Solar cell companies in China recently submitted a scheme to the Ministry of Science and Technology to cut the cost of solar power generation to $0.146 per kilowatt-hour (kWh) in 2012. This is three years earlier then had been thought possible only last year and is largely due to the current steep drop in polysilicon prices and further planned advances in production.

The companies that submitted the scheme include Suntech Power Holdings Company Limited (NYSE:STP), LDK Solar Company Limited (NYSE:LDK), Trina Solar Limited (NYSE:TSL), Solarfun Power Holdings Company Limited (NASDAQ:SOLF) and Nanjing First-Second Power Equipment Company Limited (Nanjing).

The scheme was reportedly drafted based on a former scientific research program prepared by the Jiangsu Photovoltaic Industry Association, which initially received approval from the first board meeting held in Nanjing, the capital city of eastern China’s Jiangsu province, on December 18, 2008.

Preparation for the scheme was carried out by enterprises covering the entire photovoltaic industrial chain, including solar-cell producers such as Suntech and wafer producers such as LDK Solar.

The Chinese government has approved only three solar-energy demonstration power stations so far, namely the 1-megawatt (MW) Chongming Island Project in Shanghai, the 255-kilowatt project in Ordos in Inner Mongolia and the 10-MW on-grid solar power project in Dunhuang. Both the demonstration projects on Chongming Island and in Ordos require an allowance of $0.584 per kWh from the government.

The situation abruptly changed starting in 2007, when industrial players predicted that the cost of solar power could be reduced to $0.438 per kWh by 2010 and to $0.146 per kWh by 2020. In 2008, the timetable of $0.146 per kWh, was moved up to 2015, and the new proposal moves this date up to 2012.

At a price point of $0.146 kWh, it will be possible for electricity produced by photovoltaic solar panels to be competitive with conventional energy. Regardless of factoring in the environmental and supply side costs of fossil fuels.

The price of polysilicon had fallen from a peak of $400 per kilogram in July 2008 to less than $100 per kilogram by the end of the year. Presently, the cost of polysilicon is about $30-$40 per kilogram, and the cost will be further reduced following the advance in technology. Therefore, silicon material, which accounts for 70% of the cost of photovoltaic products, will not be an obstacle in achieving the proposed price target.

Image is of a masked and developed silicon wafer by TalAtlas on flickr under the Creative Commons license