Climate Monitor


Issue 33 November 2011


Solar power has been in the news recently due to the collapse of the US solar manufacturing firm Solyndra (which had received loan guarantees from the US Government) and the failures associated with the NSW Government’s gross feed in tariff (which the Climate Monitor covered in detail in the April 2011 edition). What these policy failures have masked, however, is the major upheaval currently occurring in the solar industry which has resulted in significant reductions in the cost of solar panels. This month’s edition of the Kinesis Climate Monitor looks at some of the factors behind the recent drop in solar prices and what this means for achieving emissions reductions.

Moore’s Law for Solar?

In the IT industry there is something known as Moore’s Law, which dictates that the number of components that can be placed on a chip doubles every 18 months. The result of this is that the amount of computing power which can be purchased for one dollar doubles every 18 months.

An article in Scientific America, published earlier this year, argued that there is now talk of a Moore’s Law for solar power. Since 1980, the price per watt of electricity generated from solar photovoltaic panels (solar PV) has fallen from approximately $22 to under $3. This equates to an annual reduction of approximately 7%. Over these 30 years, while there have been some year to year shifts, the fall in prices has been largely steady and consistent.

There was, however, a levelling off of prices for most of the last decade. This levelling off was largely the result of a shortage of silicon, the main component in solar PV panels. As more silicon became available, prices once more continued to fall, with a massive drop in prices in 2009 putting solar prices back on track with the 7% “Moore’s Law” for solar. In 2010, prices fell so rapidly that they are now falling ahead of the historical trend.

Apart from the falling prices of silicon, Scientific America argues that there are additional two factors driving this trend. Firstly, manufacturers are working out how to make the process of manufacturing panels more efficient, resulting in less costs However, the cost of panels is only one component of the cost of a solar system. Traditionally, installation makes up half of the total cost of a solar system. Fortunately, installation costs have also been falling at a similar pace to the cost of modules.

In Australia, another major factor is changing the price competitiveness of solar – the rising cost of electricity. In 2008 the retail cost of electricity (the cost paid by households) was approximately 13 cents per kilowatt hour. Today, the cost is approximately 22 cents. This has made solar panels far more viable, as the grid electricity they displace is far more expensive than it was even four years ago.

The result is that solar panels have become a far more cost effective form of emissions abatement. In recent years, our work, along with published reports by ClimateWorks and McKinsey has shown that distributed solar PV had a marginal abatement cost of between $350 and $450 per tonne. That means that for every tonne of Australia’s emissions solar PV reduced, the cost was approximately $350 – $450.

However, in October of this year, Kinesis undertook analysis on behalf of Waverly Council to assess the emissions reduction potential of a range of alternative energy options that could be deployed at a large urban redevelopment project. Our analysis found that thanks to reductions in the capital cost of solar panels and the rising costs of electricity, distributed solar PV could reduce greenhouse gas emissions (for this particular project) at costs of between $16 and $37 per tonne.

What about the policy controversies?

What about the policy controversies?

Nobel Prize winning economist Paul Krugman recently published a column in the New York Times examining the recent drop in solar prices. In his article he mentioned that every time you hear the word solar you will probably hear cries of “Solyndra”. As Krugman was writing for a US audience this statement may not make too much sense for readers in other countries, however, Australia, like the US, has had its own solar policy controversy with the failure of the NSW Government’s solar bonus scheme. A close examination of both these controversies reveals that the falling price of solar was itself a major contributing factor.

Solyndra was a US solar panel manufacturer that produced cylindrical solar panels that utilised thin film technology which required no silicon. In 2010, the US Department of Energy approved a $503 million dollar loan to Solyndra that was intended to produce 3,000 jobs. Instead, the company filed for bankruptcy in September of this year. The collapse has caused considerable controversy in the US, with critics using it to discredit renewable energy investment.

However, one of the major drivers behind the collapse of Solyndra was the falling cost of solar panels. In the early part of the 2000’s rising demand for electronics and solar panels caused a spike in the prices for silicon. This gave manufacturers of solar panels that did not utilise silicon a potential competitive advantage. Recently, silicon suppliers have been increasing supply while solar PV panels which utilise silicon have become more efficient, requiring less silicon per panel. This has caused the price of silicon to drop, along with the cost of silicon based solar panels. In June this year the price of silicon fell 33%, down to their lowest in six years. This trend made Solyndra’s panels less cost competitive with traditional silicon based solar PV and was a major factor in its bankruptcy. 

In Australia, the NSW Government’s gross feed in tariff, known as the Solar Bonus Scheme, suffered a massive budget blow out and was ultimately axed. When it was introduced it was the most generous feed in tariff in the world. Solar panel owners could receive 60 cents for every kilowatt hour of electricity they produced. The scheme proved so popular that it met its target of supporting 50 MW of electricity in a matter of months, which was years ahead of schedule. It ultimately led to approximately 350 MW of solar panels being installed. Because it was so popular it would have led to rising costs of electricity as electricity retailers passed the higher costs they needed to pay solar panel owners onto consumers. This forced the Government to agree to fund the scheme out of consolidated revenue, at a considerable cost to Government.

One of the mistakes of the scheme was that it provided such a generous subsidy at a time in which the price of solar panels was falling rapidly. When Germany introduced the first gross feed in tariff for solar it was designed to provide cost competitiveness for different technologies. The most expensive renewable technologies (at the time roof top solar panels) were provided with the most generous subsidies. In 2010, as the price for solar panels began to fall, the German Government cut the price paid under its feed in tariff by 16%, well below the price of the NSW scheme when it was introduced.

Google betting on implementation, not innovation

Google betting on implementation, not innovation

On its official blog, Google announced it was shutting down its Renewable Energy Cheaper than Coal (RE<C) initiative. (RE<C) was developed as an effort to drive down the cost of renewable energy, a focus on researching improvements to solar power technology. The program mostly focused on solar thermal technology. Many articles have reported this as a negative story, arguing that it shows that Google was abandoning investment in renewable energy.

However, Stephen Lacey, writing for the Climate Progress website argues that in fact, Google’s decision reflects the rapidly falling cost of solar PV. While Google is ending its solar research and development funding, it is continuing to directly invest in the deployment of renewable technology. While its original research focus was on solar thermal, it has recently invested over $350 million in distributed solar PV deployment.

Google’s decision emphasises the potential significance of the recent fall in solar prices. With solar prices falling so rapidly, solar is becoming cost competitive with other electricity generation technologies. This is leading to rapid growth in the installation of solar technology. Last year alone, 17 GW of peak capacity solar PV was installed worldwide and solar power has averaged 65% annual compound growth for the last five years.