Commercial solar more AFFORDABLE in years to come!

The cost of PV could DECREASE 40 percent by 2015

A newly released report by the global consulting and management firm McKinsey & Company has predicted that cost of the average commercial PV system could go down as much as 40 percent by the year 2015, and ultimately by 30 percent in 2020, and Sun Source Solar Brokers couldn’t be more happy for our customers! This report cites that the capacity for mass manufacturing will double over the next 3 to 5 years in producing PV’s, and thus subsequently the price will fall even with the projected budgetary cuts to the solar subsidies. “Solar Power: Darkest Before Dawn”, released in April 2012, says that this can “allow companies to accomplish good margins while still increasing capacity.”

However, another report was released by the Brookings institute which, though agreeing that the cost of solar overall will be reduced, that projects in the US are not accounting for increases in cost that may come due to an incomplete US energy policy which generally results in a fluctuating cycle of returns. The report notes that as the funding and motivation expires for solar, the federal spending on it will go down significantly, from $30.7 billion three years ago to $16.1 billion this year. By the end of this year it’s expected that federal spending will reach a low of around $11 billion, which is a 75% drop over a five year period.

Still, the newest Energy Market Perspective (EMP) report compiled by the consulting firm Black & Veatch shows that the capacities for production of US renewable energies is expected to triple by 2036.

The report from McKinsey is careful to note that the expected growth over the next two decades is largely a result of the increased focus from these companies on markets that are off grid in the residential and commercial markets, areas that have grids that are isolated, increasing the peak capacity of the markets, and installing larger PV power plants. From the report: “The disbelievers in solar may find themselves surprised, with companies now taking steps in the right direction to get in the right position for a solid and successful future.”

Boom and Bust?

One thing the McKinsey report focused on was the typical boom and bust cycle that occurs after a long period of outstanding growth in PV. The boom period was largely due to the government funding and subsidies that contributed to drastically boosting the capacity of PV worldwide because of lowering prices and more affordability. In 2008 the price of PV modules was $4 per watt, in January 2012 the cost per watt was down to $1, and the global capacity for installed PV went from 4.5GW to 65 GW from the year 2005 to the present.

“In less than ten years the PV sector has turned from a small industry centered from Germany to a global $100 billion business industry. Many factors contributed to this success, including subsidies from the government, additions to capacity, and constant innovation and improved technology. The price of PV has drastically fallen recently, and in 2011 the global capacity of installed systems is over 65 gigawatts,” the report says.

The bust phase occurred when the manufacturers of solar rushed to make cheaper PVs, which subsequently led to oversupply and forced many of the original solar producers to accept much lower margins. The PV demand still isn’t keeping up with the current supply, and around the world governments are continuously reducing funding for the production and installation of solar, especially given the recent economic downturn. Several solar companies have already been forced into bankruptcy, with more perhaps on the way.

Still, the McKinsey report is suggesting that the solar industry is simply experiencing common growing pains with new industries that come along with a paucity of knowledge about the available demand and supply, rather than the industry being in true danger of demise.
“The solar industry is becoming more mature, and this will likely lead to a stable level of solid growth for many companies that can innovate in the field, find a way to take advantage of different markets and types of consumer, and manage their costs” says the report.

Factors Driving the Cost of PV

There are several things that are keeping down PV costs, and one of the biggest is investment. Worldwide investment in renewable energy overall got up to $260 billion three years ago, which was up 5 percent from the year before, and solar investments themselves increased 36 percent up to $136 billion, despite the still present problems of reduced margins, bankruptcy, and falling stock prices, according to the Bloombery New Energy Finance report released in January 2012.
Investment in clean energy overall in the US went up by 33 percent to almost $56 billion, and in China it went up 1 percent to $47.4 billion. A large part of the high US figure can be attributed to federal funding, loan guarantes, and grants, which have now disappeared or expired. The last federal support for renewable energy initiatives, the production tax credit, is also set to end by the beginning of 2013. This has led to numerous projects which seek to be completed in 2012, after which there is a predicted downturn in investment in 2013.

2011 was a rough year for some solar companies, with some solar stocks going down by as much as 60 percent or more, while the low price of PV panels further cut into the margins of profit for the manufacturers. In April 2012 the Brookings Institute released a report which predicted that when the funding from the US government expires even more solar companies will either go bankrupt or be forced to consolidate. According to the report the time of clean energy funding supported by the American Recovery Reinvestment Act of 2009 is now over, at the same time as solar funding is also being ended in many European markets, which further decreased opportunities for export for the US manufacturers.

“A more standardized and commoditized manufacturing industry is likely to consolidate itself during the maturation process of the industry, which will decrease available opportunities for those involved upstream to distinguish themselves. The research available suggests that the solar industry may comprehensively consolidate across the industry with the competition for capital and customers so high” reports McKinsey.

However the report from the Brookings Institute suggests that “the downfall of the system for clean energy currently in place may not be such a bad thing” and that “opportunities for reform and subsequent growth can be provided for, that can be approached delicately by the makers of policy and those in the business industry”

The capacities for installed, renewable energy, is expected to triple by 2036 in the United States, concludes the recent Energy Market Perspective from Black & Veatch from December 2011. The EMP is a forecast of the energy market projected over 25 years. Robert Patrylak, the managing director of the consulting firm, says that the energy utilities and generators are “adjusting to a new standard” as further federal regulations come into effect that may increase the usage of solar power. Included in these regulations are stricter requirements for air quality, which could result in the closing of 61,500MW of coal production from plants by the year 2020. 50 percent of the electricity in the US currently comes from coal, whereas in China this is 70 percent, and just 8 percent of the electricity in the United States is produced by renewable sources. The EMP report projects that this percentage will double or more by the year 2036.


Article written by Jennifer Coleman of Sun Source Solar Energy Brokers, providing solar brokering, brokerage, and solar energy consulting services in Santa Rosa, Marin, Sonoma, Napa, Solano and San Francisco Counties. For more information, please visit

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