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For its entire history, the solar power industry has faced a problem of cost.

The cost for energy from solar systems was higher than the cost of getting it off the grid. So solar power had to be subsidized, in some way. Eventually, power companies came up with "green energy certificates," a method for charging a premium on power derived from solar panels. The problem was solved and companies like First Solar (NASDAQ:FSLR) were among the early beneficiaries, turning themselves into "solar developers," creating utility-scale systems that power companies could buy with confidence, knowing that power could be resold.

Another big beneficiary has been SolarCity (NASDAQ:SCTY). Their financing plans are a way for residences and businesses to get solar power, which many people still want. Despite the power cost, a homeowner can still pay back their investment in panels by selling power back to a local utility. SCTY is currently trading at near its IPO price, which in this market is something of an achievement.

The industry, meanwhile, remains hungry for more cost reductions. As Technology Review notes the installed cost of solar panels in Germany is double that in the U.S., thanks to permitting costs, taxes and labor costs. German installers are also more scaled, and they don't pay sales taxes. Customer acquisition costs here are also 10 times what they are in Europe. And inverters cost more.

This problem is, in fact, an opportunity. It means that costs for solar installations can be cut substantially, and that there is a model for doing just that.

But there is another problem, one that is going to become increasingly obvious as the year goes on. This is the problem of abundance.

California utilities are loudly protesting having to link new rooftop installations to the grid, claiming they cost too much money. Hawaii is also cutting its tax credit program because solar power costs much less than grid power there.

It costs money for utilities to adapt to solar power. Today's grid has to become smarter. Utilities don't want to bear this cost - they want solar systems to bear it. And they are starting to resist connections to the grid until this cost is paid.

The amount of unsubsidized solar power is going to start rising exponentially starting in 2013, according to EarthTechling, and if utilities are unwilling to buy this power, solutions need to be found. These could include batteries, pumps that move water back behind hydroelectric dams, or systems that buy excess power and turn it into hydrogen.

The solar opportunity, in other words, is going to expand. But the industry has to face the problems of abundance in order to capitalize.

Source: Solar Faces The Problem Of Abundance