Is Solar Energy a Good Investment?

There are many investment uncertainties in solar energy.
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Solar energy is the sun’s radiation and generates electricity in two ways. In one scenario, mirrors concentrate solar energy and use it to heat water into steam that powers a generator. More commonly, photovoltaic panels, consisting of layers of silicon microcrystals, convert the sunlight into electricity. Small businesses dominate the solar panel installation industry in the Unites States for residential and small commercial premises. The profitability of solar power for the panel manufacturer, installer and the customer depends on energy prices, utility tariffs and government subsidies.

Installation Costs

The installation costs of solar roof panels on average American family homes varies between $18,000 and $35,000, according to the Solar Power Authority. Locations with more hours of sunshine, such as California or Arizona, require fewer panels to generate the same amount of electricity than homes in cloudier places like Washington or Illinois. Assuming an average monthly residential electricity bill of $75, the gross payback period for this installation for the householder is 20 years or more.


Governments subsidize solar and other renewable energies through direct grants, loan guarantees and extra charges on electricity bills. Chinese government subsidies to solar panel manufacturers helped build up an industry that captured 60 percent of the U.S. domestic solar panel market by 2011. Many U.S. solar panel manufacturers, small and large businesses, went bankrupt even though they also received U.S. government subsidies. They couldn’t compete with China on price and labor costs. But U.S. solar panel installation companies, mostly small businesses, have benefited as a result. Householders may see solar panel installation costs and payback periods halve thanks to cheap Chinese panel production.

Feed-In Tariffs

Feed-in tariffs are government incentives common in Europe to encourage investment in renewable energies. Homeowners and businesses can cut solar installation costs and earn money by selling any excess electricity they produce at a guaranteed price to the local distribution grid over a period of 20 years. This encouraged the growth of solar panel manufacturers both in Europe and the U.S. for whom Europe became an important market. European austerity programs since 2010 cut these tariffs, making solar power unprofitable for any householders and small business. There is no comparable feed-in tariff program in the U.S.

Energy Prices

The solar energy industry has been confident that technological innovation, high fossil fuel prices, and environmental concerns would result in competitive prices for solar power. But from 2008 to 2012, natural gas prices in the U.S. dropped by a factor of five due to the growth of shale gas production. According to the Breakthrough Institute, gas-fired electricity cost between $59 and 72 per megawatt-hour (MWh) to generate as of 2012. Solar electricity costs between $178 to 345 per MWh. Without government subsidies in the form of a charge on electricity bills, or guaranteed tariffs for solar electricity, solar power generation is not a competitive investment.

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