Why solar panel prices are falling

by on November 11, 2011 at 6:20 am in Economics | Permalink

The cost of solar cells and microchips has nowhere to go but down because of a supply glut for the commodity they’re made from, a brittle charcoal-colored semiconductor baked in ovens at 600 degrees centigrade.

Polysilicon has plunged 93 percent to $33 a kilogram from $475 three years ago as the top five producers more than doubled output, data compiled by Bloomberg shows. The industry next year will produce 28 percent more of the raw material than will be consumed, up from 20 percent this year, said Robert Schramm- Fuchs and Shai Hill, analysts at Macquarie Group Ltd.

“Polysilicon is a grossly, grossly, grossly oversupplied commodity product,” said Paul Leming, director of research at Ticonderoga Securities in New York.

Perhaps the story can be read either way, but overall it doesn’t sound like good news for the future of the solar industry.  It sounds like a glut induced by previously high expectations, which now have been corrected and converted into ruinous excess capacity: “The famine turned to a glut when demand growth for panels slowed as solar-energy subsidies were cut. With plants taking at least two years to build, new factories are set to keep opening.”  And this:

Price declines for products at every step in the solar supply chain triggered a 60 percent drop in the Bloomberg Global Leaders Solar Index since February tracking 37 shares. It’s led to speculation that more poly producers and panel makers may either combine or go bust in the coming months. Q-Cells SE (QCE), once the world’s biggest cell maker, has said it’s open to takeovers.

Hat tip goes to on Dan Hill on Twitter.   Here is my previous post on the topic.  You can read this background as a case for subsidies, but it’s hard to read it as a case for optimism or the expectation of exponential progress.

Addendum: Robin Hanson offers related remarks.

Rahul November 11, 2011 at 6:35 am

Interestingly just a few years ago, circa 2007 I remember reading a WSJ story that polysilicon was in serious short supply and the producers were backlogged with 18 months of orders or so. I remember it saying that polySi furnaces were the bottleneck in the solar panel supply chain.

Andrew' November 11, 2011 at 7:06 am

What would the price be if installing a set wasn’t the most complex project a homeowner would ever take on? We need an i-Panel.

Andrew' November 11, 2011 at 7:08 am

(I guess this is a roundabout way of saying small, illiquid markets can be volatile. And the pundits can only offer guilt trips, when guilt isn’t our relevant shortage.)

anon November 11, 2011 at 7:56 am

And the pundits can only offer guilt trips, when guilt isn’t our relevant shortage.

This is a very good sentence.

Slocum November 11, 2011 at 7:45 am

If installation was easy, then the number of installations would have to be limited politically, since there’s no way that installation and feed-in subsidies could be paid on a truly mass scale. This is a market driven much more by politics than economics.

Foster Boondoggle November 11, 2011 at 11:16 am

Having just done it, I think this is one of the most ridiculous things I’ve ever heard. The installation was completely trivial (for us – maybe not for the installer). Even the modest bathroom remodel we did 15 years ago was far more complicated. The only things we had to decide were: which face of the roof to use (neither was optimal), how many panels to install and where to run the conduit. Done. Bathroom remodel: choose tile, vanity, mirror, fixtures, etc. Way more complicated. What on earth would make you say solar PV is a complex project?

Rahul November 11, 2011 at 11:25 am

Since you just did this; what’s the current situation of photovoltaics versus thermal-solar? Just curious.

Foster Boondoggle November 11, 2011 at 12:43 pm

You mean homeowner thermal-solar for water heating? There was an article a couple of years ago by Severin Borenstein about it, arguing that it was a much better choice than PV for cheap renewable energy in California. It’s probably still true. But that IS a bigger project, because you have to do plumbing inside walls, replace a water heater (gas heaters lose too much heat through the flue to be the backup and storage tank), etc. So we went for no-muss-no-fuss PV. Not that they’re exclusive.

It seems like CA has potential to supply a huge amount of solar-thermal energy from the desert, but a Sierra Club that deems a few desert tortoises more important than a cooler planet, along with a bunch of Indian tribes that want to be paid off (apparently there are native burial grounds somewhere around there, or something) are causing lots of problems for those projects.

Rahul November 12, 2011 at 9:19 am

Thanks!

