PV Costs Set to Plunge for 2009/10

The report shows an average perceived spot market price of solar-grade silicon during October and November of US $332/kg. The weighted average price for polysilicon for delivery in 2009 under contracts signed in 2007 and 2008 was US $113/kg, compared with US $165/kg for silicon for delivery in 2008, a reduction of 31.5%.

At the 2008 contracted silicon price of US $165/kg, silicon contributes an estimated US $1.52/W to the current crystalline silicon module price of around US $4/watt – or just under 40%. A silicon cost reduction to US $113/kg in 2009 would therefore lower module prices for the majority of the market volume that uses contracted silicon by 12%. The silicon purchased on the spot market, though currently at much higher prices, could see even more precipitous falls.

Furthermore, with thin-film PV module manufacturing costs approaching the US $1/watt mark, crystalline silicon-based PV will come under severe competition for larger projects, resulting in margins shrinking throughout the silicon value chain, the company argues. New Energy Finance forecasts that production of thin-film photovoltaic modules will more than quadruple to 1.9 GW in 2009, and thin-film technology will be competitive with crystalline silicon photovoltaic in larger space-constrained applications, such as commercial rooftops and smaller on-grid projects.

This may pressure crystalline silicon module manufacturers to reduce their selling prices by more than the reduction in costs in order to retain their edge in the market and the company suggests that current silicon-based solar module prices of US $4/watt could drop to US $2.60/watt by the end of 2009.

For a ground-mounted plant in a region with good insolation, and based on a 6% real cost of capital, this could translate into an unsubsidised generation cost of US $0.17/kWh for crystalline silicon, New Energy Finance concludes. Meanwhile, thin-film manufacturers can achieve unsubsidised costs of US $0.13/kWh for the same large project by 2010.

“We are about to see the convergence of two powerful forces in solar photovoltaics: the price premium accruing to silicon refining is about to unwind, at the same time as thin-film manufacturing is really starting to get to scale. We expect to see significant drops in the price of modules next year – with prices starting to track real underlying costs much more closely. The next two years will change the economics of PV electricity out of recognition,” said Michael Liebreich, chairman and CEO of New Energy Finance.