Let the Sun Shine

With the price of solar panels falling, now may be a good time for consumers to take a look

By CASSANDRA SWEET

The solar industry has been struggling this year against weak demand, ample supply and sliding prices. Which means that for anyone thinking about putting solar panels on their roof, there probably hasn't been a better time.

All along the supply chain, prices have been falling, and could fall further still. Silicon, a main ingredient in most panels, has been selling for as little as half what it went for a year ago, while some panels and installed systems can be had for 25% less, retailers and installers say. Throw in a 30% rebate offered by the U.S. government, plus rebates in California, New Jersey, New York and other states, and, depending on where you live, you could be looking at $15,750 for a system that would have cost nearly twice as much a year ago when the federal rebate was much smaller.

"Solar is now affordable for people for whom it wasn't before," says Jeff Wolfe, chief executive of groSolar, a solar-panel system installer and distributor based in White River Junction, Vt. Mr. Wolfe says his company has been installing rooftop residential solar systems for three-quarters of the price it would have charged last year.

Slack Demand

Falling costs aren't the only reason. Lower government subsidies in Spain, the No. 2 market for solar panels, have helped reduce demand globally, and consumers and businesses are spending less amid the world-wide recession. With inventories of solar panels brimming, distributors and installers are much more willing to cut prices to keep sales volume moving.

For large buyers, negotiating a good deal for solar panels has never been easier. Installers who serve homeowners, though, are a fractured market of primarily smaller businesses. Solar panels account for a little more than a third of the total cost of a residential system, so there's a limit to how low an installer can go for individual customers. But bargains can still be had.

A group of San Francisco entrepreneurs called One Block Off the Grid has helped homeowners organize buying groups of 100 or more in the same city. The organization recently reached a deal in Los Angeles for $6.05 a watt for each installed system, 17% less than a similar deal it arranged last summer, which was below market at the time, says Dave Llorens, co-founder and general manager.

Some homeowners could be paying as high as $14 a watt because they're not aware of what others are paying, says Mr. Llorens, who previously worked for an installer. He says he started his group in part to give homeowners a way to compare prices. In early September, the group was preparing to launch a Web-based application that would give homeowners online solar-energy price estimates. Mr. Llorens says online quotes and other marketing innovations are needed to serve homeowners and boost residential demand.

"People appreciate transparency of pricing," he says.

The average wholesale price for solar panels charged to distributors ranges from less than $2 a watt for large-scale customers to under $2.50 a watt for smaller buyers, says Paula Mints, a solar-industry analyst at Navigant Consulting in Palo Alto, Calif. She adds that panel prices have been "reacting on almost a weekly basis." A year ago, prices ranged from $3.50 to as much as $5 a watt. A typical residential system produces 4 to 5 kilowatts, or 4,000 to 5,000 watts.

Apart from panel prices, the other costs of installing a solar system generally haven't fallen. But prices for inverters, which change the direct-current electricity from the panels into alternating current for use by home appliances, other materials and labor could eventually fall as technology improvements are made, says Sachu Constantine, a senior analyst at the California Public Utilities Commission in San Francisco.

Mr. Constantine adds that panel prices would be even lower now if it weren't for the weak leverage of small residential solar installers and long-term purchase contracts that many are locked into. Still, government analysts expect residential solar-panel prices to fall further over time.

"The oversupply is real and we expect to see an effect," Mr. Constantine says.

Prices are being further pressured by Chinese solar panel manufacturers, who are churning out much cheaper panels than those made in Europe and the U.S. Stimulus funds distributed by the Chinese government have kept many of the country's panel makers in business, and they're likely to gain a foothold in the market, says Henning Wicht, a solar-market analyst at iSuppli Corp., an electronics research firm based in Frankfurt.

It could take a year or more to work through the global oversupply of panels, Mr. Wicht says. "We know that prices will stay low and the margins are close to zero for most makers," he says, adding that he thinks an exception is First Solar Inc., a Tempe, Ariz.-based thin-film solar-panel maker that has managed to cut its manufacturing costs.

Mr. Wicht estimates U.S. retail solar-panel prices have declined about 10% on average from a year ago, due to a lag between wholesale and retail price moves and a lack of prompt retail pricing data. But retail prices likely will keep falling as wholesale prices stay low amid the global oversupply, he says.

In the meantime, homeowners looking for a deal can turn to online wholesalers like Wholesale Solar, a small family-owned company in Mt. Shasta, Calif., that designs plug-and-play solar systems. Wholesale Solar's business is up by more than half this year, says owner Ellen Coleman.

Convenience Factor

"As prices come down, the only thing that's going to hold people back from putting solar on their own homes is how easy or difficult it is to set it up," she says. Wholesale Solar designs and builds the system, then ships it to the customer, who hires an electrical contractor to install it. Because the system is already built, the customer saves on labor and overhead costs, Ms. Coleman says.

Some companies also install and own residential rooftop solar panels, then sell the electricity to the homeowner in a long-term contract. SolarCity of Foster City, Calif., and SunRun Inc. of San Francisco have been providing such services for a few years. Solar-panel maker SunPower Corp. of San Jose, Calif., offers leasing options, loans and other financing help.

--Ms. Sweet is a reporter for Dow Jones Newswires in San Francisco. She can be reached atcassandra.sweet@dowjones.com.

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