James November 11, 2011 at 7:42 am

I’m confused why you say “overall it doesn’t sound like good news for the future of the solar industry”. My understanding is that polysilicon is an input into the solar panel production. As such, the fall in the price of polysilicon feeds through to lower production costs for the solar industry. These lower costs are being passed through to consumers in terms of lower prices. This is a simple downward (rightwards) shift of the supply curve. The final impact for solar panel producers could be positive or negative, depending on the elasticities.

Needless to say, it doesn’t sound like good news for the polysilicon industry. (However, I suspect they did well enough during the days of limited supply.)

dan1111 November 11, 2011 at 8:10 am

The dominant narrative about these falling prices is that they represent the lowering cost of solar technology, a trend which will continue until solar is cheap enough to be viable.

If the falling prices are instead caused by a supply glut, then there is no downward trend, and the drop in price will only be temporary. That is why it is bad news.

Florian November 11, 2011 at 8:13 am

James:
You are right.
Lower input prices are a good thing for an industry.

“The final impact for solar panel producers could be positive or negative, depending on the elasticities.”

I don’t understand that part.
I would have thought that lower input prices create some kind of rent to solar panel producers and their customers.
Which party gets what share depends on the elasticities.
But there is simply no way any one of these two parties can end up WORSE because of lower input prices.
Am I right or am I missing something?

dan1111 November 11, 2011 at 8:26 am

A falling price is obviously not worse in the absolute sense. However, if the price is a temporary market aberration, that is bad news to people who think it represents a trend of solar technology becoming more cost-effective.

question the question November 11, 2011 at 9:41 am

You have no proof that this is a temporary aberration. Perhaps the prior state was the aberration.

In any event, I’d be far more likely to take it as bad news for the solar panel industry if the price of solar cells was still exorbitant.

dan1111 November 11, 2011 at 9:53 am

You are right: I don’t know whether this is true or not. I was simply trying to explain why it was called “bad news”.

Rahul November 11, 2011 at 10:00 am

@dan111

Producers are not selling below their variable costs. Prices could rise in the future is if consumer demand spikes again and then that trend wouldn’t be too bad anyways.

BTW, there is a definite technology influenced drop in production costs. There are reports that the older plants are having trouble selling at the price points newer plants can. Some of this is technical optimization and the rest is simply economies of scale since the new plants are typically larger than the older ones.

Tim Worstall November 11, 2011 at 8:04 am

James: quite.

The idea that falling input prices = bad just seems absurd.

Do we think that cheaper hay makes horses more expensive to run?

It’s also true that there’s a part of the story nopt being told. Traditionally, solar used the rejects from the computer industry. Ingots that were under grade. Then that great big step change in 2003-8, as solar volumes massively outgrew computer rejects. Now we’ve lower grade production (and it is slightly lower grade, you don’t take solar grade and send it into chip fabs) in over supply.

But the solar panel makers aren’t paying much, if any, less than they did a decade ago when they were buying reject ingots. So it’s not actually silicon prices themselves which are driving solar costs down.

Other things have been happening: we now slice them much thinner than we used to, getting more cells out of an ingot. We also connect them better, install them better etc.

And it’s most certainly possible to bring down the silicon price again: I wouldn’t be at all surprised to see $3 per kg in a decade (no, not a prediction, just wouldn’t be surprised). It really is just sand and energy we’re using here. If we can reduce the energy consumption of the process then we can reduce the costs of the silicon. There’s already one company that says they can reduce energy consumption by 90%…….

Personally I think of this as being at present a little like steel before Bessemer, aluminium before Hall-Heroult. Can’t prove it of course, but that is the way I would bet.

MD November 11, 2011 at 9:47 am

I had a similar thought to yours and James’s above: it’s really only a “glut” if firms can no longer make a profit out of it. Falling input prices should help enhance profit margins in the short run. I suppose the question is whether the falling input prices are caused more by technological improvement or subsidy/interference (which may not be sustainable). You’ve made a good argument for why this may be just a natural development in industry technology. In either case, for the time being, consumers of these panels get a win.

lemmy caution November 11, 2011 at 1:19 pm

that is a good comment.

Dan H. November 11, 2011 at 4:28 pm

Lower prices that are due to a temporary glut caused by market intervention are not necessarily a good thing.

