I always enjoy reading the Insider so I was happy to see your piece titled "Solar Systems Never Cheaper" addressing the rapid decline in module prices our industry has seen in the last year. However, there were a couple of items in the piece that I thought were worth responding to for clarification.
First, I think it's worth pointing out that the solar "industry" should be seen as a value chain that extends far beyond upstream module manufacturers. It rightfully includes developers, financiers, EPCs, utilities, and IPPs who build, own, and operate PV power plants. While the decline in module prices may be an unwelcome trend to manufacturers, it has been positively received by just about everyone else in the downstream value chain. I think a better way to describe the current situation is that we're shifting to a phase of the silicon commodity cycle that favors developers and owner/operators over manufacturers.
At today's module prices, we can offer solar-generated electricity on terms that are now truly competitive. So it struck me as odd to hear you say that the "industry" was troubled by module price declines in much the same way it would be odd to hear someone say the energy industry might be troubled by declining natural gas prices. It all depends on where you sit in the value chain and how the change in a feedstock impacts your profitability.
The second item that I felt needed to be addressed was your assertion that module prices were "not coming down because manufacturers are increasing their efficiencies and improving their economies of scale." Modules are a commodity and their prices are clearly set by the dynamics of supply and demand. Over the past couple of years, generous feed-in tariff programs (particularly in Spain) created demand that allowed manufacturers to sustain high module prices. So you're right to point out that one factor in the current price decline is a reduction in global demand due to the pullback by Spain and the financial crisis has slowed construction and orders.
However, there have been significant changes to the supply-side of the equation as well. The reality is that the last few years' high prices concealed very real investments in efficiency and cost improvement by a number of upstream players -- not to mention a huge investment by silicon suppliers in increased capacity. The increase in manufacturing efficiency and capacity will inevitably result in an equilibrium price that is lower than it was in years past. In the current environment, only those whose cost structure is sustainable at today's prices will be able to grow and expand the market.
PV is not inherently expensive. Prices are receding because some overly generous incentives have been removed AND today's prices now reveal how low the real marginal cost of production has come as a result of investment and expansion. Those reduced prices are now fueling a massive surge of development behind the scenes that will soon result in much larger scale deployment of PV in the US. On balance, I think that's a very good thing for the U.S., for ratepayers and the "industry."
Arno Harris
CEO
RECURRENT ENERGY
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