US Price Slides ~2%, Europe ~1%

In the US, solar module prices fell 9 cents to $4.61 per watt (a 1.9% decline from the previous month and 4.2% below last June). The price fall was double last month’s rate. US prices only have to fall another 6.25% to reach the record low set in 2004-05. This could be done by September/October at current rates. In Europe, module prices fell 4 euro cents to the new record low of 4.48 euros per watt (a .9% decline from last month and 4.9% below last year).

Lower Costs May Allow a Return to Profits

These lower prices can be great for consumers and producers alike as long as manufacturing costs continue to shrink. As the iPhone falls to $99, I have hope that the solar industry can similarly achieve progress (higher efficiency) and lower prices profitably. I will keep you updated in the weeks ahead as that story unfolds.

Onwards to sustainability-

P.S. – Sorry it’s been a little while – I had some vacation time with family soaking up solar photons on a beach in the Carolinas and enjoying Federer’s run to achieve the first tennis Grand Slam since Andre Agassi

Europe price falls to record low

The price per watt of a single module fell to 4.52 euros (a drop of 2 euro cents (.4%) from April). This is a record low and is 4% lower than last May.

US solar price at 3 year low

The price in the US fell four cents (.8%) from April to $4.70 per watt. This is 2.3% below last May and the lowest price since December 2005. Prices are now ~8% higher than their 2004-05 record low. Thus, if prices continue to slide at the current pace we will see new record lows in the US by early 2010.

Solar PV Electricity Prices Down .4%

The fall in module prices translates into a fall of .09 cents (.4%) in the price of industrial solar electricity to 20.78 cents per kWh. This price is the lowest since March 2005 and only 2.4% above the record low set in June 2004. Therefore, we are poised to reach record low solar electricity prices by the end of the year.

Bottom line: Slower demand in 2009 has allowed solar producers to more than catch up with demand. Prices are falling significantly, but have a ways to go before they set record lows in the US and worldwide. And since the price of natural gas and coal are currently ~70% below their 2008 highs, the solar market will continue to be policy-driven until potential grid parity in the early 2010s via fossil fuel price recovery and further solar price reduction.

EU energy policy and the financial crisis

The financial crisis will not deter Europe on its course towards a low carbon economy, but it may slow it down.

The complexity of EU energy policy

Europe does not have an Energy Policy Act. Instead, it has numerous interconnected white papers, policy declarations, directives, programmes and projects which aim to regulate a complex sector. Just on climate change, the EU is party to the UNFCCC (as are its member states). But it also manages the world’s largest Emission Trading Scheme, the European Climate Change Programme and related policies such as the Directive on Integrated Pollution Prevention and Control, to name just a few.

Sometimes, these various policies interact in unexpected ways, such as in the 2005-2008 controversy on pass-through pricing under the Emission Trading Scheme, during which electricity producers charged their customers for the value of carbon allowances they had been allocated free of charge. This is an effective taxation of many billions of euros by an environmental policy with a yet unclear environmental impact.

On energy, the EU also has a multiplicity of directives, each of them eventually transposed into national law of its 27 member states. These directives need to compromise between climate policy, security of supply and economic considerations (the Kyoto – Moscow – Lisbon triangle).

These combined policies and initiatives at regional and national level result that energy policy suffers from severe oil tanker syndrome – it’s almost unstoppable, though at times difficult to steer or even understand.

Recently, the EU has attempted to streamline its energy policy through the 3 * 20% by 2020 declaration, the foundation of EU energy policy to which it remains firmly committed, as confirmed by the EU Summit last week.

Different schools of thought

The preservation of EU energy policy in the crisis is almost guaranteed by the underlying presumption that low-carbon energy is not the problem but the solution to the crisis. Rather than an unaffordable luxury, countries such as Germany and Scandinavian Europe consider it as a source of economic development and employment.

They are supported by a strong environmental movement that sometimes cares little about economic considerations. And milestone reports such as the Stern Review concluded that the costs of a low carbon economy will be minor, while the damages of not taking action will be enormous.

Course corrections

But this does not mean that EU policy will not be influenced in the short-term. Countries in Eastern Europe fear the adverse impact on their carbon-intensive heavy industry and may seek amendments or compensation for the burden on their economy. The result may very well be some creative accounting on the targets. Europe is becoming notorious for setting ambitious goals through grand political declarations, meeting them later on by adjustments in the measurement framework. The phase 1 commitments under the Kyoto Protocol offer a textbook example. And even on the more recent 20-20-20 targets, many consider them unrealistic, and do not expect they will ever be reached.

A slowdown of the Clean Development Mechanism

In particular, the CDM market, with about 12 Beuro in 2008 is suffering from uncertainty beyond 2012. The market is largely driven by EU member states acquiring part of their carbon targets outside Europe. While the EU has firmly committed to the 2020 reduction target, there is currently no regime in place for trading CDMs beyond 2012. This undoubtedly affects the CDM market though we believe its long-term prospects remain solid. The percentage of CDM credits to meet national carbon reduction targets can only increase with time.

Energy efficiency to the rescue

It is often said that energy efficiency is ‘free of charge’, i.e. the lifecycle cost of energy efficient equipment is lower than its standard equivalent. With the cost of energy becoming increasingly difficult to bear, efficiency and conservation can provide a cushion for a softer landing in times of crisis. But efficient equipment means a trade-off between more capital expenditure now or more operational expenses later. In times of capital scarcity, how can we ensure that investors select the more capital-intensive option?