatically decreased over the past decade. According to data from Berkley Lab’s Tracking The Sun report, the installed price of residential solar panel systems dropped by 26% from 2013 to 2022. The cost of solar PV modules, a significant component of the overall installation cost, has seen a massive 90% reduction since 2000. 

In the past ten years, the cost of solar panels plummeted by over 70%. In 2013, the average price per watt for a solar panel was around £1.50. Today, this figure has dropped to approximately £0.40 per watt.

This substantial reduction can be attributed to several factors, including technological advancements, economies of scale, and increased competition among manufacturers.

The impact of these developments is undeniable. A decade ago, a typical solar panel installation in the UK could easily exceed £20,000. Today, those same systems can be installed for closer to £6,000. This dramatic price drop has allowed countless homeowners to embrace solar power and experience the benefits firsthand.

This substantial reduction can be attributed to several factors, including technological advancements, economies of scale, and increased competition among manufacturers.

Technological Advancements

One of the primary drivers behind the cost reduction is technological progress. Over the past decade, photovoltaic (PV) cell technology innovations have significantly improved. These advancements have increased the efficiency of solar panels to convert a higher percentage of sunlight into electricity.

This increased efficiency means more power can be generated from the same surface area, reducing the solar energy cost per watt. For instance, the development of monocrystalline and polycrystalline panels has allowed for higher energy output per square meter. This has made solar installations more effective and less space-consuming.

Advancements in thin-film technology have paved the way for versatile, flexible panels that fit a range of surfaces. Consequently, this has expanded the potential applications of solar energy.

Government Incentives and Policies

Governments worldwide have recognised the importance of transitioning to renewable energy and have implemented various incentives and policies to support the solar industry's growth.

In the UK, for instance, the extension of the federal residential solar tax credit allows taxpayers to claim a 30% tax credit on the cost of solar systems. Consequently, this incentive encourages more homeowners to invest in solar energy.

These include the Smart Export Guarantee (SEG) scheme that pays homeowners for excess solar electricity exported to the grid. Additionally, there is a temporary 0% VAT relief on solar panel installations. This relief is available until March 2027 to reduce upfront costs. Which effectively serve as government grants for solar panels by reducing the overall cost and encouraging wider adoption.

Policies stimulating market growth, such as renewable portfolio standards, feed-in tariffs, and various subsidies, have accounted for about 60% of the overall cost decline. Such incentives have significantly reduced the financial burden for homeowners and businesses considering solar installations. Consequently, this has stimulated demand and driven down prices.

Furthermore, many countries have implemented subsidies, tax credits, and grants to encourage residential and commercial solar installations. In the UK, the Feed-in Tariff scheme, which ran until 2019, provided payments to households generating electricity through solar panels.

Economies of Scale

As demand for solar energy systems has grown, production scales have increased, leading to lower per-unit costs. Large-scale manufacturing facilities can produce solar panels more efficiently, reducing material and labour costs. 

Moreover, expanding the global supply chain has facilitated access to raw materials at competitive prices, further driving down production expenses. For example, the development of n-type cells and the shift towards larger cell sizes have enhanced efficiency and manufacturing yields.

As the demand for solar energy has grown, manufacturers have ramped up production, leading to reduced costs through bulk manufacturing and streamlined processes. 

Increased Competition and Market Maturity

The solar industry has seen a surge in competition as more companies enter the market. This heightened competition has driven prices down as manufacturers and installers vie for market share. 

The growth in demand for solar PV, driven by policies in countries like Japan, Germany, Spain, California, and China, has created opportunities for automation and further cost reductions. For instance, China's dominance in global solar module manufacturing has led to a significant oversupply, causing global solar panel prices to crash by 50%. 

Additionally, the industry has matured, becoming more efficient and streamlined, further contributing to cost reductions.

The Role of Solar Farms and Market Growth

Large-scale solar farms have also contributed to the decrease in solar prices. These vast installations produce electricity at significantly lower costs due to their scale. In 2014, utility-scale solar projects cost around £1.20 per watt

By 2023, that figure had dropped to about £0.35 per watt. These farms utilise economies of scale and advanced technology, driving down energy prices and boosting appeal, making them more attractive options for energy providers.

As prices have dropped, consumer adoption of solar energy has surged. In the UK, solar installations increased from 650,000 in 2014 to over 1.2 million in 2023. This growth reflects a broader global trend, with countries worldwide embracing solar energy as a key component of their renewable energy strategies.

