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Getting the price right for solar

To be competitive, solar-panel makers are ramping up manufacturing, betting that economies of scale will translate to lower costs.

Martin LaMonica Former Staff writer, CNET News
Martin LaMonica is a senior writer covering green tech and cutting-edge technologies. He joined CNET in 2002 to cover enterprise IT and Web development and was previously executive editor of IT publication InfoWorld.
Martin LaMonica
The solar industry is finding that size matters.

Suppliers of solar photovoltaic (PV) panels are in the midst of a multiyear investment boom, with an eye toward producing electricity as cheaply as the entrenched standard: fossil-fuel power generation.

Electricity from PV panels now costs substantially more than power from conventional fossil-fuel sources. Industry executives say, however, that ramping up the volume of panel production--regardless of any solar cell technology improvements--will bring solar closer in line with today's power rates.

"We have to cut the cost in half of where we are today, and we can do that with a lot of the technologies and solutions available to us today," said Charlie Gay, vice president and general manager of Applied Material's solar business group, while speaking at Massachusetts Institute of Technology's "="" <="" p="">

Solar makers stand to benefit from a global push to increase the production of polysilicon, the primary solar cell material, which at times has zoomed from $20 a kilo to $60 amid a worldwide shortage.

Many solar manufacturers make their products out of silicon and use machines similar to those used in the chip industry, but solar panel makers won't be benefiting from Moore's Law, a phenomenon in the chip industry where power increases as cost go down. Moore's Law works because reducing the size of microprocessors simultaneously makes them less expensive (a manufacturer gets more chips out of each wafer) and more powerful. But shrinking the size of solar cells doesn't help performance because cells rely on maximum surface area to harvest energy.

Instead, the solar industry expects to see prices decline the old-fashion way: larger economies of scale mean suppliers can produce more materials at a lower cost. Improved manufacturing processes also mean that suppliers can create panels with thinner solar cells, which will lower material costs.

"These kinds of tools are what are going to help us get to much lower cost," Gay said. He predicted that when there are plants capable of making a gigawatt worth of capacity, the cost of solar power will reach "grid parity," or equal to the current cost of producing power for the power grid.

By contrast, about 125 megawatts of solar power capacity were installed in the United States last year--the equivalent of roughly 40,000 residential installations.

Going down cost curve
Even with the investment boom, the industry still remains dependent on government incentives, from a cost perspective, for the foreseeable future, said Alex Klein, a senior analyst at Emerging Energy Research.

"It's sort of a race against time to drop down costs so that when subsidies (go away), the market will sustain itself," Klein said. "Ultimately, if you talk about the viability of solar PV, it has to become close to competitive with other forms of electricity, at least at peak power."

Generating electricity from photovoltaics costs between 18 and 23 cents a kilowatt hour. It is projected to go down to 11 to 18 cents by 2010 and then to 5 to 10 cents by 2015, according to the National Renewable Energy Labs. By contrast, electricity in the U.S. costs between 5 and 18 cents per kilowatt hour, according to the Energy Information Administration.

Klein agreed that higher manufacturing volume and improvement in the solar industry's supply chain can lower costs. Still, technology to improve cell efficiency or to greatly lower the cost of making solar cells will make a large impact, he said.

Companies are developing so-called thin-film solar cells and other materials such as CIGS (copper indium gallium selenide) to replace high-priced silicon as the dominant photovoltaic material. Nanosolar, for example, raised $100 million to take on incumbent suppliers with a plan to produce 430 megawatts of solar cells a year by using thin polymer films. Shell Solar, the solar division of the petroleum giant, has also become a big advocate of CIGS.

Established silicon-based panel manufacturers are hedging their bets by investing in alternative materials as well.

German company Q-Cells, for example, has invested in several smaller firms working with a range of materials and manufacturing techniques. Sharp, the world's largest silicon panel maker, is also tinkering with alternatives, including concentrators, which increase output by increasing the amount of sunlight that strikes a solar cell.

Solar panel makers are also reducing the amount of silicon they have to put in their cells. In the first quarter of 2005, SunPower's cells contained between 12 and 14 grams of silicon. They now contain about 7 grams, said SunPower president and chief technical officer Richard Swanson, who believes it can get to 5 grams over time.

Meeting demand
Meanwhile, about half the cost of purchasing solar panels is tied up in installation, according to industry executives.

Speaking at the MIT solar power panel, Swanson said the company expects to reduce the total cost of buying panels by 60 percent by 2016. About half of those savings will come by lowering installation costs, he said.

"The low hanging fruit is the cost of putting panels on the roof," he said. "The costs have been coming down to the point where we're close to grid parity, but we're still a factor of two away."

One technique for reducing the installation cost comes in integrating solar cells into roofing materials or tiles, so the solar components are installed at the same time as the roof. PowerLight, which SunPower bought last year, has already signed deals with home developers to build homes with its tiles.

Financing can go a long way to making solar power more attractive as well. Although they eventually pay for themselves, a solar PV system for a home can cost $20,000 to $40,000 before rebates.

"We're cutting the net cost in kilowatts per hour by 35 percent just by financial innovation, and we get another 15 percent in delivery innovation," said "="" said="" eric="" daniels,="" vice="" president="" technology="" product="" management="" at="" bp="" solar,="" while="" speaking="" a="" recent="" piper="" jaffray="" alternative="" energy="" conference.="" <="" p="">

SunPower's Swanson said the industry could make big mistakes if it tries grow too fast, which could result in disillusioned customers.

"The question is, what is a sustainable and realistic growth rate? It's been around 30 to 40 percent and that's at the upper end of what makes sense," he said. "The trick is maintaining the right balance between policy and capital."