A Price Drop for Solar Panels

Solar electricity is about to get much cheaper, industry analysts predict, because a shortage of the silicon used in solar panels is almost over. That could lead to a sharp drop in prices over the next couple of years, making solar electricity comparable to power from the grid.

High demand generated by government subsidies worldwide and a shortage of processed silicon have kept prices for solar-generated power much higher than average electricity prices over the past few years. Solar power is more than three times the cost of electricity from conventional sources, according to figures from the industry tracking firm Solarbuzz and the United States' Energy Information Administration. Solar power cost about $4 a watt in the early 2000s, but silicon shortages, which began in 2005, have pushed up prices to more than $4.80 per watt, according to Solarbuzz.

Crystalline silicon has long been the staple of the semiconductor industry. But it's also the active material in the most common type of solar panel, and the increased use of solar power has led to the shortage of the material. Indeed, the growth in silicon production hasn't kept pace with the rise in solar power. "It takes about two or three years to add capacity," says Travis Bradford, an industry analyst for the Prometheus Institute. The shortage has been severe enough to drive up silicon prices to more than 10 times normal levels, to $450 a kilogram, adds Ted Sullivan, an analyst at Lux Research.

The added silicon production capacity is now starting to begin operations. While only 15,000 tons of silicon were available for use in solar cells in 2005, by 2010, this number could grow to 123,000 tons, Sullivan says. And that will allow existing and planned production of solar panels to ramp up, increasing supply. "What that means, practically, is that [solar] module prices are going to come down pretty dramatically in the next two or three years," Bradford says.

A report from Michael Rogol, an analyst at Photon Consulting, says that demand for solar panels will quickly rise in response to even slightly cheaper prices, holding the price drop between 2007 and 2010 to a mere 20 percent. But others think that the demand will have trouble responding quickly to lower prices. That's in part because the market for solar has been generated by government subsidies, especially in countries such as Germany and Spain, and there are limits to how fast these subsidized markets can grow.

Regardless of the growth in demand, Bradford predicts that over the next couple of years, production of solar panels will double each year.

In a recent presentation, Bradford said that prices for solar panels could drop by as much as 50 percent from 2006 to 2010. In areas that get a lot of sun, that will translate to solar electricity costs of about 10 cents per kilowatt hour, matching the average price of electricity in the United States. That will make solar affordable and, eventually, will vastly increase the market, Bradford says. "You can't even begin to imagine the transformation that that's going to create."