Steep Price Drops For Solar Photovoltaics

The price drops in PV were so long in coming a lot of commenters on past posts on solar cells expressed skepticism that solar would ever become cheap. But big production capacity expansions, technological advances (most notably by First Solar) that cut costs, and the recession have finally popped the high prices for PV. Over about the last 15 months photovoltaic panel prices have dropped 40%.

For manufacturers, the problem boils down to a sharp drop in panel prices amid increased supply and tighter demand. Panel prices have fallen by nearly 40 percent from their peak last spring, estimates Chris Whitman, the president of U.S. Solar Finance, which helps arrange bank financing for solar projects.

Overcapacity could lead to a shake-out in the industry. Some companies are shutting down manufacturing lines whose costs are too high.

A decline in silicon crystal prices have made silicon PV a lot cheaper to make.

After scaling up rapidly in response to strong demand during 2007 and early 2008, falling demand has seen the solar market hit by a glut of silicon, the raw material used in most panels, and solar panels themselves. As a result, silicon prices have dropped by as much as 40 per cent in the past year, while panel prices have fallen by about 20 per cent, making many older production lines unviable.

The party for buyers looks set to continue. Barclays Capital analyst Vishal Shah expects more big price drops in 2010.

Given the overly optimistic demand outlook of most Chinese solar players and expectations of continued production ramps, we see additional downside risk to module pricing exiting 2009, he adds. More importantly, we expect 2010 module ASPs to decline by 25%-30%.

These rapid price declines are a reason to wait before putting PV on your roof. Even if you live in Phoenix or Tucson Arizona you are better off waiting another year. The amount you'll have on electricity in a year if you install PV is less than you'll have by waiting for cheaper prices. Wait for the price drops to slow up before buying. You basically should wait until yearly price drops to become smaller than your yearly expected savings.

One analyst expects solar to become grid competitive by 2010. Perhaps that is true in the summer in SoCal because of the high cost (at least by American standards) of electricity.

In an Aug. 13 research note, UBS (UBS) analyst Robin Cheng said she expects photovoltaic electricity to be competitive with power from the grid by 2010 in those parts of Europe and the U.S. that get more regular sunshine, and by 2014 in regions that experience more cloud cover. "Until then, the industry is heavily dependent on government incentives," she writes.

Differences in local electric rates as well as differences in insolation (the amount of photons hitting the surface) are just two of the factors that determine whether solar power makes sense where you live. Here's a list of things to keep in mind when trying to decide on PV for your home roof: