The Pain and Joy of the PV Module Price Decline

Solar energy, photovoltaics, solar cells

Source" GTM Research

In the past 18 months, photovoltaic module prices have dropped by over 50%. This solar energy market condition has been driven by a number of factors, including manufactured product oversupply, manufacturing capacity exceeding demand by 100% or more, and technology advances. The main activity creating these multiple price reduction drivers is the scale-up to near- or beyond-gigawatts scale manufacturing capacity which is required to achieve photovoltaic manufacturing economies of scale (with the resulting lowest ex-works cost).

This situation has brought pain for entities in the PV module manufacturing supply chain, but sheer joy to large project developers and small system installers. Average system level costs (modeled on a 1MW ground mount installed system) are now hovering around $4.25/Wdc with a kWh cost of energy at $0.17.  Forecasted PV module price reductions, based on publicly traded module companies’ guidance, indicate a system level cost of $3.25/Wdc by mid-2011. These numbers make many more projects viable, increase solar energy penetration, and reduce the need for large government subsidies.

While this is a good scenario for the PV industry generally, the module cost reductions are creating some interesting ripple effects. Modules used to account for as much as 70% of the cost of a completed solar installation but now are less than 45%.  With recent intense focus on the levelized cost of energy (LCOE) of a solar energy installation, the reduction of all non-module costs is under the microscope. These include system design, balance of systems (inverters, controlling electronics), project developers’ overheads, financing costs, installation methodology, labor cost, and operations and maintenance.

PV project developers’ overhead costs are increasing at a time when their supplier costs are decreasing. As mentioned in my post of May 4th, PV project developers face, on average, over a year of work just to bring a small utility scale project to shovel-ready.  While they face many challenges relating to real estate, financing, power purchase agreements, grid interconnection, and permitting, a recent installer survey shows the costs and challenges relating to only permitting can be as high as 20% of total development costs.  These costs can be direct fees paid (as much as 5% of total install cost in some jurisdictions) to the permitting authority and overhead costs relating to long and laborious permitting cycles of local and regional governing bodies.

The long permitting process can be attributed to some degree to unfamiliarity with PV generation plants, but also general indifference to PV. A recent large commercial rooftop installation was subjected to numerous county permitting office signoff delays spanning 2 months after project completion for issues such as having the wrong color placards, insufficient detail on permit document signoffs, and non-conformance to code which was not required in the original permit. When the inspector finally arrived for the final review, the building owner was told, “solar is a passing fad and useless energy.”

With numerous, differing permitting standards and attitudes such as the above inspector, the challenge of permitting solar energy and renewable energy in general needs attention by legislative bodies at all levels of government to reduce this unnecessary developer line item cost.

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