As I understand it, the glut is caused by a collapse in demand for solar panels, due to the elimination of subsidies that were the cause of the higher demand in the first place.

So why is this bad?

– The artificial demand created by subsidies caused over-production, and bad investments in production capability. Now the subsidies are gone, and the market is being over-supplied. This will probably cause failures of companies that entered the supply business and who now can’t find consumers for their materials at the prices they planned their business around.

– The artificial reduction in price due to this glut hurts the makers of alternatives to these types of solar panels. Once this glut works its way out and silicon prices rise to the ‘correct’ level, it may be that alternatives that would have been more cost-effective are no longer there because the companies that made them couldn’t survive in a market where one technology was being heavily subsidized over another.

In general, you want prices to reflect the true underlying economic factors of production. If prices are artificially skewed by government action, it disrupts planning, lowers efficiency of the market, and scares away investors because government whim becomes ‘noise’ in the price signal, making business plans harder to manage.

Next up: Germany. I was recently there, and it looks to me like they are heavily over-building their solar infrastructure. Solar panels are everywhere, and the people I talked to who have them are underwhelmed by their performance as compared to what the government promised. And all energy users are being taxed to subsidize the solar panels, driving up German manufacturing costs and the cost of energy for everyone. If Germany takes a serious economic dive due to the instability of the Euro, these subsidies will be on the chopping block, and we’ll see even bigger disruptions in the solar industry.

valuethinker November 12, 2011 at 1:38 pm

Dan

Not sure on Germany. They are phasing out nuclear (a policy with which I disagree, but there it is).

All other alternatives are expensive. Solar is more expensive than existing nuclear (but not new nukes) but, in the absence of full scale carbon capture and storage, and given the Germans are already maxing on wind, solar is not an expensive option, long run.

[Quote]
As I understand it, the glut is caused by a collapse in demand for solar panels, due to the elimination of subsidies that were the cause of the higher demand in the first place. [/quote]

The glut is caused by overproduction, in anticipation of demand that did not occur.

That’s normal in growth industries with low technological barriers to entry. Capital flows in, excess is built up, prices collapse, eventually demand grows to soak up existing supply and pricing discipline is restored.

Interestingly this drop in cost of production has made solar panel manufacturers more efficient, and solar cells cheaper. And that means that, even at lower panel prices, it’s still economic to install solar panels (under the proposed new UK Feed In Tariff, a drop from 21 pence/kwhr for sub 4 kw installations, to 8.9p, solar installations (domestic) will still produce returns of 4-5%, inflation linked, pa for 25 years– far better than a householder can do with any financial investment at the moment).

Duracomm November 11, 2011 at 8:22 am

A surplus of solar equipment is running into a deficit of solar demand because governments are finding they can’t afford the subsidies require to build Potemkin renewable power facilities.

The waste and environmental damage caused by the mandates and subsidies for renewable installation is sobering.

Spanish Sunburn

Solar investors such as Vilimelis were lured by a 2007 law passed by the government of Prime Minister Jose Luis Rodriguez Zapatero that guaranteed producers a so-called solar tariff of as much as 44 cents per kilowatt-hour for their electricity for 25 years — more than 10 times the 2007 average wholesale price of about 4 cents per kilowatt-hour paid to mainstream energy suppliers.

Zapatero introduced the subsidies three years ago as part of an effort to cut his country’s dependence on fossil fuels.

At the time, he promised that the investment in renewable energy would create manufacturing jobs and that Spain could sell its panels to nations seeking to reduce carbon emissions.

Yet by failing to control the program’s cost, Zapatero saddled Spain with at least 126 billion euros of obligations to renewable-energy investors.

The spending didn’t achieve the government’s aim of creating green jobs, because Spanish investors imported most of their panels from overseas when domestic manufacturers couldn’t meet short-term demand.

Spain stands as a lesson to other aspiring green-energy nations, including China and the U.S, by showing how difficult it is to build an alternative energy industry even with billions of euros in subsidies

Master of None November 11, 2011 at 8:27 am

“overall it doesn’t sound like good news for the future of the solar industry”

Totally disagree; think about how many times the semiconductor industry has gone through the *exact* same thing! Think about it in terms of Moore’s Law, as Joe Romm illustrates: http://thinkprogress.org/romm/2011/11/07/362705/krugman-solar-power/

Would you say that the electronics industry has no future, just because the industry is expected to become more efficient?

