The Cost of Solar is Rising. Here’s Why.

The Cost of Solar is Rising. Here’s Why.

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Courtney Johnston, Purchasing Manager at Wholesale Solar
COURTNEY JOHNSTON, Purchasing Manager at Wholesale Solar​

If you want to go solar, now is the best time to do it.

The price of solar has been trending down rapidly in recent years due to technological advancements in the field. Solar panels cost less than half as much as they did just a decade ago. [PDF link]

With prices sinking all the time, we don’t blame people for holding out for the best possible deal on their system.

But that trend has come to a halt this year. Between new tariffs and the disappearance of key tax incentives, we expect prices to start climbing back up over the next few years.

So we wanted to put out a PSA for our readers: if you were waiting for prices to bottom out, this is the sweet spot. The cost of solar will rise steadily over the next few years.

Two big changes will impact the industry:

  1. The federal tax credit is disappearing.
  2. Tariffs have prompted price hikes across the board in the solar industry.

Let’s take a look at the impact these factors will have on the cost of your solar system.

Federal Tax Credit Disappearing

We’ll start with the tax credit. It’s not only easy to understand, it has the biggest impact on the true cost of your system.

In practical terms, the federal tax credit is money back on your system. Right now, the government offers a 30% tax incentive for going solar, which is applied toward the taxes you owe. So if you buy a $10,000 system, you get a $3,000 credit the next time you go to file taxes.

And that applies not just to system cost, but installation as well. Save the invoice if you hire an installer, and keep your receipts when you make trips to the hardware store for extra materials. All of that can be claimed.

Installation can cost quite a lot if you hire an installer. In some cases, installation charges can be higher than the cost of equipment itself. Don’t underestimate the huge impact this can have on the size of your tax credit.

There’s a bit more nuance to the tax credit, but here’s the simple explanation: if you buy a system now, you can qualify for a 30% credit on your project come tax season.

But that credit is being phased out over the next few years, and it will disappear completely by 2022. The tax credit schedule for residential projects looks like this:

  • 2018: 30%
  • 2019: 30%
  • 2020: 26%
  • 2021: 22%
  • 2022: 0% (Commercial-scale projects retain a 10% tax credit.)

So each year you delay, the true cost of your system goes up a little bit. By 2022, the tax credit will be gone completely, and you foot the bill for an extra 30% of your solar project.

Each year you postpone your system build is a little bit of free money you’re never getting back. We always tell people to build before the end of 2019, when the tax credit starts scaling down.

Three Tariffs Driving Up Solar Prices

We’ve known about the tax credit for a long time.

But the more recent development is the introduction of a series of tariffs that are driving up prices across our entire industry.

There are three tariffs we’re concerned about right now:

  • a 30% tariff on solar modules + 25% tariff on Chinese module imports
  • a tariff on steel (25%) and aluminum (10%)
  • a proposed 10% tariff on inverters, AC modules and non-lithium batteries (which isn’t in effect yet, but is likely to pass)

30% tariff on solar modules.

This one got a lot of publicity in the solar industry, and we covered it on our blog a couple of months back.

In January, the U.S. government imposed a 30% tariff on imported solar panels and solar cells. They followed that with an additional 25% tariff on Chinese solar module imports in June.

(The first tariff applies to all module imports. The second tariff comes in addition to the first, but applies to Chinese imports only, which make up just 11% of the solar panel import market.)

These tariffs came about after two American solar manufacturers, Suniva and SolarWorld, claimed their business was being harmed by cheap imports from China. They requested a 50% tariff on solar imports. The tariff eventually went into effect at the 30% rate.

Back then, we estimated the tariff would add about 5% to the cost of grid-tied systems (which is what most people choose if they have access to the utility grid). And we expected off-grid system prices to climb by around 2%.

Impact of solar tariff on home solar

While prices went up slightly, we found that manufacturers absorbed most of the impact of these tariffs. In fact, several foreign companies are opening U.S. manufacturing plants to avoid future tariffs.

If it was just these module tariffs, you wouldn’t see the pricing needle move too much, as companies can absorb some of the tariffs by moving their manufacturing plants.

