- Residential Solar PV
Tesla Supercharges the Residential PV Market with Price Cut
In a recent interview with the New York Times, Tesla announced that it will be reducing the prices of its solar systems for residential customers by 41%. This could have significant repercussions in the distributed energy resources (DER) market and the whole power sector in the US.
While not covered with the usual pages and pages of analysis that typically follow any tweet from Elon Musk, this is certainly big news for the industry and could create a surge in installations over the next 2 years as the Investment Tax Credit (ITC) will still be in place. Guidehouse Insights’ DER Deployment Database Forecast report shows that the US residential market is likely to see over 60 GW of residential solar installed over the next decade, and that was before the drop in prices announced by Tesla.
The article brings attention to the viability of achieving those prices, but a quick look at the breakdown of today’s average price of $2.98/W shows that there is a lot of slag in the form of soft costs, like sales and marketing and other admin costs as well as some room for improvement on installation costs currently in the US market. The prices proposed by Tesla are average or even expensive if you compare them with residential prices in Europe or Australia, which have average prices around $1.50/W.
Proof of Dropped Prices Will Come In Time
As ever with Tesla, we need to wait to see if those prices do materialize in the quotes people receive and how those contracts work. For example, whether the ITC is included or not and whether they can complete those installations on time. The competition will likely have to take the hit once customers start comparing their quotes with those quotes from Tesla, so prices should fall overall. As with any price war, this will have industrywide consequences.
Tesla’s pricing will also put utilities toward the wall. The New York Times quoted prices between $1.75 and$1.99 per watt, so expect the levelized cost of energy of one of their systems to drop to between $0.05 and $0.10 in most of the US. This will likely open many markets that are still driven by early adopters (like Texas), as installations will now have paybacks close to 5-6 years (a drop from around 7-8 years today). With this type of cost reduction possible, utilities will have to react or otherwise face a drop in residential customers margins over a relatively short term.