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Decreasing the Cost of Solar Requires a Market


It has come to my attention that a rather large group of people believe that the cost of solar modules will continue dropping indefinitely, until the price is so cheap that it will beat pricing of electricity produced from coal from day one of installation (Solar is already cheaper than coal, but the timeline is measured in years not minutes). Sadly, I do not believe that is that case… And I use the word “believe” lightly, not because I found the answer in a magical book that contains the truth of all things, but because my “belief” is based on factual analysis.
Since the advent of the modern day solar market, the pricing of solar panels (the majority of a system cost) has fallen roughly 20% with every doubling of manufacturing capacity. It is very similar to Moore’s Law for the semiconductor industries. A direct quote from Wikipedia may be in order here.

Moore’s law describes a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years. This trend has continued for more than half a century and is expected to continue until at least 2015 or 2020.

If one were to take the same curve and knock it over to the right, then it would bear a very close resemblance to the pricing trends of PV modules. Instead of the X axis being time, and the Y axis being computational power, the X axis would be global manufacturing capacity and the Y axis would be price per watt.

Now that the boring explanation is out of the way, the real argument begins to take shape. But before we get to that, one must ask one more question. What causes the manufacturing capacity to increase? The answer is simple: The existence of a market where goods can be bought and sold at a profit.

With the advent of Germany’s Solar Einspeisevergütung (feed in bonus) Law, the world market reacted by manufacturing goods to be shipped to Germany where investors waited (often for months) for their goods to be used in projects that would produce energy for a market price according to the technology. In other words, they created a market demand that would remunerate the early investors in the technology with a return over a reasonable time frame. And annually as the market shifted attention toward this market and prices began to fall, so did the remuneration for new projects. Other countries followed suit and created other programs which soaked up production although a majority of those programs were doomed to fail. But, the market reacted to the new opportunities and ramped up its production to meet demand. As a result, the prices began to fall in accordance with availability. As the investments became too profitable, the remuneration was lowered to match the market availability, and production continued to expand due to the opportunities that were opening up around the world.

In the last decade, all this time that Germany was ramping up its renewable resources at a cost no more than 2 EURO more a month for rate payers, the United States has been sitting on its hands and pushing forward with impotent and complicated ideas when the answer was staring them right in the face. And now that the Germans have come to within pennies of grid parity, the USA is about to collapse the few weak programs that it has.

Now that the mood has been officially set, the purpose of this article is to serve as a warning. In the last few months, how many major players, both manufacturers and installers in the US market have gone belly up or left the US manufacturing environment? The reason is not taxes or labor rates, although these reasons might be popular whipping boys, the reason is that the American market has not moved forward on intelligent policies to engender the growth of a solar market. As companies collapse, scale back production, or move production closer to markets that are profitable, the worldwide manufacturing capacity decreases. If the cost per watt decreases with the increase of manufacturing capacity, what happens when the manufacturing capacity decreases?

This is only point number one, but let’s assume that there is a magical miracle that allows module pricing to fall farther in the absence of manufacturing capacity increases (aside from short term decreases due to offloading of overstock when markets close). How far is it actually possible for module prices to fall before manufacturers run into the wall of commodity pricing? Silicon, aluminum, silver, oil, plastics, glass, and more are used to manufacture solar modules. Although the manufacturing techniques may be improving over time, without markets in which to sell product, how could anyone expect manufacturers to increase productivity to drop prices or to spend the money on R&D to increase efficiencies?

The truth is that without markets that are open to accept solar products or allow investors to make a profit investing in the creation of solar energy, the market will not develop farther. In as short a time as 5 years ago, the price of installation was near $11 dollars a watt. Now we are looking at installation costs of under $4 a watt in markets that have opened the doors to investors. It is possible to debate the intricacies of the marketplace and pick apart individual points to fit an ideology or preconceived notion, but one truth of the marketplace remains unchanged…

Decreasing the price of solar requires a market.

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