The cost of designing, procuring and installing solar PV systems continues its steep decline, with the blended average system price dropping a phenomenal 52% in the past three years. These continued precipitous drop in solar costs is a boon to the medium to long term economic viability of solar. In certain markets and applications around the world, solar PV is becoming competitive with grid power. The most competitive applications are grid scale PV installations where installation costs are approaching $2 per watt all in. Certain markets around the world also represent attractive markets due to high extant electricity costs from the grid coupled with high solar insolation.
There is some talk in the industry that solar panels in China are heading to 45 cents per watt. It is also understood that there may be some panel price firming taking place in India, and, at current panel prices, certain solar companies around the world, especially in China where there is a significant over-build in manufacturing capacity, some companies may fail or take on local subsidies to survive.
Deutsche Bank recently released an analysis of global PV markets from the perspective of locations where grid parity will be reached within the next few years. Grid parity may alread have been reached in India, Southern Italy and Spain, where solar developers are proposing projects without requiring subsidies.
When solar crosses the grid parity threshold, solar becomes ever more competitive with existing sources of power generation. One of the surprising market dynamics that is being seen in Germany and Texas, is the basis for economic dispatch of power plants being determined by marginal cost to produce the next electron. Because solar and wind have no fuel costs, this means that are beginning to crowd out fuel-based generating supply.
Once the grid parity threshold is crossed, the adoption of renewables will accelerate, constrained only by capital formation and grid interconnections.
There is another dynamic associated with the economics of wide spread adoptions of solar PV on the grid - long term economics. Germany has made significant use of feed in tariffs to financially support PV systems. In the short term, these feed in tariffs exert a large financial burden on the electric utility companies and their ratepayers. Once, however, the FIT payment schedules reach the end of their payment schedule, the utiltiies will no longer have to subsidize the solar systems, with the result being free power. At that point, depending on the ultimate penetration of zero fuel renewable resources, primarily wind and solar, the utilities will have a cost structure focused on grid capitalization and management, and managing generation and storage resources focused on maintaining grid stability and safe reliable power distribution.
The global market for solar PV has quadrupled in the past three years, increasing from 7,438 MW of installed capacity in 2009, to over 30,000 MW of an estimated installed capacity in 2012, 400% growth. The annual growth of the global PV market appears to have leveled off between 2011 and 2012.
What is also apparent in the global data is the unevenness of year to year deployment in certain countries. The pace of deployment in Germany, for example has leveled off over the past three years. Italy experienced considerable growth in 2011, and has suffered a significant pull back in deployments in 2012, along with France and Spain.
Other countries, such as the United States, China and Japan, are currently seeing significant growth in their solar PV markets.
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