Solar: Prices Falling Faster Than Costs – 1/9/17

Solar power is edging closer and closer to becoming the lowest-cost option for electricity generation in most of the world. Yet, new lows in costs are being outpaced by falling prices as most solar manufacturers are set to sell their wares at a loss in 2017.

Better technology, economies of scale, and manufacturing experience are allowing the solar panel manufacturers to make cost reductions unrivaled by competitors in energy generation. And the International Energy Agency expects utility-scale generation costs for solar to fall 25% on average in the next 5 years with a further drop of 43% to 65% by 2025.

Since 2009, solar prices are down 62% and, by 2025, solar may be cheaper than using coal on average globally, according to Bloomberg New Energy Finance.

The falling price of solar is, without a doubt, a positive thing since it means more affordable clean power that can compete without subsidies in at least some parts of the world.

The only problem: with such low prices, the companies selling solar panels are going to struggle just to break even.

Suppliers are forecasting rapid expansions in capacity this year even as demand is expected to slow and push prices down. On top of possible over-capacity problems, developers keep submitting lower and lower bids to supply solar power. A 2016 August solar power auction in Chile yielded a contract for 2.91 cents a kilowatt-hour. In September, a United Arab Emirates auction yielded another with a bid of 2.42 cents a kilowatt-hour. For comparison, U.S. coal power costs about 3.23 cents a kilowatt-hour on average.

The cost of solar power has fallen dramatically, but not quite that dramatically. Such bold proposals come on the bet that the cost of the technology will continue to fall fast enough to make such projects profitable. That makes for a risky bet even if solar technology is expected to continue improving.

The current prices are already lower than cost estimates from major firms in the industry like Chinese manufacturer, Trina, the biggest supplier of panels in 2015.

Yet, some companies’ cost structures remain competitive, even with prices this low. With some of the lowest cost estimates in the industry, Canadian Solar Inc. reported costs of 37 cents in the third quarter, and the company says it expects to reach 29 cents a watt by the fourth quarter of 2017.

Not every maker of solar panels will thrive in the next few years, but with Saudi Arabia, Jordan, and Mexico already set to hold their own auctions this year, aiming to drop solar prices even further, companies able to keep costs in line with those prices will at least have an opportunity to do a lot of business.

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