But a more recent tariff on raw materials has had a larger impact on the industry…

25% tariff on steel and 10% tariff on aluminum.

This is the interesting one because it’s flying under the radar right now in the solar world. Since it’s not specific to solar, we haven’t seen too many news sites covering the impact it will have on our industry.

It’s a new tariff on raw materials: 25% on imported steel and 10% on imported aluminum.

Since most solar equipment is built from steel or aluminum components, this tariff will impact almost everyone in the industry, no matter what they produce.

As the purchasing manager for Wholesale Solar, it’s my job to track pricing trends in the solar industry. Over the past few months, several manufacturers have emailed me to let me know price increases are on their way.

And they cite the raw materials tariff – not the module tariff – as the reason for those price hikes.

One vendor cited “accelerated raw material inflation that has greatly impacted our industry.” Other announcements followed a similar tone.

Ten companies have emailed me so far to warn that the raw materials tariff has impacted business, leaving them no choice but to increase prices soon.

In all, vendors across the entire industry have bumped up prices from 5-22% on their product lines.

(Note that some companies are going to be hit harder…racking manufacturers have it rough, as their product is made almost entirely from steel and aluminum.)

Here’s what’s happening: once the tariff was announced, everyone stocked up on as much steel and aluminum as possible to weather the impact of the tariff.

But of course, it’s not just the solar industry that uses steel and aluminum in their products. Manufacturers everywhere scrambled to stock up.

That created a scarcity of raw materials, which in turn causes inflation of the price of those materials. So everyone is stockpiling goods and materials at pre-tariff prices (including us). But when that supply dwindles, our vendors will need to kick prices up a bit to cover the cost of raw materials.

That cost increase will be passed on to you, the customer. Several companies have already put those changes into effect, and a the rest are slated to roll out pricing increases by the end of the year.

Here’s what all this means for you.

We are anticipating the price of a solar system to increase by 1-3 cents per watt. For example, a system with thirty 300-watt solar panels would come out to 9000 watts. This tariff would increase the cost of this system by $90 to $270.

That’s noticeable, but not an extreme difference for residential customers. Commercial and utility-scale solar projects will feel the brunt of this tariff’s impact.

Since margins are razor-thin, a slight increase in material costs can jeopardize those large-scale projects. According to The Hill, $2.5 billion worth of these projects have been frozen or canceled as a direct result of these tariffs.

10% tariff on inverters, AC modules and non-lithium batteries.

This one was just proposed this month, but we think it’s going to pass based on how the recent tariffs were handled.

The government has proposed a 10% tariff on inverters, non-lithium batteries and AC modules. Like the panel tariff, this one is specifically targeted at the solar industry. Manufacturers will attempt to eat a portion of the costs, but we won’t be immune to small price increases across the board.

PV Magazine forecasts an increase of 1-2 cents/watt for the affected products.

This round of tariffs will be reviewed on August 20-23. If it passes (and we think it will), that’s yet another bump in production costs that will trickle down to the consumer.

This all may not sound like too much, but it adds up. When you add the impact of the tariffs to the disappearance of the tax credit, suddenly you’re looking at paying 40% more for solar in 2022 than you would have in 2018.

So What’s the Best Time to Go Solar?

Right now. And we’re not just saying that.

The very best time to build your system was in 2017, before the first tariff hit.

The second best time is right now in 2018, while the tax credit is still in effect and companies still have “pre-tariff” pricing on materials.

We stocked up on solar panels to soften the blow of the price increases over the next few months. Other solar companies have made the same preparations.

We plan to sell these at pre-tariff pricing to ease the transition. But after that batch disappears, we may need to nudge our prices up a bit to keep pace with rising manufacturing costs. And we expect to see a similar approach across the industry.

To wrap things up, I’ll just say this: we’re big on educating our customers, and that includes letting you know how to get the absolute best deal on your system. Even if that means acknowledging our prices will get a little bit higher later on.

It’s never fun to announce that prices are going up. But we can make people aware that these are the best prices you’ll see before the tariffs take hold.

If this PSA prompts you to stop procrastinating and start your solar project, we feel like we’ve done our due diligence here.

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