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Solar PV continues to shoot down the cost curve

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One of the most misunderstood aspects of the solar PV phenomenon over the past 5 years is the idea that it has been that it has been driven entirely by surplus capacity from China, and little else. Defenders of fossil fuel generation will tell you that the cost reductions are a mirage, and will solar module prices will likely rebound as the market comes into balance.

They are in for a nasty shock. Between 2007 and 2012 it is estimated that solar manufacturing costs fell by between 70 and 80 per cent – courtesy of the feed in tariffs that began in Germany and spread elsewhere, and the manufacturing boom that followed, particularly in China

But the cost fall was not simply a matter of capacity, it was also about efficiency – more powerful modules, less silicon, less metals, improved manufacturing processes and so on. And the fall is continuing.

Last week, SunPower, the second biggest US solar PV manufacturer, said it had succeeded in reducing manufacturing costs by 20 per cent over 2013, following a similar fall a year earlier (and the year before that). And it managed to obtain an even bigger (25 per cent fall) in the balance of systems costs, the amount it costs to make and install solar modules in utility-scale solar farms.

The latest cost fall has been significant for SunPower, because it means it can lift its margins from slightly negative to nearly 20 per cent,  and deliver a solid return to shareholders. Further cost cuts means it will either improve its margins, and returns to shareholders, or be able to meet consumer price falls if another surge in capacity emerges.

These are the signs of a sustainable industry. More importantly, they underline the cost reductions that can be achieved by deployment at large scale. Some of these gains are based on local knowledge, which is why it is frustrating that Australia is not moving down the track.

SunPower president and CEO Tom Werner says the cost falls are not over yet. He told analysts last week that its next line of manufacturing plant will likely reduce the cost per watt by a further 35 per cent over its current manufacturing lines.

And there will be further lift in efficiencies – the new manufacturing plant (known as Fab 4) will enable SunPower to to drive higher cell efficiencies, and it plans to produce its first 23% X-Series panel by the end of 2015.

sun power solar pvThe 24 per cent reduction in utility-scale deployment is also critical. SunPower had deployed a 1MW module that it dubbed Oasis as the basis for its large-scale plants – which include the 250MW California Valley Solar Ranch and the 579MW Solar Star project it is building for Warren Buffet’s Mid American Holdings.

However, Oasis has now been scaled up to a 1.5MW module block, which can be replicated on any site. It improves installment efficiency because it’s partially pre-fabricated, it’s pre-engineered, and the mounting structures are optimized so less steel used..

There are other cost reductions in the pipeline. SunPower recently purchased a small California-based robotics engineering company called Greenbotics. This will enable it to cut water usage for cleaning by around 90 per cent and lift its energy production at the same time. This will be key in hot (and dusty) markets such as the Middle East, South Africa and Chile.

“We believe that SunPower’s ability to directly attack cost across the entire value chain represents an important source of long-term competitive advantage,” Werner said.

Two other areas which will be crucial in future deployment are in storage and finance. SunPower says the integration of energy storage into its products are a major focus and it is implementing a number of pilot programs. More details will be released later this year.

Finance is also critical, and SunPower has now attracted more than $1 billion in third-party finance to offer home leasing, which forms the major part of the market in the US, and a growing component elsewhere. “We’ve also seen the cost of financing just going down,” Werner said.  “For instance, the BofA ($220 million Bank of America) deal that we just consummated has a lower cost to tax equity than our first deal did. So, that competition is working, it’s driving down the overall costs.”

(It should be noted that the average solar PV installation in the US among SunPower’s customers is 8.3kW. That’s nearly three times the average installation size in Australia).

Meanwhile, SunPower’s C-7 concentrated solar PV technology is also emerging into the commercial arena, and recently gained a contract to provide a 20MW facility for a data-centre, as well as entering a joint venture for the technology in China. Werner says the concentration will improve as the company introduces its higher efficiency cells. “It has the potential to be very cost effective and it has the virtue of utilising our (manufacturing) output very efficiently. “it’s economically competitive and … it’s faster to scale.”

SunPower, as we have previously noted, is also about to begin construction of a 70MW merchant power project in Chile, which has surging demand and insufficient capacity and, as a result, high wholesale electricity prices. It also has the best solar resources in the world, and SunPower’s will be the biggest solar installation that will compete with other technologies on the open market.

 

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  • tracabhi

    So what’s the case for customers NOT to wait for the prices to drop further before adopting solar? Why should they adopt solar now and not wait till the price drops further and maybe further?

    • rarnedsoum

      Because this is not the same as waiting for a cheaper, better iphone.

      People get caught up with the technology. Solar is not about the technology. It is a financial investment that yields savings like nothing else on the planet.

      This is more like re-financing your home mortgage. But better.

      The longer you wait for interest rates to drop, to refi, you are still paying an old mortgage, at the old, higher interest rates, every single month you delay. Soon, the cost of waiting erases any small drop in interest rate that you seeking. Opportunity lost. Simple economics.

      But unlike re-financing a home, you only make a solar purchase once in a typical home’s lifetime, so you are wasting money on electricity bills, every single month, that you delay, that you will never recoup, ever again.

      • tracabhi

        I get the rationalization @rarnedsoum, but one difference that is often claimed is that for a solar power solution a customer has to shell out a large capital outlay which has its own interest costs and benefits (as compared to cash in bank/invested). Whereas in refinancing the comparison is to the marginal loss due to inaction. Also while refinancing often the updated value of the property is considered and the customer actually gains from this increase in market price. Have you though of how one can counter this argument? Honestly I am looking for a way to explain this away, can you?

  • http://www.energysage.com/blog EnergySage

    GTM Research just released numbers that put the average cost for solar at $4.59 / watt, down from $5.03 at the same time last year. At EnergySage, we’ve found that comparison shopping has reduced the average cost our users are paying by almost 9% which for an average 6 kWh system translates into $2400 less. EnergySage’s Instant Estimator can show you the numbers for your specific property. http://bit.ly/1gKEjv0