The cost of solar power in North Carolina is falling steeply, a state trade group reported, providing the first real evidence of a trend that is likely occurring in other states that are harnessing the power of the sun.

The price of solar photovoltaic (PV) systems dropped by 36 percent in North Carolina between 2006 and 2011, from $8.50 to $5.44 per watt. All the while, fossil fuel costs jumped three percent on average in the state every year of the past decade, the report found.

The national average for solar was $6.20 per watt in 2010, according to the most recent available data.

The findings in North Carolina give solar advocates a solid basis to draw conclusions about the entire industry, Monique Hanis, a spokesperson for the Solar Energy Industries Association (SEIA), a national trade group, told InsideClimate News. The report “reflects what’s happening nationally, and in fact globally, in the solar energy market,” she said.

The Feb. 29 report by the North Carolina Sustainable Energy Association (NCSEA) is the first attempt to calculate both “dollars per watt” and the “levelized cost of energy,” or LCOE, for solar energy in a single state. The dollars-per-watt metric, used above, measures initial installation and hardware costs. The LCOE is a more complex and newer metric that assesses all costs of a solar system across its lifetime, including the cost of generating electricity and other factors like maintenance. It can be compared easily to other electricity sources.

Using the LCOE, the report found that solar will be cost competitive with retail electricity prices in North Carolina by 2020, without federal or state subsidies. Large-scale solar systems are already cost competitive when subsidies are factored in.

The biggest factor in North Carolina’s falling solar prices is global market forces, the report found, particularly the glut in solar panels and their components, like polysilicon, which caused prices to plummet over the last few years.

Between 2008 and 2010, the cost of solar panels worldwide fell by about 40 percent, according to industry figures. In 2011, prices dropped again by 50 percent from 2010, as the supply of panels far outstripped demand, due in a large part to a state-subsidized solar manufacturing boom in China.

The report should help change the conversation about solar power, which is focused almost exclusively on subsidies and tax discounts, Miriam Makhyoun, a solar specialist at NCSEA, told InsideClimate News.

“A lot of the time the market developments are forgotten,” she said.

Rising competition among solar installers and developers in North Carolina is also driving down prices. There and elsewhere companies have been able to shave off costs by becoming faster and more efficient at performing project estimates, and at navigating often cumbersome government permitting processes, Hanis of SEIA said.

While market forces seem to count the most in the state’s shrinking solar costs, policies matter, too. The decision by North Carolina to set a mandate for renewable energy and offer subsidies for solar installations is driving demand in the market, the report said.

The state’s renewable portfolio standard requires the largest utilities to get at least 12.5 percent of their annual electricity sales from renewables and/or efficiency measures by 2021, while municipal utilities must get 10 percent by 2018.

The state also allows owners of solar systems to generate renewable energy credits, called RECs. Solar owners can sell credits to utilities for hundreds of dollars for each megawatt-hour of solar electricity they produce, and utilities can apply the credits toward their renewables mandate.

More than two-thirds of states have a renewable power standard in place, but only seven  states and Washington, D.C., allow solar owners to create and sell RECs to local utilities.

North Carolina also has a “very strong” investment tax credit, said Hanis, “which is why you’re seeing growth in the North Carolina market.” The incentive gives businesses or homeowners a tax break worth 35 percent of project costs. North Carolina also gives a property tax exemption of 80 percent for commercial installations and 100 percent for residential rooftop systems.

In part because of that, the Tar Heel State is on the cheap end of the spectrum for home rooftop solar in the United States. In some states it can still cost homeowners up to $8.40 a watt to go solar, depending on the tax climate for businesses and other local factors.

North Carolina is the eighth-largest solar market in the United States and accounts for about four percent of the country’s total installed solar capacity.

There are still other ways to stoke solar demand in the state, said Makhyoun of NCSEA. The next step, she said, is to try to lift regulations that limit the ability of solar leasers to gain a foothold in the market.

In other states, the way solar leasing works is that leasers like SolarCity, SunRun and Sungevity own and operate systems at little or no cost to the homeowner. In exchange, the customer has to purchase electricity generated by the unit at a fixed cost over a set period of time.

But in North Carolina, a third-party owner of solar systems isn’t allowed to sell electricity in an area where a utility already operates, so leasers have largely stayed away. Legislation in the state Senate to free third parties from that kind of regulation was tabled last year, though NCSEA says it’s lobbying again this year to pass the bill. Makhyoun noted that nearly two dozen states already have similar policies in place.

Makhyoun said that most North Carolinians aren’t even aware about the potential cost savings of a solar leasing model. Today, homeowners have one option: spend tens of thousands of dollars to buy solar panels and pay experts to install and maintain them. “It’s a non-issue if it’s not legal,” she said. “They only get to know about the upfront costs.”

“That’s part of changing the conversation,” Makhyoun said.