I think what Tyler might mean is that it’s bad news for all the small high-cost producers who are stuck with a lot of overvalued inventory. It is certainly bad news for them. Many of them will go away, and we as consumers of energy will be left with a better select of cheap, efficient, solar power.

dan1111 November 11, 2011 at 9:18 am

You have missed the point. This is a counterargument to the viewpoint advocated by Krugman. Tyler’s contention is that this is not a trend like Moore’s Law; rather, it is a temporary effect of oversupply.

If this is true, and the price goes back up, then the data in the graph you linked to would suggest little or no reduction in the cost of solar power since 2000, rather than a continuing downward trend. (The linear trend shown on the graph certainly doesn’t have much predictive value anyway, as it suggests that solar panels should be free in about five years).

valuethinker November 12, 2011 at 1:33 pm

No but the 20 year track record of solar cells is -7% pa or so, I believe.

So that’s a much better trend with which to make predictions.

Yes solar cell prices will likely rise again, but in the long run, they are going to keep halving every 10 years (the last 10 years has been a lot better than that).

Andre Friedmann November 11, 2011 at 9:22 am

The optimistic Dana Blankenhorn, writing to end users:
“Here’s a date to put in your calendar. 2016.”
“That’s the year, give or take, when solar energy becomes the cheap energy. That’s when efficiency on every level – panels, materials, installation, channels – reaches a point where it’s cheaper to buy-and-install one than to buy electricity from the meter.”
http://www.danablankenhorn.com/2011/11/crossover.html

Duracomm November 11, 2011 at 8:35 am

To the first person who is tempted to say renewables need subsidies because fossil fuels got subsidies please don’t.

1. If renewables were a practical source of energy they would not need subsidized.

2. The solution is to end all energy subsidies.

Same thing for the first person who runs at arguing that fossil fuel externalities are not paid for.

1. Renewables have there own set of externalities

2. They don’t produce meaningful amounts of useful energy

3. It ignores the positive externality of economical, dependable power that fossil fuels provide.

Pat L November 11, 2011 at 12:40 pm

3. It ignores the positive externality of economical, dependable power that fossil fuels provide.

This is almost certainly not an externality, but the product being sold. I suppose it may be that power consumption is something with positive externalities, but in that case we should begin by subsidizing all power consumption equally, regardless of the method of production.

Silas Barta November 11, 2011 at 2:31 pm

The product being sold is indeed an internality. The *option* to buy the product, however, is an externality.

Eric H November 11, 2011 at 9:15 am

This has been predicted for some time. I remember a study from a few years ago from either EDF or WWF (no, not the wrestlers) predicting the Si-glut-fueled collapse in 2010, and see this from 2008 predicting collapse in 2009.

Benny Lava November 11, 2011 at 9:27 am

Isn’t this glut the product of Chinese dumping practices?

Rahul November 11, 2011 at 10:37 am

I don’t think Chinese are “dumping”. (Some) Chinese plants are newer and large and so they typically have lower production costs.

Nobody at All November 11, 2011 at 9:34 am

1. Demand for polysilicon has risen, is still rising, and is predicted to continue to rising in the future.
2. Supply of polysilicon has rising, is still rising, and may continue to rise in the future.
3. #2 has outpaced #1.
4. The cost of producing polysilicon has fallen, is still falling, and may continue to fall in the future.
5. Tyler is asserting that the effect of #3 is larger than the effect of #4. But this is an empirical issue, on which he has shed no light beyond mere assertion.
6. Polysilicon is not the only way to create a solar cell; many are investing in thin film technologies.
7. Demand for thin film technologies has risen, is still rising, and may continue to rise in the future, depending on polysilicon prices.
8. Supply of thin film technologies has rising, is still rising, and may continue to rise in the future.
9. #8 has outpaced #7.
10. The cost of supply thin film technologies has dropped, is still dropping, and is predicted to continue dropping in the future.
11. Tyler has not made any assertions about thin film, which is a flaw in the argument. But the question would be the same. What is the relative contribution of #9 and #10? He has shed no light on this matter beyond mere assertion.

Questions #5 and #12 are at the heart of the issue. Not every company has a COGS that is below the sales price. But most do, and have a history of technological improvement. These posts would benefit from a little more research, or any at all.

