Startup Nanosolar made a splash this week announcing that they're starting to manufacture photovoltaic panels for under $1/watt, and this has highlighted the rapidly dropping cost of solar-electric power.

This is an important milestone, of course, but it's a little premature to get all excited about going solar quite yet.

It's important to note that the $1/watt quoted in the press release is a manufacturing cost, not the retail price. Solar modules are generally in short supply, and odds are Nanosolar is charging a market price for its panels, or no less than slightly under the market price. For big megawatt-level installations, the market price is probably in the $2-$3/watt range right now. Ordinary humans like you and me still have to pay upwards of $5/watt, maybe as much as $7 for the stuff which is actually in stock at a real distributor.

If Nanosolar's manufacturing cost really is under $1/watt, however, their business is insanely profitable for the moment. That will give them the financial ability to quickly build new plants, ramp production, and help make the solar panels more available and much less expensive. So the gap between manufacturing and market price will narrow with time.

The more important problem, which won't go away with time, is the installation cost. From what I've seen, it costs around $2-$3/watt to install a residential-scale photovoltaic system. That's what it costs to buy wires, inverters, mounting brackets and other miscellaneous gunk, and then hire guys to crawl around on the roof bolting stuff together. Unlike the cost of the panels themselves, the installation cost isn't going to drop precipitously when a new factory comes online or someone invents a breakthrough process. Instead, you have to figure some clever way to nail more panels to a roof (safely!) with fewer hours of skilled labor.

Right now, for mere mortals, the total cost of a PV system looks to be in the $7 to $10/watt range, before any rebates or tax incentives. Here in Minnesota, solar becomes less expensive than the power company when the installed cost of solar drops to around $1.75/watt (assuming 6% interest and a 30-year system life). Solar becomes a no-brainer when the installed cost drops under $1/watt, allowing you to pay off the system (with interest) in around ten years from the savings in electricity.

It's pretty obvious that if the installation cost of a PV system is $2-$3/watt, you're never going to hit the $1.75/watt threshold even if the panels themselves are free. In fact, as the price of the solar panels drops, the system price will become more and more dominated by the labor and hardware to install them.

So is there hope that photoelectric power will ever be cheaper than grid power?

Yes. For starters, right now there are very few contractors with experience in solar power, making that a skill which is in very high demand. I expect that the installation price will drop over time, as more companies develop the skills and experience necessary to perform this work.

I also expect that as the cost of the panels keeps dropping, it will become more and more obvious that installation is a bottleneck. This will lead to the development of simpler installation systems: things like self-sealing roof anchors (to avoid having to install flashing around bolts), plug-together wiring systems, click-together mounting brackets, and so forth.

If the average Minnesota home uses about 5,000 kWh/year, and that requires installing about 5,000 watts of solar capacity (round numbers for the sake of simplicity), we hit the no-brainer threshold when the total system costs less than $5,000. If we're a few years in the future and the panels are down to $0.50/watt (contractor's price), that leaves about $2,500 to install a system with 25-30 panels, or 20-40 hours of labor. With a clever mounting and wiring system, it seems quite possible: 10-20 hours to install brackets and mounting hardware, then a few minutes to click each panel in place.

So cheap photovoltaic is coming. Just not as fast as the press releases might have you believe.