Last week we looked at the real drivers of continuing power price increases, this week we take a look at factors behind the continuing decrease in the cost of solar.

The cost of a solar installation in Australia has dropped significantly in recent years. Numbers show that the cost of an average installation has fallen from roughly $8.50 per Watt in 2009, to around $2.50/W. That’s a major reduction in anyone’s language.

But what’s behind it?

Learning/Experience Curve

Part of the big saving has come in the form of falling photovoltiac (PV) panel prices – the solar industry calls them modules. While in 2009 you would pay $4/W for a solar module, that’s more like $0.80 today – a remarkable drop.

Solar module price declines have been charted over a long time, with the reductions being described as the result of the industry’s “learning/experience curve”. This means that as the solar module manufacturers have added more manufacturing capacity, that they been able to drive down costs right across the supply chain. In the computing industry Moore’s Law is the name given to this process, while in solar it’s referred to as the Swanson Effect – named after solar pioneer Richard Swanson and founder of the US company SunPower.

Solar manufacturers have also been steadily increasing the conversion efficiency of solar modules. Quite simply, each generation of solar panels is incrementally better at converting sunlight into electricity. And Australia itself has made a pretty big contribution to this. Martin Green, from the University of New South Wales, has developed technology which has driven efficiencies up and is often referred to as, “the Father of Photovoltiacs”. Green and UNSW have significant links with the Chinese solar industry.

Raw materials

In recent times the fall in solar module prices has been dramatic, even falling below the learning curve that can be traced back to the 1970s. The dramatic expansion of module manufacturing capacity in China is one of the causes, but another is the drop in the price of the raw material used in the majority of solar panels, polysilicon.

The Swanson Effect

Polysilicon is used to manufacture the PV wafers and cells that make up crystalline silicon solar panels – the predominate photovoltaic technology. Polysilicon prices have fallen from a peak of US$450/kg in August 2008, to US$18/kg at the end of 2013. There are a lot of factors behind this, one of them being a big increase in the amount of polysilicon produced and improvements in manufacturing processes.

Beyond polysilicon, solar manufacturers have also become more efficient in making panels across many stages of production. These include new techniques for manufacturing PV wafers, reducing the amount of silver used to connect the PV cells, or substituting it for cheaper metals and increasing the amount of automation in factories – replacing manual labour.

There are also an increased number of producers turning out other composite parts of a solar panel, particularly in China. These include solar glass and silver pastes, with increased competition surely meaning price reductions.

Australia delivers value

While modules are very important when it comes to the price paid for a solar installation, there are a range of other factors that go into the price you end up paying. The inverter, racking system, installation costs, cables and wiring and administration all factor as well. There have been price declines in most of these components, but they have not been as dramatic as the modules themselves.

Australian Solar System Price Build Up
Graph data source:

The good news is that while the administration and paperwork costs – which are a part of what is known as the “soft costs” of solar – have remained stubbornly high in the United States, France and Japan, in Australia they are relatively low. This lead to researchers from the U.S. Department of Energy to note in a report last year that Australian PV costs are equal to those of a far bigger solar market like Germany.

The outlook

It’s great news for consumers that solar modules and installations have become so much cheaper over the years. There are increasing predictions, however, that the dramatic module price drops that have been observed in the last two or three years won’t be sustained. Industry analyst Cormac Gilligan – from the company IHS – recently observed, “module prices now have reached an inflection point and have begun to rise.”

On the other hand, if you trace the learning curve back many years, current prices are below what the learning curve predicts, which points to steady cost reductions being achieved by manufacturers for some years to come. Research published last year by GTM Research predicts that annual cost declines for PV modules should continue at around 6.5% through to 2017, with module production costs sinking to US$0.36/W – well below what has long been the industry Holy Grail of US$0.50/W. The continued cost reduction won’t come easily, but they will mean that increasingly cheaper solar power should be locked in for some years to come.

Work out how much you could save with solar, try our Solar Savings Calculator here