Solar Energy Costs and the Struggle for Grid Parity

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Courtesy of Greenshine New Energy LLC

The price of manufacturing solar panels has dropped significantly in the past decade, and installation has risen as dramatically as prices have fallen. Yet the cost of solar energy varies from state to state and country to country, why?

Even though solar panels are cheap to manufacture, the cost of financing, installing and maintaining a system add to the overall price of the product. These costs are often reduced by tax credits and rebates designed to spur investment, however, the true cost of solar may be best determined by asking if it has achieved grid parity. Solar energy that has reached grid parity has become even with conventional retail electrical prices. Commercial solar energy sources in Spain, Germany and Italy have all reported as reaching grid parity, but whether this trend will hold is unclear. European governments have slashed the subsidies available to renewable energy projects, and the solar industry was not spared. The U.K. solar industry even sued the Department of Energy and Climate Change in protest of the rapid cuts.

Whether or not solar can achieve grid parity is dependent upon the cost of energy in general. The average retail price of energy in the European Union has risen, even as wholesale costs have dropped because of cheaper renewables. This is due to the one trillion euro ($1.4 trillion) price tag attached to the modernization project of Europe’s energy infrastructure, in addition to the legally binding carbon emissions targets that many European utilities must follow. However, the utilities are struggling to finance cleaner energy markets on their own and so pass the cost onto consumers.

Compared to Europe, electricity in general is much cheaper in the United States. Large domestic supplies of coal and natural gas have kept prices low, but also make the adoption of renewables like solar energy less pressing. However, the cost of electricity is not the same everywhere in the United States. In places where the retail price of electricity is relatively high—states such as California, New York and Massachusetts—the payback period estimate of a solar array is less than ten years.

Many of the solar panels used in Europe and the United States are manufactured in China, which is expected to increase its own solar capacity by fourteen gigawatts by the end of this year. However, the cost of renewable energy in China is still expensive compared to coal-generated electricity. A report by the Wilson Center’s China Environment Forum warns that “Because electricity prices in China are regulated but not transparent, rising costs that result from the high costs of renewables have the potential to alienate both producers and consumers.” China’s rapid industrialization is driving electricity demands, which is still primarily dependent upon coal.  

Worldwide, the price of solar energy varies based on the average cost of electricity and the support given to establishing solar markets. It remains to be seen if markets that are dependent upon discontinued or reduced subsidies will survive long enough to reach grid parity.


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