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Bernstein Research’s Michael Parker and colleagues today offer a mammoth (32-page) assessment of the state of the solar energy market, with implications for installers such as Elon Musk's SolarCity (SCTY), but also technology vendors such as SunPower (SPWR) and First Solar (FSLR).

The authors conclude that by 2018, solar will be so much cheaper than fossil fuels that it will blow away current regulatory hurdles.

As Parker and team write, "we start the clock on solar "Independence Day": the moment (~2018) when solar plus energy storage is cheaper than retail power supply in a number of large markets."

"At that point,” they continue, "regulatory changes sought by utilities to restrain solar adoption will be ineffective. And the last barrier to solar disrupting energy markets and the power sector will be gone."

Here’s the infographic the team offers for how solar plus storage will decline by 2018 (click on the image to see it larger):

The key, the authors write, to the 2018 breakthrough, is that the combined cost of solar, plus a means to store it for longer-term usage, will make solar’s cost fall to 24 cents per kilowatt hour, without subsidy, presenting economics that are compelling:

We are not claiming that 100% of energy supply globally will come from solar in 2018 or 2025, or that 100% of current utility customers in Australia will disconnect from the grid in 2018 or that 100% of California utility customers will disconnect in 2020. It is easier to dismiss our position once it is boxed into that corner... but that's not what we are claiming. Instead, we are saying something less hysterical: solar plus energy storage will be a credible, low-cost alternative in some markets by 2018... without any form of subsidy. That is going to change the way the profit pool in these industries is allocated. Adoption of solar and energy storage technology will accelerate. New business models will emerge to take advantage of the low cost and improved technology. That scale will help lower costs further. The total number of markets where solar and energy storage will be credible, low-cost alternatives to the grid will continue to increase from there. The good companies in the utility sector will embrace the new technologies quickly (like SBC did). The bad ones won't.

The economics are already showing a compelling decline in the "installed cost" of solar:

With polysilicon now at less than $20/kg, polysilicon contribution has fallen to $0.10/W or less (~$0.06/W on a cost basis). The decline in polysilicon pricing from its elevated levels in 2007-2008 was largely a function of polysilicon being the hardest part of an over-stressed supply chain to produce. The decline in polysilicon prices has only been one source of savings. Non-polysilicon production cost has fallen from ~$1.50/W in 2007 to $0.35/W today among the best-in-class producers. In terms of installation, at the end of 2011, solar panel manufacturers and developers were estimating a utility scale installed cost of between $2.00 and $2.50/W. Today, utility scale projects are being installed at $1.00/W and in developing markets and we believe that true cost is closer to $0.70/W. Inverter plus steel plus labor plus interconnection costs can be as low as $0.25-0.30/W. Rooftop installation in China is as low as $1.10/W.

Key is storage in the form of batteries, writes Parker, citing work by his colleague Mark Newman:

Electronics and Energy Storage analyst Mark Newman estimates that the energy storage would cost ~$15,000. The solar system would cost $20,000. The batteries would enable you to consume 80% of the electricity produced during the day at night. As long as you didn't do too much laundry when it had been raining for several days in a row, you would never need to buy electricity from the grid again. The cost for this amenity (again in the red zones below) today is roughly $0.30-32/KWh. Unless you are running a diesel generator today, that is not economic. The cost is roughly the same in developed and developing markets. In developing markets, installing is cheaper but financing costs are higher.

What happens when solar gets so cheap is that utilities will have to embrace it, or be in big trouble:

Utilities can ignore the encroachment of SolarCity-style business models into what are traditionally their most attractive residential customers (home-owning, high-credit scoring households) and hope that our forecasts about falling costs and improving technology are wrong. Alternately, utilities can replicate the SolarCity model of "leasing" the rooftop to provide solar and energy storage on a no-money-down basis and effectively disintermediate themselves. We assume distributed solar leasing businesses will start including energy storage as part of their service to address changes in net metering policies, etc. The third choice is to go on the offensive: utilities can look for ways to develop new sources of residential electricity demand. The most obvious opportunity is electric vehicles. We have been suggesting this as inevitable since last November. We have found at least one regional utility executive thinking the same way: Fraser Whineray from Mighty River Power in New Zealand.

Looking at the small picture, Parker and team also offer an update on the current state of the solar market. Last year was a disappointment in terms of the growth of solar, Parker writes, but 2015 is looking brighter:

The weakness in the solar market (we had expected 50GW and a poly price of $25/kg in 2014) was a function of the Chinese distributed generation market growing slower than expected and the German market shrinking more quickly. India was softer than we expected too. Despite the weakness in growth in 2014, 2015 is setting up as a stronger year. China has announced a target of 17.8GW (up ~70% Y/Y). India is targeting 5GW+ per year annually through 2022. If the rest of the world simply holds serve, that's a ~11GW increase in demand (+~25%). We believe growth could be even stronger. Opportunity in developing markets continues to improve as module, inverter and installation costs fall, conversion efficiency improves and volumes increase.