Prices still hover around $3 per watt currently, so it will take multiple breakthroughs in technology, public policy and manufacturing processes before reaching the U.S. Department of Energy’s SunShot goal of $1 per watt by 2017.

Industry leaders say a lot can happen in six months, let alone six years, so that goal might even be achievable without a major technological breakthrough.

“Freefall is the only way to describe solar energy prices in the last couple of years,” said Ryne Raffaelle, director of the National Renewable Energy Laboratory’s National Center for Photovoltaics.

That “freefall” has been driven by the growth of solar installations, which is no longer a small business – it is a $100 billion industry worldwide, he said. The cost reductions are so dramatic, that Bloomberg recently reported that solar energy could soon rival coal, while it has also become competitive during peak times in Japan and California.

“Conventional wisdom said our current approaches, materials and efficiencies and cost structures couldn’t get us the metrics ($1 per watt) we were looking for,” Raffaelle said. “That’s changing.”

Economies of scale with incremental, but more rapid and consistent technological improvements, could soon drive costs down to $2 per watt. Bloomberg estimated costs would fall to $1.45 a watt by 2020.

 “From our standpoint, if you ask us globally, we believe you can get it down to $1 per watt,” said Helena Kimball, Yingli Solar spokeswoman.

Yingli is among China’s emerging solar giants, many of whom have rapidly lowered costs through vertical integration. Those companies stand to benefit from more scaling since the Chinese government has announced it could double solar capacity from five to 10 GW by 2015 in an effort to replace some nuclear power with sun power in the wake of Japan’s nuclear crisis.

Though the United States has been behind the curve, it is starting to nip at the heels of Asian and European manufacturers with the NREL’s PV Technology Incubator program and private sector research and development.

GE recently announced that PrimeStar Solar Inc., a startup that GE invested in three years ago and now owns, recorded a record-high 12.8% efficiency for CdTe thin film solar panels. GE plans to take those panels to market, announcing last week that it plans to build a 400-MW American manufacturing plant.

“Our plan to open a U.S. solar manufacturing facility further demonstrates our confidence in this technology,” said Victor Abate, vice president of GE’s renewable energy business. “We’re not only excited by the efficiency milestone, but also by the speed at which our team was able to achieve it.”

More U.S.-based startups are advancing technology with private investment and government support through the DOE’s SunShot initiative, which has provided $50 million to small businesses under the PV Technology Incubator program since 2007. NREL officials say the private sector has invested an additional $2 billion in those incubator companies.

Lower Manufacturing Costs

First Solar’s manufacturing costs per watt fell 75.5% from $2.94 in 2004 to 75 cents in 2011, according to spokeswoman Michelle Friedman. First Solar also increased efficiency of its thin film and glass solar panels to 11.6% this year from 10% in 2009.

The company’s roadmap calls for reducing the cost per watt to 64 cents by 2014. Friedman said First Solar does not discuss the costs of installing its panels, however. First Solar anticipates production of 2.9 gigawatts by 2012. It has expanded multiple facilities and also plans to build a new manufacturing plant in Arizona.

China’s Suntech has targeted 2015 for grid parity in global markets. In 2001, the average levelized price of solar electricity was 75 cents per kWh, according to Suntech spokesman Walker Frost. Solar electricity now costs less than 10 cents per kWh in some regions with abundant sunlight, he added. Suntech is reducing costs by using less expensive materials that are more abundant.

“The technology also allows us to use copper in the metallization process, which has the same conductive properties as silver but is less expensive,” Frost said.

Suntech also reduced energy and water use at production plants and invested heavily in building up to 1,200 MW of wafers in-house. Wafers typically account for 50% of a solar panel’s cost. Chinese competitor Yingli also produces much of its raw materials in house, including about 3,000 metric tons of polysilicon in-house.

There has been talk of an oversupply in the photovoltaic market, but NREL’s Raffaelle said that does not appear to be the case because unmet demand is keeping prices up.

“Demand continues to exceed supply, which drives costs up,” Raffaelle said. “The reality is [that] we use a lot of power. It’s hard to wrap your mind around terawatts of power. There is still much more solar PV manufacturing necessary to put a dent into terawatts of power,” which is currently generated by coal, natural gas and nuclear.

Technological Advances

While economies of scale seem to be driving cost reductions, researchers are still looking for “disruptive” technologies to increase efficiency and ultimately lower costs. NREL tests show 40% efficiencies for some concentrated photovoltaics (CPV). The CPV market is expected to grow from 1.5 to 75 MW in the next five years. That growth was historically limited to desert regions with consistent sun exposure.

The tracking and optical devices required for most CPV have also posed problems. Santa Barbara, Calif.-based HyperSolar Inc. claims it can achieve the same results minus the optical devices by installing an acrylic top sheet onto PV panels.

Researchers are also closing the gap in manufacturing PV “champion cells” with 20% efficiencies. Researchers, however, had difficulties in translating those high efficiencies to the largest panels. In 2009, the large panels could only get 12 percent efficiencies. Some companies are now demonstrating 14 to 17% efficiencies.

Policy Changes

As manufacturing costs decrease, solar panels will no longer be the “long pole in the tent,” Raffaelle said. Industry leaders are searching for ways to reduce costs related to labor, installation and public policy.

SunRun, a solar leasing and installation firm, recently said in a report to the DOE that installation costs on residential solar power could be cut by 50 cents per watt by instituting a standard permitting process. While the industry and NREL are targeting a $1 per watt installation cost for large-scale installations, residential and rooftop solar accounts for 70 percent of all PV deployed last year, Raffaelle said.

“Most of the action has still been in small, distributed stuff,” Raffaelle said. “That in itself poses a lot of challenges because our power system existed under large centralized power station models since its inception.”

Advocacy organizations, such as Solar San Antonio in Texas, have been working with utility companies, municipalities and local media to encourage solar-friendly policies and permitting processes that encourage use of distributed systems via feed-in tariffs.

“We think policy changes can go a long way toward reducing costs,” said Lanny Sinkin, executive director of Solar San Antonio.

Multiple megawatt installations can also benefit from consistent policies, incentives and permitting processes, experts said.

“We’ve found that solar installations areas are actually going up in some parts of the United States while they are going down in others,” Raffaelle said.

 

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