Solar for less than a McDonald’s coffee? It’s coming

Source: Daniel Cusick, E&E reporter • Posted: Thursday, June 2, 2016

Utility-scale solar power will reach a critical price benchmark by the end of the decade, falling below $1 per watt for fixed-tilt ground-mounted photovoltaic systems, according to new projections published today by GTM Research.

The finding, included in GTM’s latest U.S. solar PV price brief, maintains that upfront installed costs for large, ground-mounted systems will drop 21 percent in four years, from $1.26 per watt today to $0.99 in 2020, riding a nearly decadelong downward price curve.

The estimates are based on direct current (DC) power generation.

“I’d say this is quite significant, if not tremendously significant,” said Ben Gallagher, a GTM solar analyst and lead author of the new analysis, adding that it reflects manufacturers’ and developers’ efforts to squeeze excess costs out of the solar supply chain.

The Department of Energy, under its SunShot Initiative, set a goal to reduce the installed costs of solar energy to $0.06 per kilowatt-hour, or $1 per watt, by 2020. Under such a scenario, DOE projects that solar could grow from roughly 2 percent of the nation’s electricity mix today to more than 25 percent by 2050.

Inquiries to DOE officials for comment were not returned yesterday.

Last month, the department released a series of reports detailing the SunShot Initiative’s progress toward reaching a 75 percent reduction in installed solar costs by 2020. While it’s more than two-thirds of the way toward meeting its goal, DOE said advances in technology and financing will be critical to reaching the target (E&ENews PM, May 18).

The new GTM projections aren’t based on bargain-priced technology and materials or reliance on lowest-cost labor, although there are variations in labor between state and regional markets, experts noted.

“These prices are what we call a leading average,” Gallagher said. “It’s not the cheapest pricing out there on the market, nor is it the average price. It’s what a top-tier EPC [engineering, procurement and construction] firm using quality equipment would come in at. This is the pricing that would be at if they’re bidding into the market.”

Soft costs still a hurdle

Justin Baca, vice president of markets and research for the Solar Energy Industries Association, said the $0.99 benchmark projection was noteworthy. But more importantly, he said, it reflects the industry’s commitment to make solar a cost-competitive fuel for electricity, on par or even cheaper in many markets than coal or natural gas.

“It’s not a threshold that you cross and then everything starts coming up solar,” Baca said. “It’s the incremental progress that makes solar more attractive in more places around the country.”

Supporters said the coming $1-per-watt cost threshold also helps dispel the myth, touted by many renewable energy critics, that solar power is significantly more expensive than conventional power sources. “Meeting this cost-threshold target, once again, makes the case that solar PV is highly economical, especially in the utility-scale market,” Gallagher said.

While utility-scale PV holds sway as the lowest-cost form of solar, residential and commercial systems will also continue to see falling costs through 2020, the analysis found. But prices for those technologies remain substantially higher than for utility fixed-tilt arrays, at $3 and $1.88 per watt, respectively, in 2016, according to GTM.

The largest source of additional cost savings for all solar projects in the immediate future will be in photovoltaic modules, which currently account for half of the cost of solar installations. Utility-scale module costs are expected to fall from just over $0.60 per watt in 2016 to below $0.50 per watt by 2020, according to GTM.

The industry will also see more savings in balance-of-system components — such as wiring, switches, mounts and inverters — along with modest decreases in soft costs, the second-largest piece of the solar cost pie. That’s especially true in residential systems where soft costs account for 64 percent of system costs.

Soft costs — which include permitting and interconnection fees, installation costs, and taxes — “present both the biggest opportunity, but also the largest hurdle for future cost reductions, particularly in the residential and commercial market segments where prices are much higher than those in the utility-scale segments,” GTM said.