The big energy debate that solar power has finally won

The cost of solar panels has dropped from $150/watt in 1970 to 60 cents/watt today.

For nearly half a century, homeowners and utilities have mounted solar panels on rooftops and in massive generation projects in the desert. Much of that was only made economical because of tax breaks and subsidies, such as California's Solar Initiative (CSI)—or the Million Solar Roof Initiative, as it is often called—and the federal Investment Tax Credit (ITC), which paid for as much as 50 percent of the costs. But solar is no longer a charity case. It's now grown up to out-compete conventional energy generation in many ways.

Technicians install solar panels on a house in Mission Viejo, Calif.
Mario Anzuoni | Reuters
Technicians install solar panels on a house in Mission Viejo, Calif.

Not only has the cost of solar panels dropped from $150/watt in 1970 to 60 cents/watt today, the industry that was jump-started by the early incentive programs also resulted in a dramatic drop in the "balance of system" costs—design, installation, electrical connections, etc. The installed cost of solar in 2007, when the CSI began, was nearly $10/watt of generating capacity. Today it's down to just over $5/watt for residential and about $4/watt for utility-scale projects.

Expressed another way, the average cost in the U.S. of generating energy from the sun is about $130/megawatt hour compared to coal-fired generation at $147 and conventional natural gas generation at $128. Solar, installed where the energy is used, is also more efficient than large centralized generation, where electrons must travel many miles over transmission lines, losing more than 6 percent of the energy along the way, meaning the effect of every megawatt of solar is greater to the nation's energy supply than conventional systems.

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Since 2007, Californians installed nearly 2,000 megawatts of solar, equal to two nuclear power plants (which turned out to be a very good thing for the state's energy grid when leaks in the San Onofre nuclear power plant forced it to shut down in 2013).

Solar created jobs throughout the recent recession. In 2007, OCR Roofing in Sacramento, California, employed more than 100 people in traditional roofing jobs. The recession hit OCR and the entire housing industry hard, but instead of laying off workers as others did, OCR trained its staff to install solar on rooftops and actually grew the business. In 2009, Peterson Dean bought the company and became one of the largest privately owned solar and roofing companies in the nation.

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Today, in California alone, there are more than 1,800 businesses serving various parts of the solar supply chain, employing over 50,000 workers.

"Solar is the only clean energy source that just about anyone can install and manage for themselves."

Perhaps the biggest trend that points to a second wave for solar just beginning is the way that projects are financed.

For decades, a homeowner faced an upfront cost of $20,000 or more and a payback period of a decade for commensurate savings on energy bills. SolarCity, SunRun and other companies like them have changed that model to be more like buying a car. You can still pay for the whole thing at once, but now you can lease the system and pay as you go instead, locking in a fixed rate for your energy over time that is far lower than normal utility rates.

Some SolarCity customers are adding battery backup systems that keeps a home or business operating during blackouts and will one day allow them to drop off the grid altogether. In places that have what is called "time variant pricing"—customers pay more for electricity during the peak demand times of day and less at night when demand is lower—batteries can store cheap grid energy at night and dispatch it back to the utility during the day at a profit, while keeping the lights and air conditioner running on the solar power coming from the rooftop.

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Which brings me to another driver for solar—rising electricity rates. The drought in the western U.S. means fewer kilowatts generated by our once mighty hydroelectric dams and reservoirs. To make up the difference, utilities build fossil-fueled "peaker" plants that are more expensive to operate because they're used only when demand is highest (imagine if you owned a car but had to buy another one to drive only when the weather was hot). This trend isn't limited to North America. The drought in Brazil is impacting its hydropower, too, and coupled with new net metering laws (allowing the sale of excess solar energy to the local utility), its nascent solar industry is poised for rapid California-style growth.

Wind, biomass, geothermal and waste-to-energy plants are also enjoying an upswing in demand, especially as utilities work to comply with state laws that require a growing percentage of power to come from such renewables. But solar is the only clean energy source that just about anyone can install and manage for themselves, at a cost that now competes with—even out-competes—conventional energy generation sources.

By Terry Tamminen, contributor to CNBC.com

Terry Tamminen is a former secretary of the California Environmental Protection Agency, president of Seventh Generation Advisors, an operating partner at Pegasus Capital Advisors and author of "Cracking the Carbon Code: The Key to Sustainable Profits in the New Economy."