Rekubit-U.S. Powers Up on Solar as Manufacturing and Installation Costs Fall

Germany and RekubitSpain might still dwarf the United States in installed solar power capacity, but after a year in which U.S. capacity jumped past 2,000 megawatts and photovoltaic costs continued to fall, there is hope for the growing solar industry.

The Solar Energy Industries Association released its 2009 year in review last week and reported that the U.S. installed 481 MW of photovoltaic and concentrating solar power, enough to power about 80,000 homes. That’s up 37 percent from the 351 MW installed in 2008. Revenues in the solar industry grew 36 percent last year, in spite of the recession.

Perhaps the biggest driver of the solar industry was the falling price of photovoltaic modules.

In the middle of 2008, photovoltaic modules cost between $3.50 and $4 per watt. They have since fallen into the range of $1.85 to $2.25 per watt.

Once installation expenses are included, total project costs in 2009 averaged $7.92 per watt, with small residential systems — on the order of about 2 kilowatts — slightly higher at $8 to $10 per watt. That still may not be the price floor.

“Some of the price reductions we’ve seen so far in modules have not yet been fully reflected in installed project costs,” said Ryan Wiser, a renewable energy policy expert at Lawrence Berkeley National Laboratory.

“People are working down inventories, it takes a while for projects to go from the contracting phase to the constructing and operational phase, so I think we will continue to see some reductions in installed costs as the lower module prices begin to work their way through the value chain.”

Solar cell makers are also competing to develop technology that can drop those costs even further, with a goal of under $1 a watt.

Overall, prices have fallen an average of 3.6 percent each year since 1998, when the average installed costs were $10.80 per watt, according to a report co-authored by Wiser.

“That price decline was halted for a few years; in the 2004 through 2008 time frame, prices were largely flat, and even in some markets rising a little bit, largely because demand for solar modules outstripped supply,” Wiser said. There was concern that prices had hit the floor for photovoltaic installations, but then the recession sent demand for PV modules plummeting.

“Over the last year and a half or two years, we’ve found that, yes, prices can certainly go lower, and they have."

Policy-Driven Industry

At the same time, state- and federal-level policies have added incentives and requirements that are pushing both individuals and utilities toward increasing solar’s share of the electricity market.

“Where the installation costs are coming down are in those states that have the most well-funded incentive programs for solar,” said Charlie Kubert, a project director with the Clean Energy States Alliance.

In general, two states have stayed far out in front of the pack and accounted for as much as 90 percent of all the state-level funding for solar power: California and New Jersey.

Last year was no exception: California led the way with 220 MW installed and New Jersey followed with 57 MW. In terms of total capacity, California has almost 10 times as much as No. 2 New Jersey, 1,102 MW versus 128 MW. Other states that have reasonably strong incentives for solar power include Nevada, Arizona and Colorado in the West, and New York, Connecticut and Massachusetts in the Northeast. “Other than that it’s pretty much a black hole,” Kubert said.

Policy will undoubtedly continue to drive the solar market. The SEIA reports that 6,470 MW of photovoltaic projects are currently in development, and many will try to begin construction in 2010 in order to claim a chunk of the Treasury Grant Program set to expire at the end of the year. As of earlier this year, $81 million had been doled out to solar projects through that program, for 182 projects in 30 states.

International Outlook

The global demand side of the solar manufacturing equation may also soon shift as a result of policy in solar leader Germany. The government is planning on cutting its two-decade-old feed-in tariff policy by 16 percent this summer; the policy allows individuals and businesses with solar panels to earn money on the excess electricity they generate.

“The German PV market represents a very sizable fraction of the global market,” Wiser said. “So if the German market is expected to slow or accelerate, this has significant worldwide implications for solar manufacturers and suppliers.”

Germany installed 3,800 MW of capacity in 2009, bringing its leading total almost to 10,000 MW; Spain is second with 3,595 MW installed capacity.

U.S. Outlook

Some states in the U.S. are starting to experiment with feed-in tariff policies, but Wiser expects federal and state tax incentives will remain the primary drivers of the nation’s solar market.

Solar power still has a long way to go in terms of becoming a sizable chunk of the electricity generation in the U.S., but the signs are positive at this point. According to the SEIA report, by 2025, the country will need about 9,000 MW of installed capacity to meet various solar and renewable energy goals.

“In terms of solar contribution to the U.S. energy mix, I’m very bullish,” Wiser said.

“It was only a couple of years ago that you looked at the various renewable energy options, and after you finished talking about wind, it wasn’t really clear where you were going to go next. That’s no longer the case.”

See also:

Solar Water Heaters Sprouting on Rooftops Worldwide

Evolution Solar: China Now ‘Center of Gravity’ for Solar Manufacturing

Solar Could Generate 15% of Power by 2020, If US Ends Fossil Fuel Subsidies