Over at solarbuzz.com, they post module prices on a monthly basis. And while the prices of fossil fuels have fallen dramatically over the past few months, the tough economy has yet to dramatically lower solar prices. For December, US prices from last month are unchanged and prices in Europe fell less than 1%. When will prices fall significantly due to supply catching up with demand?
Solar prices have fallen dramatically over the past few decades, but they have actually increased since late 2004. US prices currently sit almost 12% higher than their 2004 trough, while the stronger euro of the last few years has helped European prices fall to just ~1% higher than their 2004 low.
But if the economies of scale and scope play out in solar like so many entrepreneurs claim, prices should fall a great deal in 2009 when slower demand growth brings the market back into balance. Solar proponents present a strong case a la Moore’s Law that when you increase solar production, you learn by doing and costs fall. The rate of cost decrease I have seen circulated is usually ~15% per doubling. Since solar production has roughly doubled twice since 2004, an extrapolation would reach ~28% lower costs. Therefore if the market does reach a balance next year, prices may fall as much as 35% in the US assuming the dollar maintains its current strength. But many producers of polysilicon (a major feedstock whose shortage has sent costs up) have arranged long-term contracts so prices will be somewhat sticky and resist precipitous change.
But if solar prices do slide at least 25% and natural gas prices do not collapse much further, solar will approach grid parity in sunny markets with relatively high electricity rates such as Hawaii, California and a growing number of other areas.
On the other hand, if solar prices don’t come down at a time when its competitor natural gas is lower, solar will remain marginal and only compete in niche markets. For instance, natural gas prices fell another 5% just today to ~$6 per MMBtu or less than half its price in early July. The latest move was on EIA’s weekly storage report that US inventories remain above the five-year average (though the glut did trim a bit from 2.6% last week to 2.1% this week). Solar’s price is now more than five times the price of natural gas electricity, a gulf even generous subsidies can struggle to close.
Bottom line: Solar costs will continue to be a challenge that us climate activists need to recognize. But 2009 has the potential to bring solar prices down significantly toward grid parity in the months ahead, making it an affordable pillar of economic recovery in 2010.
Tags: Electricity, Natural Gas, Solar, US