December 21, 2011
Solar Photovoltaic Price Declines Not Sustainable

A Bloomberg article about the sharp decline in photovoltaic (PV) panel maker First Solar highlights the big decline in market prices for PV. Does this portend more of the same? Probably not.

The spot price of solar panels has fallen 47 percent this year, according to Bloomberg New Energy Finance, while crude oil prices have gained 8 percent in New York.

Thin film solar panel maker First Solar might still be the lowest cost PV maker. But the declining cost of polysilicon has helped make silicon PV makers in China much more cost competitive against First Solar's low CdTe panels.

Solyndra declared bankruptcy Sept. 6 saying it couldn’t compete after prices for polysilicon, the raw material in traditional solar cells, fell 64 percent this year.

So have total production costs declined as fast as polysilicon costs? Probably not. Prices have fallen below production costs of many solar photovoltaic panel makers. As a result a number of firms including Solyndra, Stirling Energy Systems Inc., Evergreen Solar, SpectraWatt Solar Millennium have filed for bankruptcy liquidation or Germany's insolvency. Even many Chinese makers are losing money since they haven't cut costs as fast as market prices have dropped. China's PV makers are also headed for a shake out with the number of supplies expected to shrink just as is happening in the United States and Germany.

The price drop would be more exciting if it was caused by an equal or larger drop in costs. Low cost leader First Solar got their production costs to 98 cents per watt in February 2009 and yet wants to get to 50-54 cents per watt only by 2015. Think about how the recent rate of price drop compares to the longer run rate of cost drop. In 6 years First Solar's production costs will fall a percentage amount about the same as the amount that PV market prices fell in just 1 year.

Bottom line: rapid price declines aren't sustainable without rapid cost declines. Rapid cost declines aren't happening. Instead, excess production capacity, especially in China, has accelerated price declines. But don't expect this trend to continue absent some technological breakthroughs that enable big cost reductions.

Update: An article on First Solar's financial results provides evidence that First Solar's rate of production cost declines has decelerated. Also, to get PV wafers installed and operating requires other steps (e.g. labor at the installation site) whose costs are not affected by technological advances that lower wafer costs. Prices will probably come down further due to over capacity in the PV industry. But prices might bottom out and bounce back up a bit once enough PV makers go bankrupt. Already many Chinese PV makers have halted production as the shake-out continues.

Share |      Randall Parker, 2011 December 21 10:40 PM  Energy Solar


Comments
LarryD said at December 22, 2011 12:47 PM:

I'd be interested in a breakdown of costs for solar, how much for the inverters, support structure, etc., not just the cells. Ditto for solar thermal.

Fat Man said at December 22, 2011 3:02 PM:

If the cells were free solar would not be economic.

Jeff Morton said at December 22, 2011 4:51 PM:

last time i did the math (early 2007), polysilicon was about 50% of the total cost of solar (installed, etc.). if it's drpoped in price by 50%, it's probably about 1/3rd the cost now. labor is actually a sizable part of the installed cost and that doesn't change much.

Randall Parker said at December 23, 2011 8:28 AM:

Jeff Morton,

Yes, labor costs on home installs are a rising portion of total solar costs as the other costs go down. So each successive x cents decline in a watt of solar power does less to the percentage decline in solar's total cost.

I wonder whether for residential solar the key to lowering costs is going to become use of solar shingles and installation of solar when roofs get built originally or replaced. Basically, piggyback on labor that is going to get used anyway.

I also wonder what are the prospects for automating roofing.

Ronald Brak said at December 24, 2011 3:44 AM:

Where solar power will really take off - is taking off - is flat roof installations like the one across the road from me here in South Australia. It's a heck of a lot cheaper to install a medium to large installation on a large flat roofed building than it is to build the same capacity on a dozen or more private homes. Flat roof installations have been done for $4 a watt in Australia and are probably being done cheaper than this now that solar panel prices have dropped so low. Australia has a lot of sunshine and high retail electricity prices, so we are rapidly approaching a point where it will be cheaper in many areas for a supermarket, mall, school, or factory to install solar panels than to continue to buy all their electricity from the grid.

Andy Freeman said at December 24, 2011 10:48 AM:

Does that "cheaper" for supermarkets, malls, schools, and factories include paying for the capacity to be available on cloudy days? After all, those things don't shut-down when the sun doesn't shine; they expect to get electricity from the grid.

