One of the keys to feasibility of the energy transition is that the new sources of electricity cost less than the old ones—hopefully a lot less.

For years, it was reasonable to expect a reduction in costs because key components, like solar panels, kept getting cheaper.

But as the global economy recovered from the coronavirus pandemic, things got weird. Certain materials, like silicon for solar panels, had supply bottlenecks that led to a spike in prices. The global average price for solar panels had a clear upward trend for the first time in about five years.

The question I asked in 2022 was, “How long is this going to last?”

Now, the answer is becoming clear: Global panel prices have peaked and are now falling. This is good for people buying solar panels and good for the transition to clean energy, although—as I’ll explain—the price drop hasn’t yet reached the United States.

“The solar industry is undergoing a price correction, as undersupply of key components and materials ends and it becomes a buyer’s market for panels,” said Jenny Chase, a solar analyst for BloombergNEF, in a note to clients.

The global average price was 19.9 cents per watt as of June 7, down from 23.7 cents per watt at the beginning of this year, and down from a high during this price spike of 27.8 cents per watt in late 2021, according to BloombergNEF and PV InfoLink.

One of the reasons for the drop in prices is that the supply of silicon—the material that absorbs solar energy on the surface of a panel—has rebounded and its prices have fallen.

“2021 and 2022 were characterized by polysilicon demand exceeding supply,” Johannes Bernreuter, a market analyst based in Germany, said in an email. “The high prices have induced (too) strong build-up of new production capacity, leading to oversupply.”

Most of the silicon in the world comes from factories in China, but the United States and others are working to broaden the base of supply.

So far, I’ve been talking about global prices. Prices are higher in the United States, largely because of tariffs and other trade barriers that apply to solar components from China.

At the same time, the Inflation Reduction Act offers incentives for companies to build clean energy manufacturing plants in this country. Panel manufacturers have responded with announcements that they will build new factories here, but it will take time for them to get up and running.

The average price for a solar panel delivered in the United States was 38 cents per watt as of June 7, which is double the global average, according to BloombergNEF and PV InfoLink. The U.S. price has been about the same, going up or down just a penny or two, since last fall.

So, the drop in global prices has yet to translate into a drop in U.S. prices.

I asked Chase what the IRA will mean for prices in the near future.

“The IRA subsidizes both supply and demand for modules, while various trade barriers make the U.S. a uniquely high-priced market,” she said. “The domestic supply, however, will ramp only in a year or two even for modules assembled in the U.S. from cells from abroad.”

A solar cell is a squarish sheet, about the size of your hand, covered with silicon. A solar panel, or module, is a bunch of solar cells arranged next to each other within a glass casing and a metal frame.

Even if a solar panel is assembled in the United States, it is likely getting its cells from factories in Asia, at least for now. The Biden administration would like to see a clean energy economy in which all parts can be obtained from sources within this country.

It’s important to specify that the cost of solar panels is just one part of the cost of building a solar array, and the costs of all of those components are shifting.

The National Renewable Energy Laboratory said last year that the cost of panels was roughly one-third of the price tag for a utility-scale solar project, the largest component. The rest was a variety of costs for other parts, labor and land, and some of those costs were rising.

LevelTen Energy, a firm that runs a marketplace for buying and selling contracts for renewable energy, has reported rising prices for about the last two years. These are all-in prices that reflect the costs of panels and everything else.

It will take time for the drop in global panel prices to affect the United States, and it will take time for the IRA to affect the costs of projects.

But it looks like the period of rising panel prices has ended. And that matters a lot considering how much solar is being built.

The International Energy Agency said in December that the world is set to add as much renewable power in the next five years as it did in the previous 20, which would include a tripling of the amount of installed solar power.

At that scale, with a forecast of more than 100 gigawatts being added each year, small shifts in prices have big ramifications.

Other stories about the energy transition to take note of this week:

Energy Secretary Details Views on Climate Law, Gas, DOE Staffing: Energy Secretary Jennifer Granholm told a utility trade group this week that companies should look for opportunities for funding from the Inflation Reduction Act, saying the federal government “has so much money to give away.” Her wide-ranging comments to the Edison Electric Institute show how the Biden administration is promoting its clean energy agenda while still open to expanding the use of fossil fuels, as with the completion of the Mountain Valley Pipeline in West Virginia, as Shelby Webb reports for E&E News. Granholm said the pipeline is needed to have a reliable supply of fuel for producing electricity, while also highlighting the administration’s goal of getting to 100 percent clean electricity by 2035. I don’t envy her in trying to sell an agenda that has aspects that are infuriating to just about all of the major players in the energy economy.

More Companies Are Setting ‘Net-Zero’ Climate Targets, but Few Have Credible Plans: The number of publicly traded corporations with net-zero emissions plans is now 929, up from 417 in late 2020, according to a report compiled by experts from four independent research organizations. While the number is rising, the experts found that the corporate goals are rarely supported by a credible plan, as Frank Jordan writes for the Associated Press. This finding is not surprising, considering that many companies announced emissions goals with target dates of decades into the future, but are much less likely to take substantial steps in the short term.

Why the U.S. Electric Grid Isn’t Ready for the Energy Transition: The structure of the U.S. electricity grid, which was largely built to accommodate coal and gas power plants, is becoming a major obstacle to fighting climate change, as Nadja Popovich and Brad Plumer report for The New York Times. This story is a good overview of some of the big-picture problems with the design and administration of our systems for transportation electricity across the country.

States Test the Idea of Tying Electric Utilities’ Profit to Performance: Connecticut is among the states that are implementing policies that reward utilities for performance of key functions, like keeping the lights on. This is a shift away from traditional regulation in which utilities recover their costs plus an agreed-upon profit, as Emma Foehringer Merchant reports for ICN. This new approach, called “performance-based regulation” could be an important part of aligning utilities’ financial interests with the need to reduce carbon emissions.

Illinois Advances Access to Chargers to Meet EV Goals: The Illinois Environmental Protection Agency has announced grants to fund 368 charging ports in 78 locations across the state, a small step toward addressing the need for accessible charging. The building of charging stations is an important part of getting consumers comfortable with buying EVs and meeting a state goal of getting 1 million EVs on the road by 2030, as Aydali Campa reports for ICN. Every state that is trying to expand use of EVs is facing some version of this challenge of deciding where and how to deploy charging stations, and it will be interesting to see which states come up with the most effective approaches.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].