By: ProcurementIQ Analyst, Sean Windle
As concerns about the effects of climate change have increased and the global economy has slowly began to shift away from fossil fuels, investments in solar power have ramped up and led to significant price drops. In fact, ProcurementIQ estimates that the average price of photovoltaic (PV) panels has been declining at an annualized rate of 4.4% during the past three years, with the price of solar panel installation falling at an estimated annualized rate of 14.2% during the same period.
Underpinning these price declines are improvements in the manufacture of solar energy technology, including photovoltaic panels. As solar energy moves into maturity, the cost of manufacturing PV panels has become cheaper and more efficient. According to a recent study by Oxford University researchers, solar panels have become 10.0% cheaper to manufacture each year since the 1980s. Strong competition, particularly from China and other low-cost manufacturing countries, has also driven panel prices down. As such, falling panel prices and strong competition among contractors has spurred falling installation costs.
In addition to falling prices, buyers looking to install solar panels have another incentive: tax credits. Currently, the IRS offers a business investment tax credit equal to 30.0% of the cost of solar panel installation. This tax credit was set to be reduced to 10.0% in 2017 before expiring in 2018; however, Congress passed an extension on these tax credits in December 2015. The current 30.0% tax credit is now available for solar energy systems in operation by the end of 2019. From 2020, the credit will be reduced to 26.0%, and then to 22.0% in 2021 before dropping permanently to 10.0% in 2022.
Depending on the state in which they are located, some buyers may be required to adopt solar power or another form of renewable energy. More than half of US states have renewable energy standards that require electricity providers, a major buyer of solar panels, to diversify their power generation sources. The target for renewable energy varies by state, ranging from 10.0% in Indiana by 2025, to 40.0% in Hawaii by 2030. With more states expected to enact renewable energy standards in the future, and existing standards likely to be strengthened as concerns about climate change grow, buyers can mitigate these compliance costs by taking advantage of the current favorable purchasing environment.