Solar use on the rise, prices on decline

California, once an industry leader, has fallen behind in key industry of the future

For the past decade, solar electricity has been growing at an annual rate of 30 percent while costs are dropping at an annual rate of 5 percent. Cost reductions are expected through 2010. Many large companies such as British Petroleum and Kyocera are profitable. Sales have reached $7 billion per year globally, and are projected to reach $30 billion by 2010. Many vendors are sold out of stock until 2006.

Government incentives, which help offset those given to fossil fuels and nuclear power, have been essential to this growth. Incentives to encourage solar electricity also help offset the ignored social and environmental costs associated with fossil fuel dependency.

Cost reductions come from incremental improvements in manufacturing processes, larger manufacturing runs, increases in cell efficiencies, decreased materials used in manufacturing and reductions in installation costs.

While lab research continues and research cell efficiencies are reaching 30 percent or more, commercial solar cells average 15 percent efficiency. Over the short term, most of the lowered costs are expected to come from improvements in the manufacturing processes rather than applying lab research breakthroughs. With manufacturing runs of 300 MW (megawatts) annually, solar cell prices drop to $2 per watt. At this price, solar electricity is produced at $0.12 per kilowatt hour under ideal sun conditions. By 2010, prices could fall to $1.50 per watt or $0.9 per kilowatt hour, competitive with grid electricity in many areas.

In Japan, a decade-long subsidy ending in 2006 has allowed the industry to develop to the point that it is cost competitive with grid power at $0.25 per kilowatt hour. The country dominates international sales of solar cells with five of their firms in the top seven places in revenue. Homes in Japan are factory built and installed on a site. One firm reported that half of its new homes come with solar electrical units integrated into their roofs.

Germany recently announced a new government program to encourage the use of solar electricity. Homeowners who have solar electric installations on their homes will receive $0.69 per kilowatt hour for 20 years. A system installed next year would receive 5 percent less per kilowatt hour.

In California, the largest market for solar cells in the United States, a program calling for 50 percent of all new homes producing renewable energy within a decade, is under consideration. New homes are targeted because their air conditioning demands drive up expensive peak power. In a non-manipulated market, peak power costs in California can reach $0.28 per kilowatt hour. Since solar cell performance tends to match peak power demand, it is a highly valued peak power source. Over the life of the program, 3 GW of new solar capacity would be installed.

In 2003, Japan installed more than 200 MW, Germany around 150 MW, and California about 27 MW. The differences stem in part from Japan’s and Germany’s having larger populations than California, the fact that both countries import more of their energy than the United States and that they both face higher energy prices. However, it remains significant that California once played a key role in developing the industry and was the world leader in installed capacity, but has dramatically fallen behind in a key industry of the future. The billions of dollars that left the state in 2001 through market manipulations would have made a powerful impact on the solar industry if the state had had a million solar roof program in place.

While the solar industry is expanding in this country, the experiences in Japan and Germany clearly demonstrate the value of a decade-long government program to stimulate the industry.

The fossil fuel industry receives around $20 billion annual subsidies. Imagine what half of that spent over a decade would do for renewable energy.

Increased energy independence will strengthen homeland security, help protect our precious freedoms and put more Americans back to work.

Reference: CLSA Asia-Pacific Markets, 7/04.

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