  1. Data Source and Cost Inclusions: Data are from the Microgeneration Certificate Scheme (MCS) database. Costs include generation equipment, installation, connection to electricity supply, and applicable VAT. Costs exclude extended warranties, additional materials, and devices like battery storage.
  2. Data Validity and Exclusions: Only installations with valid cost data are analyzed. Northern Ireland installations and extensions to existing installations are excluded.
  3. Inflation Adjustment: The "All items CPI" index from ONS (May 2024) is used for inflation adjustments.

For consumers, the financial perks of solar energy are undeniable. With lower installation costs, the return on investment comes faster. Today, a home solar panel system typically pays for itself within 5 to 7 years, compared to 10 to 12 years a decade ago. Solar panels can drastically reduce electricity bills, providing substantial long-term savings.

To provide a clear picture of the price difference in solar panel costs and Installation over the last ten years. 

YearAverage Cost per kW (£)Average Cost for 4kW System (£)Average Cost for 6kW System (£)Installation Cost for 4kW System (£)Installation Cost for 6kW System (£)
2013£2,080£8,320£12,480£1,500 - £2,200£2,200 - £3,000
2014£2,070£8,280£12,420£1,500 - £2,200£2,200 - £3,000
2015£1,833£7,332£10,998£1,500 - £2,200£2,200 - £3,000
2016£1,866£7,464£11,196£1,500 - £2,200£2,200 - £3,000
2017£1,840£7,360£11,040£1,500 - £2,200£2,200 - £3,000
2018£1,816£7,264£10,896£1,500 - £2,200£2,200 - £3,000
2019£1,562£6,248£9,372£1,500 - £2,200£2,200 - £3,000
2020£1,628£6,512£9,768£1,500 - £2,200£2,200 - £3,000
2021£1,876£7,504£11,256£1,500 - £2,200£2,200 - £3,000
2022£2,365£9,460£14,190£1,500 - £2,200£2,200 - £3,000
2023£2,578£10,312£15,468£1,500 - £2,200£2,200 - £3,000
2024£2,300£9,200£13,800£1,500 - £2,200£2,200 - £3,000

Key Points from the Table:

  • Significant Price Drop: The average cost per kW for solar panel installations has fluctuated over the years, with a notable increase in 2022 and 2023 due to the energy crisis. However, prices have softened slightly in 2024.
  • Cost for 4kW and 6kW Systems: The average cost has varied for a typical 4kW solar system, reaching a peak in 2023 at £10,312 before softening slightly in 2024 to £9,200. The cost of a 6kW solar system has similarly fluctuated, peaking in 2023 at £15,468 and then decreasing to £13,800 in 2024.
  • Installation Costs: The installation costs for a 4kW system have remained relatively stable, ranging from £1,500 to £2,200. For a 6kW system, installation costs have ranged from £2,200 to £3,000.
  • Recent Trends: The cost of solar panels rose significantly in 2022 and 2023 due to the energy crisis. However, there has been a slight reduction in 2024, indicating a potential stabilisation or softening of prices.

A Bright Future for Solar Energy

The decrease in solar prices has made renewable energy more accessible and cost-effective for UK households. With the average solar panel system cost ranging from £7,000 to £10,000, many homeowners are asking, are solar panels worth it? The answer is a resounding yes.

For consumers, the financial perks of solar energy are undeniable. With lower installation costs, the return on investment comes faster. Moreover, in the UK, solar energy prevented about 3 million tonnes of CO2 emissions in 2023 alone. This makes a significant contribution to the fight against climate change. These benefits accrue to everyone, not just solar owners.

The future of solar energy looks promising. Ongoing technological advancements suggest further cost reductions and efficiency improvements. Emerging technologies like perovskite solar cells and solar skins could revolutionise the industry, making solar energy more accessible and efficient.

The trend of decreasing solar panel costs is expected to continue. With this insight, the industry is poised for significant growth. Therefore, predictions suggest that solar energy could account for more than 25% of energy production by 2030.

For those considering switching to solar energy, the potential savings of up to £1,100 each year, depending on your housing style. This makes solar panels one of the most appealing factors when installing the system, and you could break even in as little as nine years. 

Now is the perfect time to take the first steps towards a greener, cheaper energy source with solar panels. Join millions of UK homeowners and start enjoying the benefits of lower energy bills for years.

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