Yes, there isn't fuel costs when they're not using that capacity, but there's still all of the other costs, such as equipment, staffing, maintenance (which doesn't depend much on usage), etc. It's probably about half the cost.

AD-RtR/OS! said at December 24, 2011 11:13 AM:

Until they develop a PV-cell/panel that you can walk on, substituting panels for shingles is not practical, for there are a whole host of reasons why you might have to walk on your roof

Shannon Love said at December 24, 2011 11:13 AM:

The price of the actual cells themselves means nothing for the viability of large scale, widely used solar power. Even if the cells were free, you still couldn't use solar power effectively.

The basic unavoidable problem with solar power is that you can't efficiently store the electricity it episodically generates. Electricity isn't like water. Electricity is only useful if it is in the exact amount you need at the exact time and place you need it. Otherwise its useless. Too much (a surge) is actually worse than to little. You actually run anything entirely off solar. You've got have a 100% redundant system available all the time. By the time you factor in the total lifecycle cost of the install, the maintenance, the redundant system, the integration with the redundant system etc, your cost have swamped the cost of the cells themselves.

Even worse, you probably haven't saved any carbon emissions as well because manufacturing, distributing and maintaining the solar systems and then running the carbon emitting redundant system will generate as much or more C02 than just burning coal or natural gas in the first place.

The belief that solar power can be a primary supplier of base load power or any significant contributor to reducing carbon emissions is based on a naive and fundamentally flawed understanding or how electricity and electrical grids work. It's the result of people wanting something to be true so they simply declare that it is.

inspectorudy said at December 24, 2011 11:38 AM:

The whole problem with "Alternative" power is the inability to store it effectively. Until the energy can be stored and used on demand it will never be a popular source of power. In places like a desert seismic station it works fine with solar because it has batteries that can store all the daily needs of the station. One proposal is to pump water up into a tower and then during the evening hours let it back down to turn a turbine. I do not know the efficiency of the system but it makes it more power on demand useful. I had a roof top water heater system in the '80's and it was a disaster. It froze one winter and had to be re-plumbed. The circulation pump burned up and the water heater bill never went down as promised. The next Bill Gates or Steve Jobs will be the inventor of the energy storage system for large applications.

Cobacoba98 said at December 24, 2011 12:42 PM:

China can keep prices "below cost" for far longer than you think. They do this in many industries. Solar is just the next one to enjoy this treatment.

Anyone who thinks we should invest in this technology to compete with China needs to explain why that logic doesn't work for microwave ovens, too. Why not compete with China in that area as well?

Once tech becomes a commodity, China lowers the price to close to or below cost and its over.

JimL said at December 24, 2011 12:44 PM:

I always enjoy the comments about solar. There is so many red herrings thrown out on both sides. Firstly, a lot of anti-solar arguments presume that any solar power is useless unless ALL power is solar. The storage arguments are of this type. As a civilization we won't be able to rely solely on solar power without storage, obviously. But there are no technical barriers today, only cost challenges. The water storage example is an easy storage solution on any scale, in fact one that is used today (some hydroelectric plants pump water up hill during the night).

It's all about cost and that means that the implementation of solar energy will be along a continuum. Places like Australia, Africa, Italy, India, and the southwest US will be the first to bend the cost curve towards solar. Those have relatively high energy prices and high solar insolation to harvest. The high energy demand occurs during the daily period of highest solar energy production. Expensive peaking power plants (a high cost asset that will sit idle most of the day) can be forsaken in favor of solar installations.

"But don't expect this trend to continue absent some technological breakthroughs that enable big cost reductions." I like this caveat thrown in at the end. Technological breakthroughs WILL continue. There is a lot of money being invested to make those happen. Just like there is lots of money being invested in fracking and other fossil fuel technologies. We as a people will benefit from both. This is called progress...

Cobacoba98 said at December 24, 2011 12:46 PM:

Edit: Anyone who thinks the government should invest in this technology...

Its fine for private enterprise to make their own bets.

Mike said at December 24, 2011 2:24 PM:

Who's the genius behind this? Of course it's not sustainable. Prices fall and then plateau as mass-production comes on line. Weak players get weeded out.