Rahul November 11, 2011 at 10:40 am

You haven’t mentioned the biggest red-herring thrown out there by Tyler. “Subsidies”

josh November 11, 2011 at 9:59 am

Tyler, the more I read you the more I realize that you do not understand how commodity industries work. Polyolefins routinely follow a six-year boom-bust cycle connected to overcapacity coming online due to high prices, followed by a period of low prices, consolidation, and a resumption of higher pricing. Polysilicon is following the same trend.

diz November 11, 2011 at 10:34 am

How is that inconsistent with the original post?

I think he is saying we are in a period of unsustainably low prices, and thus should anticipate (as you put it) “a resumption of higher pricing”.

I think we can all agree that over the cycle, prices must average high enough to justify new investment. Or at least that producers must have an expectation they will.

If current prices are too low to incent new investment, and the industry is expected to grow, it follows prices must increase from today’s levels.

Rahul November 11, 2011 at 10:42 am

Tyler’s mistake is he blames this on “subsidies”. As josh points out plenty of petrochemicals are cyclic and in spite of not having any subsidization.

charlie November 11, 2011 at 1:54 pm

I’m scartching my head. Dont’ we subsidize gas and oil production? I doubt Saudi Arabia does (costs $5 to get it out of the ground, sell it for $100), but I’m pretty sure almost everyone else does.

And if we stopped spending anything on roads, I predict within 10 years we will cut our gasoline usage substantially.

valuethinker November 12, 2011 at 1:31 pm

Saudi the actual lifting cost of oil is around $2 a barrel for existing fields, I believe.

Saudi sells gasoline, AFAIK, for less than the cost of buying a barrel and refining it (the same subsidy in Iran is killing the national budget, but is politically unassailable: taxi drivers are a significant political force in Iran (not kidding!)).

And I think they more or less give away domestic natural gas free (I presume only for cooking, as I presume Saudi houses don’t have heat? In most hot countries that have cold winter nights, they just don’t have central heating systems: South Africa, Mexico City etc.).

They also massively subsidize natural gas for electricity power generation.

Just on US road spend, that would be wildly inefficient. The additional costs of damage and delay due to congestion would far exceed the savings. And indeed a lot more gasoline would be burnt up due to delay, closed roads and bridges, congestion etc.

In other countries, bad roads also mean 4×4 vehicles, which are very fuel inefficient. Gasoline consumption could actually rise.

josh November 11, 2011 at 10:45 am

This is inconsistent because Tyler is claiming that it does not bode well for the future of the industry. Absolutely, I agree, operating rates on capacity will remain low and no new capacity will be built until prices rise again due to a shortage of capacity, at which point the cycle will begin again. During the time of low prices, independent manufacturers will go bankrupt and industry consolidation will happen. None of this is in dispute.

This however says nothing about the long term pricing trend (after all, average prices during successive booms often trend downwards), nor does it say anything about the longer term viability of the industry. And that’s where Tyler goes wrong. What I was trying to point out is that boom-bust cycles in demand are absolutely normal and say nothing negative – nor, for that matter, do they say anything positive.

Rahul November 11, 2011 at 10:52 am

josh, the boom-bust cycle in this special case does indeed say something quite positive. For polysilicon this is perhaps the first cycle so the price-bottom indicates how low producers can sell while recouping at least variable costs. And clearly variable costs seem to be falling below what people expected, say, 5 years ago.

josh November 11, 2011 at 11:05 am

While this is a slightly special case because polysilicon manufacturers in China are generally landlocked and have no markets other than local Chinese downstream capacity for semiconductors or PV, there’s a good deal of evidence that some producers are not recouping their variable costs.

http://www.bloomberg.com/news/2011-11-04/polysilicon-drop-may-halt-output-from-90-of-china-s-factories-group-says.html

Rahul November 11, 2011 at 11:15 am

@josh

I think for those interested in long run price trends it is only the cost of the lowest cost producer that matters. Which is usually the largest / newest-technology plant out there. Of course, the higher cost producers will shut down constraining short-term capacity but that doesn’t matter in the long term.

The Anti-Gnostic November 11, 2011 at 10:09 am

a brittle charcoal-colored semiconductor baked in ovens at 600 degrees centigrade.

