A pair of decades ago, solar photovoltaic panels were an experimental technology, with extremely high costs and zero business potential. Now, on the other hand, we’re seeing solar power plants reaching energy costs under 6 cents per kilowatt-hour, in many cases before accounting for subsidies and incentives.
There are many reasons that have contributed to turning photovoltaic technology into a competitive energy source.
Solar modules now cost less than a dollar per watt of capacity. Of course, a functioning solar power plant costs more than that because complementary equipment is needed, and on top of that it is necessary to cover the construction cost and the financing cost. However, photovoltaic modules themselves are now cheaper than ever before.
Banks can be very picky when it comes to funding. For example, you can’t expect to get a low interest loan if you haven’t established a credit record. The same can be said of businesses: banks and investors will offer the best terms if they trust the business.
When solar power hadn’t proven its capacity to yield profits, nobody was going to lend low-interest capital to developers betting on the technology. Therefore, the higher interest had to be diluted into the cost of energy. Now that solar power is an established industry, capital for it is more abundant and interest rates have dropped.
A solar farm with multiple megawatts of capacity is much more expensive than your average residential PV system. However, the cost of one kilowatt is considerably lower for solar farms.
While the price of solar modules doesn’t change that much, there are other system components that become much cheaper to install at larger scales, such as inverters and racking. Solar power is becoming more affordable for the simple reason that solar farms are getting larger.