When Will Solar Be Cost-Competitive with Electricity?

By Jennifer Kho

Solar power is becoming more competitive with electricity as solar prices fall and electricity prices rise, a Greentech Media analyst said at a conference Monday.

Electricity is most expensive when demand is highest, while the sun shines most during the afternoons, which is a time of peak demand.

So the first place that solar will be competitive is for peak power, said Daniel Englander, an analyst for Greentech Media, who added that solar is already competitive with the cost of some of that expensive power. 

For example, in the summer, when electricity demand regularly exceeds baseload capacity in the afternoon, it's cheaper – and requires fewer power-generating facilities – to mix photovoltaic power with natural gas to meet peak demand than to rely only on natural gas, he said.

And the cost of buying solar from a plant would be expected to stay the same, when a utility signs a power-purchase agreement with a solar provider, while the price of natural gas is expected to continue to increase.

Travis Bradford, president of the Prometheus Institute, a Greentech Media partner, also agreed that the true price of solar – including auxiliary costs, such as financing – are falling.

"Nearly every analysis overestimates the cost of solar energy," he said.

Englander expects solar costs to become competitive with the cost of producing traditional electricity by 2017.

Thin-film solar has been reducing costs more quickly than other forms of solar power, analysts said.

For example, the total cost of a system using First Solar (NSDQ: FSLR) panels comes out to 10 percent less per watt than comparable systems using traditional crystalline silicon, Bradford said.

"They can price it that low because their costs are that low," he said. "And the prices are dropping."

The company is aiming to manufacturing costs on the order of 70 cents per watt in 2012, he said.

Thin-film manufacturing capacity also could be cheaper than crystalline capacity to build and expand, he said.

Considering that polysilicon plants take three to five years to build, companies that make the stuff aren't able to rapidly react to changing markets. 

"I think through the years, [the time and cost] of polysilicon manufacturing is going to be harder to justify when the capital cycle might not last that long," he said.

Meanwhile, crystalline-silicon panels are unlikely to be able to quickly cut costs considering that even if silicon prices drop to nothing, silicon makes up only 19 percent of the price of a panel today.

"Even if polysilicon was free – which it's not ever going to be – there's still a lot of conversion cost," Bradford said.

About 32 percent of the price is profit, while 24 perc ent goes into making wafers, 11 percent goes into making the cells and 14 percent goes into making the panels, he said.

Overall, Bradford forecasts that costs will fall by at least a third in the next two years. That's more than the 10 percent price erosion that Canaccord Adams analyst Jed Dorsheimer said he expects in the next two years (see Analysts Say Solar Prices Beginning to Fall).

"The degree to which the market takes thin-film or crystalline modules will be determined by the degree to which the cost structures can be reduced," he said.

Solar companies are working to position themselves for a time of potential lower pricing, with some targeting higher efficiencies – which result in lower nonpanel costs - and others targeting lower costs with lower efficiencies, Bradford said.

He said either proposition could be successful.

"Both could be true, but I wouldn't want to be half of one and half of the other - I'm not the cheapest, nor am I the most efficient," he said. "Frankly, the worst place to be is in the middle. Middle-tier polysilicon players run out of profit first."

Thin-film solar is cheaper than solar-thermal and concentrating-photovoltaic power in some cases, Englander said.

In places with 5 kilowatt-hours of sunshine per square meter per day, such as in Chicago or New York City, cadmium-telluride firms – like those produced by First Solar, the No. 1 thin-film manufacturer – have the lowest levelized cost of electricity, which includes all costs, followed by crystalline panels. Solar-thermal and concentrating-photovoltaic power are more expensive, all costs considered.

In regions with more sunlight – say 8 kilowatt-hours per square meters per day, like in Phoenix – cadmium-telluride also is the lowest cost.

But solar-thermal power costs less than crystalline silicon. The Prometheus Institute and Greentech Media expect the cost of crystalline-silicon panels to fall below that of solar-thermal next year.

Comments

[Wayfarer:]

First Solar advertisement. Cost/watt is less than half the story.

2008 Sep 16 11:44 PM

[je:]

The costs of solar and the cost of traditional power will meet as the former goes down and the latter goes up.

There is a secondary effect of jobs and new industry that will profit the couny while reducing oil imports.

2008 Sep 17 08:58 AM

[Road Runner:]

Everyone don't forget that some markets will reach grid parity much sooner than others. Italy, with its high reliance on oil (typical Italian mismanagement) will be at grid parity soon. And, southern California with great sunshine and high electicity prices should be soon too.

2008 Sep 17 10:24 AM

[EnergyRevol...:]

Be smart look into solar thermal energy, concentrated solar thermal or CST with little co-fireing is cost-competitive in this decade and cheaper than coal in the next one.

The Solar Millennium has been unleashed, ... LIVE IT and BE PART OF IT!

tinyurl.com/energyrevo...
tinyurl.com/cheaper-cl...

2008 Sep 17 11:28 AM

[frflyer:]

Comparing silicon crystaline solar panels with thin film is not as simple as you make it out to be. Cost per watt is not the primary driving factor in purchasing solar panels for your roof for example. What you want it the most watts per square foot, and for that, conventional panels beat thin film two to one. Where space is less limited, thin film may be the better choice.

I have read that solar thermal is the cheapest form of solar energy at present. And solar thermal plants can store heat and produce electricity at night.

2008 Sep 19 01:30 AM

[Canbyte:]

Having built and operated a few solar panels myself, my take is that what you read is hyped up subsidized BS with payback way too long. Once oil recedes a bit, solar will probably die (again) except for the few who understand the real economics and know how to make it work. Congrats to all who rode the wave and made $$ on the stocks. Exit happy. Leave real solar for the masses to harness in their humble ways.

2008 Sep 21 03:16 PM

[shari greer:]

Hurricane IKE left over 2 million households without electricity for two weeks. The stores didn't offer any real options for residents from the solar level... The traffic lights were out all over the city and with 4 million people trying to get around during this, the emissions and tempers that flared were unreal. The fact that our infrastructure is still living in the dark ages was apparent. We could have had solar powered business', traffic lights, even railroad arms, could have been
utilizing solar generated power. But NONE was there, and now with
the reconstruction of so many homes, business, power lines, traffic
signals etc, you would think that this would be an absolute solution for future disasters. It is frustrating, at best, and I hope the solar community will jump on Houston to give direction for these changes.
If my tax dollars are paying for reconstruction, I would like a say in the sustainability of solar energy be included. It's a natural, given that we have more sunshine than almost anywhere else on earth!!

2008 Oct 01 04:19 PM

[jaspereliot:]

The problem with people's view of solar is that it's an all-or-nothing proposition. It shouldn't be. Rather than expecting solar to suddenly replace electricity or fossil fuels overnight, it should be viewed as a partial solution; one component in a mix of energy solutions to help ease our ecological footprint. Believe it or not, there are more compelling reasons to invest in alternative energy sources than just saving a buck on your electric bills. Until we all have a philosophy that we're all equally responsible for minimizing the damage we're doing to our planet, we're not likely to get away from the 'cost-is-the-only-thin... principle. On my blog, The Solar Cost Guide (www.solarcostguide.com) much of the focus has been on expensive active systems, but there are still quite a few low-cost passive initiatives that we can do to reduce our overall energy costs. Time to start thinking a little outside the box and be creative in how we can reduce our energy independence. I'm hearing more instances each day about folks who are moving completely 100% off-grid by integrating solar active/passive systems and wind systems for a complete solution.

2008 Oct 29 02:05 AM