Solar PV costs to fall another 25 per cent in three years

The big fall in solar PV costs over the last five years is helping redefine the future of energy generation across the world, with grid parity in the retail market achieved in dozens of countries, and even beating wholesale prices in markets such as Chile and the Middle East.

And it seems that the cost falls will continue. Canadian Solar, one of the big three global solar PV manufacturers, this week delivered a detailed update of its outlook, including some interesting forecasts on the future of solar PV costs.

In short, Canadian Solar says the cost of solar PV modules will likely fall 25 per cent in the next three years, from US47c/watt at the end of 2014, to US36c/watt at the end of 2017.

This is mainly going to be achieved by improvements in cell efficiency and the output of solar PV modules. Canadian says it has been able to increase cell efficiency at 0.5 per cent per year over the past five years, and it expects this to continue, or even accelerate.

It is now targeting cell efficiency of 22 per cent and module power outputs of 310W. Commercial efficiency will rise to around 20 per cent from 16-17 per cent today.

This comes as it plans to almost double solar module production to 5.5GW per annum by fiscal 2017. (That conforms then to the past experience that solar PV costs fall by 20 per cent for every doubling in capacity).

It’s not just the cost of modules that will drive a significant reduction in costs at the consumer end. UBS this week noted the huge number of “Yield-Co” being created by leading manufacturers such as Sunpower, First Solar, Trina, Jinko and Canadian Solar.

These YieldCos are essentially vehicles that can attract billions of dollars in investment, lowering financing costs.

Unlike Yingli, which pushed “upstream” into the poly-silicon market and is now having debt problems, the downstream push is seen as a key to retain profitability.

“We see this increased competition having the potential to drive development margins and PPAs down as the push to ‘own’ the project; we see a similar trend emerging among utilities, marketers, and IPPs alike seeking growth in the sector. We suspect those with scale and real depth in offtaker relationships will survive and thrive.

Direct sales to consumers are also likely to increase and boost profitability. Canadian Solar intends to treble its amount of direct sales to around $1 billion per annum by 2017. That will add 5-10 per cent to their margins, as they cut out the middle man, particularly in retail and micro grid sectors.

“This will involve selling modules and BoS products via online platforms, and we believe will force many resellers out of business, and eventually drive equipment costs down with suppliers eating some of the additional margin,” UBS analysts wrote in a recent note.