LOL. Like ethanol production, that has to use methane-fired distillers. Why do we take these people seriously?

josh November 11, 2011 at 10:48 am

The silicon has to be refined. It’s the same process that’s used for semiconductors. It’s called the Siemens process, and no, there’s no distillation involved. Lifecycle energy analysis still indicates that in the correct locations (and yes, that’s important), the electricity produced is far greater than could be gotten from firing the methane in an efficient turbine.

Renewable energy buzz is often full of crap, but that should not cause you to automatically discount all technologies that have large amounts of embedded energy or capital costs.

Rahul November 11, 2011 at 10:56 am

And even for ethanol there are non-distillation processes to remove (part of) the water. e.g. membranes.

josh November 11, 2011 at 11:10 am

Membrane separation for ethanol is too capital intensive and has weak selectivity. It’s not used commercially. What you generally see is distillation followed by a molecular sieve.

The error that Anti-Gnostic makes is assuming that all steam for the mash column, absorber column and stripper column automatically comes from methane. A significant number of producers are now firing biomass for that steam. As cellulosic technology comes online, more plants (such as POET’s project liberty) will be firing undigested lignins and arabinose residues. It’s a trick they stole from pulp and paper.

Rahul November 11, 2011 at 11:21 am

@josh

My bad. Molecular sieves it is. My point is it’s the heat transfer that makes the operating economics so bad. When you utilize mass-transfer processes that don’t require simultaneous heat addition the picture looks better.

Oftentimes there’s other waste heat available. Methane burns much hotter than what is really needed for ethanol separation. So heat integration with other processes is also an option.

Tyler Cowen November 11, 2011 at 10:16 am

So few of you have mentioned the word “storage.”

Nobody at All November 11, 2011 at 10:33 am

Storage is not, in the near or medium term, the factor limiting solar.

Rahul November 11, 2011 at 10:43 am

Is he talking about the storage of electricity or inventories of polysilicon?

Foster Boondoggle November 11, 2011 at 11:29 am

Certainly an issue when we’re getting close to 50% of supply from renewables. But hardly now – at low supply levels the grid is our “storage”. We’re producing the most energy when the California central valley is running their AC at full blast. Interesting article last weekend in the NYT about the Bonneville power system’s problem with oversupply of wind energy and the hazard that creates. But these problems both point to a different issue, which is our antiquated and underconnected large-scale grid. Bonneville can’t send excess wind power to California, say, because the interconnection system doesn’t have the capacity. (Or maybe it doesn’t even exist for that route.)

Real power storage is not yet a serious problem for the growth of solar PV.

Dan Weber November 11, 2011 at 2:21 pm

Yeah, storage would matter if someone wanted to run the country on mostly solar and wind.

The grid already has the ability to store some amounts of energy: you keep the dam closed a little longer; you make ice for your AC unit overnight instead of during the day; you charge your battery when there happens to be more supply.

Intermittent power sources have room to grow. I think they’ll hit serious problems around 10% or 20%.

Ronald Brak November 11, 2011 at 9:43 pm

Storage is particularly not a problem in places that have plenty of sunlight. Here in Australia we generally use at least 50% more electricity during the day than at night, so storage is more or less irrelevant until we get about a third or more of our electricity from the sun.

valuethinker November 12, 2011 at 1:47 pm

Tyler

I have. And when solar is 20% of a US utility’s total electricity supply, there will be challenges.

And yet. If interconnections are available less so (for example, sunset is at a different time in the USA, depending upon your latitude and longitude, and time of year). Power demand curves do not perfectly align between utilities. Other resources have their own cycle (eg less hydro in summer).

Helpfully, solar is local to demand. And peak demand for most US utilities is about 4.30 pm on a summer’s afternoon: AC load peaks as offices are still working, but the early shift is at home kicking on the AC, the TV and the oven.

There is plenty of solar power then, in the Northern Hemisphere between say 30 and 45 degrees N, with solar panels angled 15 to 45 degrees, facing south.

Another factor is solar is (almost) totally predictable. We know when the sun rises and sets. Although a cloudy or rainy day can reduce output by up to 60%, That has at least some forecastability.

It’s hard to see solar being a big factor in western Oregon or Seattle, say. But in most of the US, even in winter, the sun shines.

