Plunging PV prices have brought the world closer to grid parity than ever before as solar developers scramble to undercut each other with bargain prices bid into California's Renewable Portfolio Standard.
"Grid Parity: Just around the corner?", a whitepaper due to be published by analysts Navigant, suggests that PV system costs have declined to the point that solar-generated power can effectively compete with grid-generated power within five years – including the Golden State – without incentives.
In an exclusive interview for PV-Tech ahead of the launch of the report, Lisa Frantzis, managing director for Renewable and Distributed Energy at Navigant, said:
"Building a market around incentives which are very volatile depends on the political environment, so we asked: at what point do these systems become cost-effective on their own without incentives, subsidies?
"We are noticing that prices have come down a bit and we're not talking another 15–20 years before we see grid parity… there are going to be pockets where it's starting to happen probably over the next five years. [M]aybe [it will happen in] California and other locations where you've got this good match of good sunlight and high electricity rates to make it happen."
She added that because of cuts to feed-in tariffs in Europe, the US now looks more stable for investors.
"A lot of governments are really pulling back on their incentives to support deployment of solar technology. These incentives cost money. Some of the concern has been that you create the industry, manufacturing and jobs, but a lot of it is based on incentives. If those incentives go away, as in Germany or Spain, it can have a dramatic impact on the business.
"The US is probably one of the more stable markets now which is ironic because it wasn't in the past. We do have the 30% Investment Tax Credit that's around through 2016. That is one of the places where it is more solid in terms of the likelihood of the stability of the incentive."
Navigant analyst Shalom Goffri said that pockets of the US market were already at grid parity thanks to higher-than-average retail electricity prices.
"In Hawaii you have a very good solar resource and very high electricity rate so you could compete without incentives. California is one of those markets where there is a good solar resource and the electricity rate is very high – on average around 20c/kwh for residential customers. There are some pockets where they are paying 40c/kwh where they've achieved grid parity already."
Goffri said that it would only take another 40%–50% reduction in system prices to meet grid parity right across California.
"The cost of the PV panel historically dominated the system cost," he said. "As time has gone on and markets have matured, prices have come down significantly [and] the panel is around 40% of the cost of the system.
"That's expected to continue so panels are going to get cheaper and cheaper. But we're at this tipping point now where [we’re] moving forward… [R]ather than the panel dominating the cost, it will be the balance of systems."
Frantzis said that electricity retail prices were often a greater driver for investment than solar resource, particularly when coupled with incentives.
"It is ironic. A lot of people say solar has got to be cost effective in Arizona, it's so sunny. But it's very challenging there because you have very cheap coal and the price of electricity that the retail owner is paying is around 9c/kwh – it's one of the cheaper parts of the US. In Massachusetts, electricity rates are closer to 18c/kwh. We don't have great solar sunlight there but the economics are better here than they are in other parts of the US because our electricity rates are so high on top of other incentives like SRECs that you can sell."
But the sun isn't shining on all the players in the Golden State's solar industry. Goffri said that investors had started to view the solar industry as being more risky because costs had dropped so dramatically.
"Over the past two years when prices were higher there's been a lot of technology innovations and companies have managed to reduce costs. Now that costs have come down so much, a lot of the business models don't hold water because the prices have declined beyond the point that they're offering a solution.
"We've seen install startups and other small companies scale back, [and] part of that is because of the constraints in the capital markets. Some of those companies are now struggling either to compete for investment or scale-up, or investors have scaled back their investments because they're less likely to get the return they're looking for.
"Prices have come down so much thanks to the Chinese – you can argue that's great for the industry [but] a lot of these business models and new technologies are not enough for someone to take a risk and invest a lot of money in."
Cheap Chinese imports are also said to be underpinning the aggressive price war for bids into California's RPS, resulting in solicitations in 2011 as low as 7c/kwh and four times as many bids than is required to meet 33% renewables by 2020.
The California Utilities Commission's RPS Q4 2011 report said that more than 830MW of new renewable capacity came online in 2011. But although the CPUC was forced by law to be more open about RPS bids, it still remains cagey about the prices at which developers believe they can build.
"The weighted average time-of-delivery adjusted costs of all contracts approved ranged from 5.4 cents in 2003 to 13.3 cents per kilowatt-hour in 2011; the weighted average of all contracts approved in this time period was approximately 11.9 cents per kilowatt-hour. Most recently, bids from the 2011 RPS Solicitation, not yet available for inclusion in the report, show significantly lower costs, which will be reflected in future investor-owned utility contracts."
Sara Birmingham, director of western policy at Solar Energy Industries Association (SEIA), said: "There is a lot of competition out there. Some of these speculative projects may be putting in these bids and hoping and praying that all the stars align, the costs go down and by the time they install in two to three years, it will become a realistic price."
Frantzis said: "People aren't making very good margins currently so the prices are coming down quite significantly. There is a lot of excess capacity that is driving down the market prices and we're saying that is one of the key drivers currently. We've got almost double the global manufacturing capacity relative to the demand and a lot of that is in China.
"The numbers I find shocking are that Chinese manufacturing market share has gone from 3% in 1997 to 61% in 2011. But most of that growth has happened primarily in the last five years. In that same time, the US manufacturing industry has gone from 40% to 4%."