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Sunday, February 22, 2015

The Falling Solar Price Curve

In 1931, Thomas Edison said, “I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.”

Here we are, 84 years later. Let's take a look at the solar price curve. In 1970, 39 years after Edison's remark, the cost of solar cells needed to produce one watt of electricity cost $100. By 2013, the cost had dropped to 65¢/W. By 2020, the cost is expected to drop to 22¢/W. In other words, within five years from today, solar arrays will have improved their cost basis by 455 times. At the same time, fossil fuels will have become more expensive to extract and are still today, even after the drop of the last year, five times more expensive than they were at the close of the last century. And, remember, once the solar array has paid back its installation and maintenance costs, the marginal cost of electricity is zero—solar power is essentially free for the remaining lifetime of the array (about 50 years).

When investors sell solar stocks just because oil and gasoline have been halved in price, they should consider that gasoline would have to drop well below 1¢ per gallon in order for it to regain its 1970 competitive edge compared to solar power.