PV Costs to Plummet in 2009

The cost of photovoltaic electricity is due to plummet in 2009, according to leading clean energy analysts. 

Average silicon contract prices will fall by more than 30% in 2009,
according to the quarterly Silicon and Wafer Price Index published by
New Energy Finance.

The weighted
average price for polysilicon for delivery in 2009 under contracts
signed in 2007 and 2008 was $113/kg, compared with $165/kg for silicon
for delivery in 2008, a reduction of 31.5%.

Silicon purchased on the spot market, though currently at much
higher prices, could see even more precipitous falls. Among respondents
to the New Energy Finance Silicon and Wafer Price Index, 73% anticipate
lower spot prices for polysilicon in 2009.

At the 2008 contracted silicon price of $165/kg, silicon contributes an
estimated $1.52/W to the current crystalline silicon module price of
around $4/Watt – or just under 40%. A silicon cost reduction to $113/kg
in 2009 would therefore lower module prices for the majority of the
market volume that uses contracted silicon by 12%.

Although the decrease in silicon prices will be good news for
silicon-based cell and module-makers, another threat is now looming
larger. According to the new report, "Through Thick and Thin", New
Energy Finance forecasts that production of thin-film photovoltaic
modules will more than quadruple to 1.9GW in 2009.

Thin-film PV is less efficient at converting solar energy to
electricity, with efficiencies of 6-11%, rather than the 13-18%
displayed by commercial crystalline silicon technology. Thin-film
therefore sells at a per-Watt discount to crystalline silicon as it
takes up more space and requires more ancillary equipment to produce
the same power. However, with manufacturing costs approaching $1/Watt,
it is an attractive option for larger space-constrained applications.

This may pressure crystalline silicon module manufacturers to
reduce their selling prices by more than the reduction in costs in
order to retain their edge in the market. New Energy Finance analysis,
based on the historic cost experience curve, suggests that current
silicon-based solar module prices of $4/Watt could drop to $2.60/Watt
by the end of 2009, a reduction of 35%.

Under favorable conditions, his could translate into an unsubsidised
generation cost of $0.17/kWh for crystalline silicon–competitive with
daytime peak electricity prices in many parts of the world.

Meanwhile, thin-film manufacturers can achieve unsubsidised costs of $0.13/kWh for the same large project by 2010.

There will also be a third factor at work, helping to bring this about.
The credit crunch will impact the ability of some solar project
developers to find debt finance. This will slow the build-out of solar
projects, intensifying downward pressure on prices and potentially
shifting the market from value-based to cost-based pricing.

Earlier this week major solar manufacturers Q-Cells (QCE.DE) and JA Solar (Nasdaq: JASO) both reduced guidelines for 4Q08 earnings.