The wind and solar price crunch

The costs of wind and solar keep falling - and in a remarkably consistent way. And the falls are far from over.

Solar panel prices have been falling rapidly since late-2008, placing manufacturers under great strain but helping to make PV more viable for large-scale projects and rooftop installations. Solar is not alone either, with the cost price per megawatt of wind also quickly softening - and the price declines will continue for several years.

The solar module price falls, coupled with continued government incentives – which are now being wound back by Australian state governments, have led to a boom in small-scale renewable energy from 2011 through until today. It was no more apparent than in Queensland recently thanks to the rush from consumers to buy rooftop solar systems ahead of a sharp reduction in the solar feed-in tariff.

Just how much prices have fallen is quite staggering, with PV module prices down 75 per cent since 2008, and 45 per cent lower last year alone. This year, prices will again fall by double digit percentages, with First Solar's Vice President of Business Development and Sales at First Solar, Jack Curtis, telling Climate Spectator today that while the falls have moderated this year, they are still considerable and forcing several manufacturers to sell below cost.

“The best way to characterise it is that it’s still falling but not at the same rate,” he said. “And I guess there have been some people expecting there to be some kind of an artificial floor that will be dictated by the cost structures of a lot of manufacturers who, by their own admission, are selling below cost.

“And what has been quite interesting to see is that really hasn’t provided that artificial floor. The price is still going down at enough of a rate where it’s exceeding companies’ ability to match that on the cost reduction side.”

Source: NPD Solarbuzz.

The declines have partly been a function of the rapid proliferation of competitors, leading to a supply glut and intense price battles. Beyond competition however, rapid manufacturing growth has helped bring down production costs, allowing for lower costs throughout the supply chain, as explained at Clean Energy Week by Bloomberg New Energy Finance’s Australia boss, Seb Henbest.

BNEF has revealed an almost linear relationship between the amount of PV capacity and the cost reductions of modules. For every doubling of manufacturing, a 24 per cent cost reduction is reaped in what is close to a “perfect learning curve,” Henbest suggests.

When viewed in combination with comments from Curtis to Climate Spectator last month – where it was noted that much of the price declines for large-scale PV projects can be reaped through efficiency in development – it’s clear that large-scale PV projects have the potential for further swift price falls and increasing cost competitiveness with other energy options. Indeed, this has been highlighted through the Solar Flagships program, whereby the costs of project proposals delivered to the government when the tender process was reopened this year varied markedly from the costs outlined just last year – likely by 30-40 per cent.

Despite this lower price potential, expectations that large-scale solar could be cost competitive with large-scale wind projects pre-2020 are overly optimistic, according to Henbest. BNEF now expects large-scale wind to be the cheapest option through 2020, which means from the LRET perspective, the greatest amount of development will be that of wind power – potentially seeing capacity four-fold (or perhaps five) from current levels.

Of course that may prove an overly buoyant prediction for wind given new planning regulations in Victoria and New South Wales have stalled developments in those two states.

As for the wind power experience or ‘learning curve’, for every doubling of manufacturing capacity, prices fall 7 per cent (per MW), Henbest suggested. In a similar manner to what Curtis was saying, efficiency gains in development add a further boost on top of this and in the case of wind, this sees total price declines of around 14 per cent per MW for every doubling of capacity.

The key point is that while subsidies are needed in the short to medium-term for technologies like wind and solar, prices will keep falling.

"Solar from a price point of view has to keep coming down," Curtis said. "It can't flatten out, it can't tick back up until you get to a point where it's cheap enough not to require subsidies to be deployed - it really can't do anything but keep going down in price."

For updates on Clean Energy Week beyond articles on the site, please follow @ClimateSpec or @Danielbpalmer on Twitter. Updates will largely be provided in the afternoon.

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