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The Pied Piper of Grid Parity

You'd think that quarter after quarter of losses for PV industry manufacturers along with a steady march of failures would be enough to shake the industry loose from its addiction to the goal of grid parity. Instead, and despite evidence that the current pricing for PV modules is actually damaging the industry's ability to compete, the enthusiastic chorus about grid parity continues to grow louder. Disagree at your own risk, but agree or disagree, promises have been made for consistently lower system prices, and the cost of breaking these promises could be steep. "Hamelin Town's in Brunswick, by famous Hanover city" … so begins the famous poem by Robert Browning, famous more for its point about the danger of breaking promises than for its iambic pentameter.

Throughout its ~40 year history the PV industry has operated in a climate of stop/start/stop incentives along with a perception that it is more expensive than other energy generating technologies (specifically, conventional energy, though also wind and nuclear).  In the early years, the public perception was that PV was essentially a science experiment best suited to sandal wearing hippies, instead of a business started by engineers and scientists and propelled forward by small companies taking significant risks, often on a shoestring budget.  The perception of solar as the most expensive energy source continues, despite a tacit realization that conventional energy – globally – enjoys significant direct and indirect subsidies.  In many countries the electricity that the public buys from the utility is delivered at a price point that is below the cost of production.  Simply put, to try and achieve grid parity with electricity that is delivered to the customer below the cost of production is absurd as well as ironic. 

Promises to compete with conventional energy at an unfairly low price point are holding the PV industry in a vice from which it is difficult to emerge. From Browning:

Rouse up sirs! Give your brains a racking, to find the remedy we’re lacking, or, sure as fate, we’ll send you packing! At this the Mayor and Corporation quaked with a mighty consternation.  

Or, put another way, continue lowering the price of the PV technology (including system installation) or the incentives necessary to stimulate demand will be removed. Ironically, even when costs are lowered the PV industry pays a price for its success.  During the early days of the European Feed in Tariff incentive model, 2004 through 2010, industry demand soared from megawatts to gigawatts with demand primarily led by the European FiT countries.  As installed capacities mounted, governments and utility ratepayers (who bear the cost of the FiT) became concerned, and the FiTs began to change or was cancelled. Retroactive changes to FiT rules have proved harmful to investor confidence.  Meanwhile, a global recession caused ratepayers (and again, governments) to look askance at the newly booming solar industry.  Currently in Europe austerity measures and country debt are ongoing threats to the continuation of incentives. 

It is concerning that the very manufacturers suffering significant losses also proclaim that the current prices for PV modules are not only sustainable, but will be even lower in the near term.  During the recent CEO panel at Intersolar Europe all the executives, none with positive net incomes to point to, agreed that current pricing was fine.  It is as if the entire industry is suffering from hysterical blindness.

At this juncture the strongest factor holding prices for PV technology down is the expectation that prices will continue to fall.  The best that can be hoped for at this point in time is that prices will stall, and remain flat until costs catch up, and innovations in balance of systems and installation efficiencies will accelerate.  Before this finally happens, unfortunately, consolidation and failure will continue, potentially leaving the PV industry with a barren landscape when it emerges. 

And in after years, if you would blame, his sadness, he was used to say, it’s dull in our town since my playmates left! I can’t forget that I am bereft.  The music stopped and I stood still, and found myself outside the hill, left alone against my will, to go now limping as before, and never hear of that country more!

Granted, the above is gloomy picture.  However, if it is your company that fails in a hostile competitive climate where unrealistic expectations must be met, I assure you, gloomy is the most likely mood. 

Luckily, survivors populate the PV industry.  In fact, surviving, thriving and innovating against all odds are primary industry traits.  During this hopefully brief correction, learning in terms of manufacturing costs will accelerate, as will the development of innovative business models.  Concerning prices, likely the best that can be hoped for is that they will stop falling and stay flat for a period long enough that the industry can catch its collective breath.  Meanwhile, along with accelerated learning, it is time to develop a message about quality, clean, reliable electricity, generated by a low maintenance technology that enjoys free fuel and offers energy independence.  The PV industry can emerge from this painful period stronger and with a message that focuses on attributes other than simply being the cheapest energy game in town. 

Image: Pied Piper via Shutterstock

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