Solar electricity to reach cost parity with coal-based power by 2010
By 2010, leading solar electricity providers in Spain will be able to produce solar electricity for as low as 10 cents per kilowatt-hour (kWh) – equivalent to the delivered cost of electricity from a new coal power plant, according to Boston, Mass.-based photovoltaic consulting firm Photon Consulting.
These economics could quickly result in a very large market opportunity for solar energy, the firm believes, but the photovoltaic (PV) industry is not likely to pass on decreasing production costs to its customers, instead choosing to expand their earnings in the coming years.
In 2006, the production of solar electricity from a typical 4 kilowatt (kW) rooftop system in Germany cost 30 cents per kWh, in Spain it was 19 cents, and in California it was 22 cents. By 2010, Photon Consulting estimates that solar electricity will be produced for 18 cents in Southern Germany, 12 cents per (kWh) in Spain, and 13 cents in California.
Typical production costs including system installation were approximately $3,600 per kW last year, with particularly efficient companies producing for costs of less than $3,000 per kW. By 2010, this price is expected to plummet to $2,500.
The firm noted that it based its work on PV companies that integrate the entire value added chain, specifically, those that can manage the production of silicon, cells, and modules all the way to the operation of PV power plants. In a recent study, the firm names 13 examples of companies that are developing in this direction, among them U.S.-based Sunpower Corp., German-based Solarworld AG, and Suntech Power Co. Ltd., located in China.
Until now, solar electricity has had the reputation of being a very expensive energy source – but this view only takes into account prices for systems and the very high subsidies they receive. For instance, in 2007, the price of solar electricity in Germany is roughly 50 cents per kWh, compared to residential grid-based electricity prices of less than 20 cents per kWh, the firm continued.
Solar is only economic for installation on rooftops because of the feed-in tariffs for solar electricity of 60 cents per kWh.
However, when it comes to competitiveness, Photon Consulting believes that the decisive factor isn’t the system’s market price, or the feed-in tariffs, but rather the production and installation costs.
When looking at the cost side of the equation, by 2010 solar electricity will cost less than the residential electricity price for 50 percent of all residential consumers in the OECD – that would be an addressable market of at least 1,500 gigawatts (GW), the firm pointed out.
For homeowners interested in purchasing their own PV systems, the reduction of production costs won’t automatically translate into consumer benefits.
Michael Rogol, analyst with Photon Consulting said in a statement, “Prices for solar electricity in 2004 have become disconnected from costs. Because the demand is much greater than the supply, a reduction in cost will not automatically trickle down to the consumer.”
“This scenario will likely continue for several years, with solar prices remaining strong due to very large demand,” he continued.
Case in point: a market survey conducted at the start of this year by trade magazine Photon showed that prices for PV systems in Germany are just as high today as they were in 2004. Prices have dropped in Germany in recent months, but in general, prices did not decrease between 2004 and 2007.
Further, in 2006, the firm said, manufacturers produced 2,536 megawatts (MW) of solar cells worldwide. 36 percent of those cells came from Japanese manufacturers, 20 percent from German companies, and 15 percent from Chinese producers.
In an initial survey, Photon found that around 1,150 MW, or almost half of all PV systems installed worldwide in 2006, were installed on German roofs and undeveloped areas.
Finally, the firm noted that by the end of 2006, PV systems with nearly 6,000 MW of power have been installed worldwide. Of those systems, about half, i.e. around 3,000 MW, are located in Germany, and contributed approximately 0.4 percent of German electricity production.
Since the majority of PV systems in Germany are installed in Bavaria, solar electricity production equaled 1 percent of total electricity demand in this state, the firm concluded.