In Hawaii it will likely be the predominant form of electricity generation in 20 years. Electricity in Hawaii can be, I believe, up to 45 cents/ kwhr retail.

Other areas where high retail electricity prices coincide with good sunshine conditions are California (Central Valley and Socal), Nevada, Colorado (perhaps) and some other mountain states, and Florida (though I’ve not read anything about durability during hurricanes).

Dan Weber November 12, 2011 at 10:34 pm

Energy costs in Hawaii are crazy. It’s nearly all shipped in fossil fuels, and they refuse to use nuclear. (Since a Fukushima-level event would destroy their tourism-based economy, I can understand their fears, even if I think they’re addressable.)

One surprising thing is that Hawaii doesn’t get much more solar insolence than Arizona.

solar flare November 11, 2011 at 10:18 am

The core question is: what are the realistic applications for solar power in the US, and even if we assume maximum penetration in those markets, what are the payoffs?

Powering the entire national grid on solar isn’t realistic. As a complement to coal/nuclear/etc. perhaps, but is building the infrastructure to capture and store that extra energy cost effective? Certainly not now and perhaps never.

Powering motorized vehicles based solely on solar technology is also probably unrealistic. Perhaps solar could serve as some auxiliary power source for cars and trucks – I don’t know how viable that is or if it even makes sense from a financial perspective. I would assume it’s not cost-effective.

Powering x% of America’s homes, however, seems like the ideal application for solar power. What is the maximum number x can be (based on sunlight models), and what number of panels would be needed to outfit x? What transmission (infrastructure) costs would be saved by having on-site power sources?

charlie November 11, 2011 at 1:52 pm

hmm.

solar powered cars that can turn the AC on automatically on sunny days….

or at least vent the hot air inside….

solar panels that top up hybrid EV….

I agree storage isn’t a big issue. The problem with wind is two fold: the wind is where people aren’t; and when it blows you’re not having peak demand. How many times do you run the AC in major wind storm.

For about 1/2 of the country, a sunny days means AC.

ezra abrams November 11, 2011 at 10:43 am

if the cost of electricity from coal/oil/electric/hydro is X$/Kwh, and from solar Y$/Kwh, what fraction of x,y is polysilicon

charlie November 11, 2011 at 1:52 pm

Math is hard! Economics is easy!

rcyran November 11, 2011 at 12:25 pm

“it doesn’t sound like good news for the future of the solar industry. It sounds like a glut induced by previously high expectations, which now have been corrected and converted into ruinous excess capacity:”

Anyone who has follows the chip industry knows that such gluts are symptomatic of fast growing industries. In the semi industry, falling prices meant chips were used in places where they formerly were uneconomical. So they turn up in new places like children’s toys or car sensors. Demand increases and manufacturers eventually scale up. Efficiency rises (new designs, learning by doing, economies of scale). Combine this with excess optimism in capex, and you eventually end up with a new glut. Then the cycle starts over.

Now solar isn’t semi. It will move at a slower rate for various reasons. But my guess (and I can understand why this seems really counterintuitive) is that the glut (combined with the econ of the industry) is actually a sign that solar is taking off.

NAME REDACTED November 11, 2011 at 1:56 pm

“Perhaps the story can be read either way, but overall it doesn’t sound like good news for the future of the solar industry. It sounds like a glut induced by previously high expectations, which now have been corrected and converted into ruinous excess capacity:”

Surprise, surprise, who expected that? Subsidies cause overproduction and then crash? Who could have known?
/sarcasm

anon November 11, 2011 at 4:01 pm

Love all “the storage is easy” comments.

Hahahaha. Hilarious!

Wait… You’re all kidding, correct?

AlanW November 11, 2011 at 6:04 pm

Reading comprehension fail. Saying that storage isn’t a big issue at current levels because of grid flexibility is not saying that storage would not become a limiting factor at higher levels of intermittent energy production. Xcel is going to hit a 30 percent renewable portfolio standard in Colorado with zero storage. Is that a ceiling or just a milestone?

anon November 11, 2011 at 8:01 pm

Hahahaha, you’re cracking me up.

Storage is easy = storage isn’t a big issue at current levels because of grid flexibility

Hahahaha.

