Dropping Solar Panel Costs and Grid Parity

Solar is, by any measure, a hot industry. Even with the reduction in subsidies from Germany and Italy, the world's two largest solar markets, global spending on solar installations continues to be high. Analysts suggest that this year's solar purchases will amount to roughly the same as last year's, 27 GW globally, despite the reduction in subsidies in many parts of the world. Part of this growing demand is the reduction in costs. Solar's installed cost has dropped 10 percent just in the last 4 months, as manufacturers are being forced to compete in a heavily commoditized market.

While solar sales continue to climb, the margins for solar manufacturers continue to drop. First Solar, the U.S.'s largest solar manufacturer, has seen its share prices drop 90 percent, to a low of $20.21 per share this week. Even in China, where solar manufacturers are subsidized and labor is inexpensive, manufacturers are struggling from heavy competition. And earlier this month, Q-Cells, a German manufacturer, filed for insolvency. Q-Cells was once the world's largest solar manufacturer.

Bad news on the manufacturing side, as these margins continue to trim, is good news in other areas. First, installation costs continue to drop, so more homeowners and businesses can afford to install solar arrays. But in a global sense, and perhaps more importantly, we're approaching grid parity in several states.

There are effectively three markets for solar: residential, commercial, and utility-scale (typically this is more of a concentrating array of concave mirrors as opposed to panels). There are many factors that play into the cost per watt calculations, but Grid parity for solar was expected to occur within 5 years in many parts of the U.S., encompassing about 57 million Americans (including California, Hawaii, and New York). But that analysis was conducted in the summer of 2011, and did not forecast such a precipitous drop in the cost of solar panels. It may well be that grid parity will be here sooner than we think for solar.

The tipping points in the sustainability movement are coming, and once solar is less expensive or even costs the same as coal, why would anyone even consider coal, with all its inherent challenges? That's the position of David Crane, CEO of NRG energy, one of America's largest electric utilities, who foresees rooftop solar and electric vehicles being cheaper and easier than their counterparts in as few as 3-5 years for most of America.

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Scott Cooney is the author of Build a Green Small Business, and helps entrepreneurs start green businesses to create green jobs. For more, please visit www.GreenBusinessOwner.com

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Photo courtesy of Dept of Energy Solar Decathlon on Flickr Creative Commons