by Bob Shively, Enerdynamics President and Lead Instructor
In recent blog articles we have examined solar photovoltaics (PV), a generation technology that directly converts sunlight to electricity. In related posts we posed the questions: Are PVs on the verge of a transformation in electricity generation technology? Can solar power on our rooftops compete with existing generation on price? Despite all the buzz surrounding it, 2011 was a bumpy year for PVs. Costs came down and installations continued to grow, although not as dramatically as in 2010. But here in the U.S. much of the latest news has been about the Solyndra bankruptcy and a brewing PV trade war with China. So is the PV industry living up to all its hype?
Installations Have Continued to Grow but Growth has Slowed
According to estimates by Digitimes Research, worldwide installations of PV systems, which in 2010 dramatically grew an estimated 133% compared to 2009, grew by an estimated 18% in 2011. They are further forecast to grow by 12% in 2012.
Worldwide Installations of PV Systems (in MW):
Since about 80% of the world’s installations have historically been in Europe, we can look to that region to explain the drop in growth. The answer is that the key governments such as France, Spain, Germany, and the Czech Republic have trimmed subsidies designed to foster solar growth, but installation growth in other markets such as China, India, and the U.S. has only picked up some of the slack. This pattern is expected to continue in 2012.
Production Costs Have Dropped While Production Capacity Has Grown
2010 was characterized by not enough production to meet demand for PVs, meaning that producers could charge a premium to consumers. In 2011 this situation changed dramatically. By the end of 2011, estimated world production capability was a whopping 267% of 2009 capability. In fact, it has grown so quickly that capability now exceeds actual production by 50%.
Worldwide PV Production Capability (blue)
and Actual Production (yellow) in MW
Production capability has grown rapidly because entry barriers to producing PV cells have dissipated as methods of migrating well-known silicon chip production techniques to PV cells have become understood. Also, silicon feedstock constraints have been eliminated, and equity markets in the Western world and governments in Asia have been willing to fund construction of PV manufacturers. The result – lots of new PV factories. This is hard on producers who in the past could charge a premium for PVs in short supply, but now find themselves having to compete on price.
But the oversupply is good for customers who benefit from competition. Prices for PVs fell significantly in 2011. According to First Solar CEO Michael Ahearn: “In an industry without entry barriers, which we believe is the case for the polysilicon PV module industry, the easy re-entry of competitors and expansion of capacity will keep downward pressure on prices and margins indefinitely.”
This means that in some markets with government subsidies, the right installation is already near or at grid parity. In fact, I recently had dinner with friends in California who told me they purchased a $25,000 PV system for their house with a pay-back of less than five years. This means that since they own the system free and clear, they’ll have free energy starting in 2016.
But What Will Happen When Government Subsidies Drop?
With the current state of the world economy and both Europe and the U.S. concerned with governmental debt levels, it is likely that subsidies for solar power will continue to decline. So can the PV industry survive with less support? In a recent announcement to investors, First Solar announced a new strategy designed to deal with an environment of low PV costs, high competition and reduced government support. The new strategy is to move away from roof-top installations, where the assumption is consumers will pick the cheapest supplier regardless of whether it is manufactured in the U.S. or in China, and to compete on utility-scale PV power plant installations where superior project development and engineering skills can win out.
At least one key investor is buying the story – Warren Buffet’s MidAmerican Energy Holdings recently acquired two utility-scale developments in California including one being built by First Solar. Although it remains to be seen, perhaps 2012 will be year that the PV industry begins the transformation from dependence on government support to success in the competitive marketplace.
References and resources:
 See Global PV Market, 2011 available at http://www.digitimes.com/Reports/Report.asp?datepublish=2011/5/2&pages=RS&seq=400
 Global production capability and output data are taken from the December 14, 2011 First Solar 2012 Guidance Conference Call available at http://investor.firstsolar.com/eventdetail.cfm