Ronald Brak November 11, 2011 at 10:15 pm

Are the recent declines in solar PV prices temporary or are they here to stay? I would say they are here to stay. This is because by the time the current oversupply has worked its way through the market, improvements in technology and manufacturing will have further lowered the costs of producing solar cells. So, while I don’t expect the current rapid price decreases to continue, I don’t expect to ever see a return to the prices of even a year ago. The only things I imagine would be likely to significantly increase PV prices would be an unexpected and rapid improvement in the world economy, or an unexpected increase in fossil fuel prices.

Sparks November 11, 2011 at 4:51 pm

This biggest problem with all of these arguments is that they seem to conflate the impact of rising commodity prices on FUEL with rising commodity prices on the materials used to make INSTALLED CAPACITY. Polysillicon is used in the production of new panels – installed capacity. Solar has no ongoing fuel costs.

If the industry installs a lot of natural gas fired power plants to capture the unusually low gas prices available in today’s market, it could find itself in real trouble when and if prices return to, say, 2008 levels (or return to BTU parity with oil). Average price and variable price from these plants would spike and push these new plants further up the supply curve. Increased variable power prices would either need to be passed through to end users, or plants would go bust. Big problem.

But if the industry installs a lot of solar capacity to take advantage of unusually low panel prices, who cares if they go back up? They still have the installed capacity, which has $0 variable cost and low average cost. The electricity generated by that installed capacity will have an attractive spot on the supply curve for decades to come. They are certainly not compelled to install any new panels will price spike back up.

It’s hard to see where lowering the price of installed capacity is ever a bad thing for the industry, even if it is temporary. Volatile fuel costs are problematic; volatile new-plant costs are not.

Stefano Barazzetta November 12, 2011 at 8:04 am

My two cents, as someone who as worked in the renewables during the last few years.

Before the various feed-in tariff schemes were implemented worldwide, the poly price was in the 40-60 $/kg range.
As soon as the solar market boomed, the poly price skyrocketed, reaching heights of 400-600 $/kg on the spot market.
Incumbent poly producers started expanding capacity, and newcomers entered the market. The adjustment took some time (a poly production plant is a “monster” which takes 2-4 years from design to commissioning, and several hundreds million of capex dollars), but finally happened. Meantime, the solar demand exceeded any forecast.
All this to say that current poly prices are not an “aberration”, the previous ones were aberrations.
And note that the actual cash cost of big producers (economies of scale matter a lot in poly production) is in the 20-30 $/kg. They’re still making lot of money, and there’s still room for price reduction (moreover, technologically innovation currently on the verge of full scale implementation could lower the production costs even more).

My bottom line.
Falling prices is definitely good news for solar: we are rapidly approaching the grid-parity for several regions. At that point solar demand will really explode.
Raw material is not a concern: poly prod. capacity may be, but just in the short run.

Tim Worstall November 12, 2011 at 9:18 am

Tyler Cowen November 11, 2011 at 10:16 am

So few of you have mentioned the word “storage.”

I know the answer to that one. Fuel cells. Like the Bloom Box.

That’s not a real, finished technology as yet, at least two more iterations to go before it is.

But it uses scandium (guess which of the rare earth metals I make my living out of?) so it must be good.

william power November 12, 2011 at 1:13 pm

Solar panel prices were artificially high and now they are falling which is good for everybody except the guys who wanted to to remain so.Let these dinosaurs die.It’s time for folks to put panels on their roofs and give the finger to Oil and their minions.Too bad if they can no longer control the industry.Vote with your dollars.

valuethinker November 12, 2011 at 1:24 pm

AND FROM THAT VERY ARTICLE

[quote]

REC has developed a technique which works in a few hours and reduces the energy required by as much as 90 percent, making it the cheapest way of making solar-grade silicon, according to McLoughlin at HSBC. REC’s so-called fluidized bed reactor process grows beads of polysilicon from pressurized gas and tiny liquidized seeds of semi-purified material. [end quote]

And so, in a perfectly competitive market, all producers will eventually adopt the best technology, or go out of business (exit).

At which point, prices will have fallen to the lowest cost of production. Consumers get all the benefits unless there is oligopolistic supply.

So first year economics tells that on the basis of technological innovation, the price of a key input to solar cell production is headed to a permanently lower level.

This *despite* cyclical variation due to supply and demand fluctuation.

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