Ken Royall said at December 24, 2011 2:59 PM:

When government interferes in the markets to subsidize certain industries, expect doom to follow.

Joseph Somsel said at December 24, 2011 3:00 PM:

As to Shannon Love's comments, the Electric Power Research Institute (EPRI) did a cost study a few years back that showed that IF SOLAR CELLS WERE FREE, solar would still NOT be competitive for grid power due to installation labor and expense, such as electrical conversion to AC, connection to the grid, and physical mounts.

In a functional electrical grid market, the only market value of solar is as a substitute for the lowest cost fossil FUEL, typically natural gas. That's not for the TOTAL cost of natural gas electricity, since the capital cost must continue to priced in the market due to its capacity to respond to load swings, which solar can not do; it is only worth the natural gas NOT consumed, a fraction of the production costs.

Why the heck our governments (especially here in California) insist on the cross-subsidization of solar cells on McMansions from the electric bills of renters, commercial, and industrials should be a matter for FBI investigation and criminal prosecution.

Certainly, there can be niches where solar can find willing buyers (sailboats?) but those are trivial in the bigger scheme of things.

As to electrical storage, the current grid already stores enough energy in the form of inductance and capacitance to destroy itself in the flash of an electrical arc.

Our current storage scheme is almost exclusively pumped storage. Give the 4 in to 3 out inefficiency (~75%) and the high capital cost, electric storage favors NUCLEAR and COAL, not wind and solar. In fact, most existing pumped storage facilities are closely associated and coordinated with large coal plants and nuclear power plants.

If you're a solar, wind, or anti-nuclear advocate, be careful what you wish for.

PacRim Jim said at December 24, 2011 3:05 PM:

I wonder what the price will be, in constant dollars, once the President and Congress trigger hyperinflation.

Fat Man said at December 24, 2011 9:01 PM:

Joseph Somsel: Do you have a link for the EPRI report?

JimL: "The water storage example is an easy storage solution on any scale"

No: http://physics.ucsd.edu/do-the-math/2011/11/pump-up-the-storage/

Also Google "Storm King Mountain"

"Expensive peaking power plants (a high cost asset that will sit idle most of the day) can be forsaken in favor of solar installations."

Not so. Peakers are expensive because they produce revenue for only part of the day. Solar just makes the problem worse. Solar works between 6 and 10 hours a day, most of the time, if it is not cloudy. You still need peakers. They are still more expensive than base load, and you don't have any base load. Not only that but peak loads lag the sun by 2 or three hours.

Sure its just a question of cost, but solar is not part of the solution.

Batman said at December 24, 2011 9:10 PM:

Can someone please tell me where my reasoning is wrong? If we were able to eliminate 70% of our daytime electricity from the grid, but still need 30% daytime and 100% night time electricity from the grid, wouldn't we increase the unit cost per KWH for the electricity from the grid itself? And wouldn't the utilities pass that on to us, thus negating the savings we gained from our solar non-grid electricity?

For example, let us say that we use 200 "units" of electricity each day and 100 "units" in the night. If the cost from the grid is $.10 per "unit" we would pay 300 X 0.10 = $30.00 per day for our grid based electricity. But if we got 70% of our daytime electricity off the grid, the utilities would then be making 160 X 0.10 = $16 per day for our grid based electricity. Their fixed costs would be the same as when we got all 300 units from the grid. Their variable costs (fuel, etc.) would decline, but their fixed costs would remain the same. So to amortize their fixed costs, they would have to raise their rates, making the per unit cost higher. How much higher? I don't really know but it would be greater than zero. So some portion of our ostensible $14 per day savings would go to paying for the solar panels (over time) and some portion would go to paying for the unchanged fixed costs for the utilities. Therefore the alleged savings from going off the grid for a portion -- even a large portion -- of our daylight electricity, would be eaten up by that factor.

If it were possible to get off the grid entirely, savings might be realized. Of course, the costs to those souls not able to get off the grid would go up, but those who could go off the grid would save. However, as long as we need to stay on the grid for those cloudy days and those nights, it seems that the savings would be minimal -- even if the equipment and installation were minimal, which they are not.

