How Expensive Is Solar Power?

Ask the average person what they think of solar power, and you're likely to hear about how expensive solar power is and that it's a pipe dream to think it will ever reach grid parity. But if you ask them to back up that claim, they probably won't have many facts to support that position.

Few people know that the price of polysilicon of the type produced by LDK Solar (NYS: LDK) and MEMC Electronic Materials (NYS: WFR) has fallen 48% since March. Lower costs for the main raw material for solar modules make it vastly cheaper for JA Solar (NAS: JASO) , Trina Solar (NYS: TSL) , SunPower (NAS: SPWRA) (NAS: SPWRB) , and a variety of other manufacturers to produce them.

But another driver of the falling cost of solar power for consumers and pushing its path toward grid parity is falling feed-in tariff rates in countries around the world. Below, I have compared ground-mounted and rooftop solar feed-in tariff rates to retail electricity prices for a number of countries and two key U.S. states. As you can see, solar isn't as expensive as it may seem to those who don't follow the industry.

Country or State

Ground Mount


Retail Price

Germany0.21 euro0.22 euro0.27 euro
Italy0.17-0.26 euro0.20-0.30 euro0.20 euro
Spain0.18 euro0.23-0.32 euro0.20 euro
France0.27-0.35 euro0.51-0.58 euro0.14 euro
JapanResidential: $0.50$0.26
CaliforniaVaries: $0.09-$0.25$0.13             

Source: Greentech Media; Energy Information Agency; Europe's Energy Portal.

Also consider that the retail price is an average and doesn't consider peak rates, which are implemented in some areas. Solar electrical power production corresponds very closely to the time that peak rates are paid by utilities for natural gas plants or other peak sources, so the retail price above may be a low comparison.

Most countries lower their feed-in tariffs periodically, but the most telling state of solar may come from California later this year, when the state does a reverse auction for solar projects. That will provide a more market-based pricing structure. Expect SunPower and First Solar (NAS: FSLR) to lead the bidding as they leverage local expertise and other companies build large-scale power plant development units.

Foolish bottom line
Half the challenge in following solar stocks is staying educated on the fast-moving costs and feed-in tariff rates in the industry. As you can see above, solar power isn't as expensive as many people think and is less expensive than retail power in some locations.

Use that as a talking point next time someone questions you about solar.

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At the time this article was published Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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