The Declining Cost of Solar Panels: Data & Analysis

Solar panels, once an expensive product, are now the cheapest they have ever been, with prices declining every year worldwide. This dramatic decline is a huge win for sustainability. As solar panel costs become more accessible, homeowners and businesses are now able to implement greener energy solutions. This shift helps reduce carbon emissions and promotes a more sustainable future. 

In the last decade, solar panel costs have fallen by 90% worldwide, according to Our World Data. 

To accelerate sustainable practices and encourage more people and governments to adopt solar energy, it is important to forecast the future costs of solar panels. Forecasting future costs relies on looking at its decline and the factors that contribute to it. In this article, we delve into the breakdown of the cost evolution of solar panels, the reasons for their decline, and the future outlook of solar panel prices.

Over the last ten years, the cost of solar panels in the UK has seen a repetitive pattern of rises and falls rather than a steady decline. While overall, solar panel costs have decreased substantially, short-term trends show that the evolution of the cost of solar panels has been impacted by policies, global demand, and supply disruptions. 

Data collected by GOV.UK shows that the cost of solar panels in March 2024 either decreased, increased or remained stable depending on the wattage from the previous year. 

The above shows that within a single year, supply and demand influence solar panel prices. To better understand these cost trends, we have compiled a table showing the annual cost per kilowatt (kW) from 2014 to 2024, which has been adjusted according to inflation. 

Adjustment of inflation is important as the value of money can change over time. Without adjusting for inflation, costs may seem to rise or fall more than they have. Below, we can see the true cost trend of solar panel prices over the last ten years:

Several key factors have impacted the cost of solar panels in the UK over the past ten years:

These moments throughout the past decade show how policies and supply can impact the cost of solar panels.

Solar energy has become one of the cheapest energy sources throughout the world. Globally, the cost of solar panels has decreased by 90% in the last decade. This decline has been driven by a number of factors, including technological advancements, increased production efficiency, better government incentives and policies, competition between manufacturers and cheaper material costs. 

Understanding the factors behind why solar panel costs have been reduced can help explain how solar power has become one of the most cost-effective renewable energy sources available today.

Technological advancements in solar panels have been one of the driving forces behind the deduction of costs. One of the main technological advancements is the conversion efficiency of solar panels. 

The first solar cell created by Charles Fritts in 1883 could only convert about 1 to 2% of solar energy into electricity, but in today's world, solar energy can convert around 22%, according to the University of Oxford. 

With an increase in conversion efficiency, solar energy requires fewer panels to produce the same amount of energy. This means manufacturing, installation, transport, and maintenance costs decrease. A 2017 study found that an increase in module efficiency was the leading cause of cost reduction between 1980 and 2012, which contributed to about 25% of the decline in the cost of solar panels. 

Continuous research into solar technology is expected to increase efficiency and lower costs. A major focus is on perovskites, a family of crystalline compounds that researchers believe could make solar panels cheaper, more flexible, and easier to manufacture.

Experiments have shown this compound to have a conversion efficiency rate of 33.9%, which is much higher than current levels. Although more research is needed, this research shows that technological advancements will continue to improve solar energy while lowering costs.

The increase in government incentives and policies has accounted for about 60% of the overall cost decline in solar panels, according to MIT. These policies and incentives are encouraged by the declining availability and cost of fossil fuels and a push for a greener future. 

Many countries, including the UK, are attempting to reach net-zero emissions by 2050. This has incentivised governments to focus on renewable energy, as burning fossil fuels accounts for 87% of the world's CO2 emissions, according to Our World Data. 

Additionally, the cost of energy, especially in the UK, has risen in recent years; this has pushed for more sustainable energy incentives to help homeowners and businesses afford electricity while also pushing down the nation's carbon footprint. 

To encourage solar panel usage, the UK government has implemented the Smart Export Guarantee (SEG), which allows solar panel owners to sell excess energy back to the grid. According to our estimates, people can earn between £80 to £170 per year. These policies stimulate market growth, increase production, and help lower costs.

On top of government incentives, global government policies have impacted the sale of solar energy. Here are a few of the top government policies:

Government policies like those above have reduced solar panel costs by increasing market demand and encouraging large-scale production. As a result, more governments are investing in research and development of solar energy. Of the total 60% reduction, government funding accounts for half.

The decline in solar panel costs has also been influenced by the increase in production scale. As demand for solar energy rises, more solar panels are produced, leading to lower costs through economies of scale. This creates a virtuous cycle where increased production lowers costs, which in turn drives higher demand and further production growth. Here are the main reasons why production scales reduce solar panel costs:

This virtuous cycle of rising demand, increased production, and lower costs has been a key driver in making solar energy more affordable and accessible worldwide.

The growing demand for solar panels has increased competition between different manufacturers and producers. More manufacturers have entered the market, which has driven innovation and efficiency. 

Additionally, to make themselves more desirable to consumers and drive up sales, many manufacturers are attempting to reduce the overall cost of solar panels. China has invested up to $50 billion in solar PV since 2011, according to the IEA. This has led China to dominate 80% of solar manufacturing, which has decreased the overall cost of production worldwide. 

Additionally, market maturity has improved solar panel production which has helped the decline in costs. With better supply chains available, a more improved production process and an experienced workforce, the process of creating solar panels is more efficient, resulting in lower prices.

This combination of intense competition and market maturity has created a self-reinforcing cycle where lower costs drive greater adoption, which in turn attracts more investment and encourages further price reductions.

Solar panel costs in the UK do not only comprise of just the actual solar panel. There are several other elements in the installation of solar panels which contribute to the overall price. 

On average, a 1kW solar panel system ranges from £1,500 to £3,000, depending on the manufacturer. Understanding this breakdown helps to clarify where costs can be reduced and helps you budget effectively for new solar panels.

The shift towards solar energy has been driven partly by the rising costs of fossil fuels. Today, fossil fuels still account for up to 79% of the world’s energy production. However, coal and gas have become increasingly expensive. According to The Guardian, coal plants have an average cost of $36 (£27.74) per megawatt-hour (MWh), while solar energy plants cost about $24 (£18.49) per MWh.

As production scales have increased and competition has intensified, the solar panel cost has declined rapidly. However, technological advances still need to be made in order to streamline the system design and installation process and further reduce solar energy costs.

Over the past several decades, solar panel costs have dramatically declined, making it more accessible and affordable to everyday people. While solar panels are still relatively expensive, costing between £2,500 to £10,500, government incentives and solar panel grants have made solar energy even more accessible. 

Solar panels are expected to drop even further in the future if trends continue. According to PV magazine, experts believe that by 2030, solar panel prices will drop to an astonishing $0.097 (£0.075) per watt. This decline is expected to fuel the virtuous cycle, meaning lower costs will drive technological advancements, improve the production process and increase economies of scale, resulting in even lower prices. 

The transition to solar panels and clean energy is essential for a greener and more sustainable future. 

According to Reuters, clean energy costs are expected to fall by 22-49% by 2030. As solar panel prices decrease, more people are likely to adopt solar energy. This will reduce our reliance on fossil fuels and contribute to a sustainable future.