Ronald Brak said at December 24, 2011 10:11 PM:

Batman, if grid electricity is supplied by a monopoly then that monopoly might be able to jack up prices, but most electricity is sold in a way that, to an extent, simulates a free market. As a result, competition limits how high electricity prices can be raised. Also, grid electricity suppliers are quite capable of looking at the cost curve of solar PV and estimating what effect it will have on future demand and plan accordingly. For example, it is possible that plans to build some peak gas capacity in some sunny areas have been shelved because of the decline in PV costs.

Kate said at December 24, 2011 10:43 PM:

It's the physics, stupid. There isn't enough energy. If you only have a gallon of water and need 5, building a better bucket will not solve your problem.

http://www.energytribune.com/articles.cfm/2469/Understanding-E-=-mc2

Campesino said at December 25, 2011 8:26 AM:

I don't argue with the thrust of your post, but Stirling Energy Systems and Solar Millenium aren't (weren't) solar PV manufacturers. Both used solar thermal technology

Ross Noble said at December 25, 2011 10:13 PM:

The rapid price decline of solar isn't due to a technical break through. China direct spends Yuans into industry, much like we did during WW2. The Yuans are spent and enter industry, and solar companies use it to compete with each other. Eventually, a winner begins to emerge, and China prunes the laggards. The companies in question will have their debt wiped off of the books. Eventually the tough competitors will mature enough to take on the world, and they will not be hobbled with debt during the transition from domestic markets to global.

In this way, Yuans are issued nearly debt free from the State Banks, and end up on the ledger of a Solar company. The debt is forgiven, and the numbers on the ledger are forgotten. In the U.S., by contrast, debt dollars that are issued from the Treasury, have a counterpart in a bond (bonds are given to the Fed to make new money). So, our debt ledger accumulates at the Government level, while China's debt can accumulate on a businesses ledger.

If our U.S. solar companies borrow money from a private bank, then the debt accrues to the private bank.

China uses its state banks to pick winners and loosers. This close alliance between business and the State, is fascism. If they are wise in their "bets" China can tilt the market fairly easily in their favor. China has targeted Solar, and beware to any Western Company that doesn't understand these economics.

By the way, I'm with Kate, nuclear has the energy density to give mankind all the energy he needs. During the Carter administration, the standard living of Americans correlated 1:1 with energy consumption. The linkage still applies, although conservation has since added some efficiencies.

David Govett said at December 26, 2011 2:28 AM:

I guess I'll fold my lunar cell company.

Randall Parker said at December 26, 2011 10:58 AM:

Batman,

Since electric demand varies quite a bit (by day/night, day of week, season, and temperature spikes among other factors) so does wholesale electric power cost. Therefore electric power generation plants come in a number of variations optimized for different degrees of continuous or temporary operation.

One of the advantages of solar power is that solar output comes more when wholesale electric power costs are higher. It is not a perfect fit. Solar peak at noon and summer electric power demand peaks in late afternoon. But solar does come during periods of moderately higher wholesale prices (ignoring Germany, Canadian Maritimes, and other winter-peaking areas).

Solar would integrate with other electric power sources more or less well depending on their nature. Solar works well with hydro because when the sun is shining brightest hydro water can be held back for later use. Solar would work well with any fossil fuel electric power where the fossil fuel is very expensive.

Solar works least well with any of these factors:

- winter peaking demand.
- existing baseload generators have lots of nuclear or other power sources with high capital costs and low fuel costs.
- demand heavily shifted toward late afternoon.
- lower variability of demand due to industrial demand from a continuously operating industry (e.g. aluminum smelters).

Solar would work better in a system with variable pricing to end users.

Campesino,

Thanks for that correction. Makes sense. There's been a a migration of big projects from solar thermal to solar photovoltaics. I see Martin LaMonica has done a follow-up to that article where he points to cheap PV as the cause of Solar Millennium's bankruptcy.

Joseph Somsel,

I second Fat Man's request for a URL to the EPRI report.

Kate,

I think girls who know physics are very cool.

David Govett,

Unless you put your moon base near a lunar poll the long periods of lunar night make the moon an especially difficult at which to use solar energy. Though solar would work well for unmanned robotic rovers that can just sit still for 2 weeks.

Paul D. said at July 12, 2017 9:41 PM:

In retrospect, the claim was ridiculous.

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