European Solar Module Prices Converge

Analysis of cost data from more than 400 photovoltaic (PV) systems across Europe suggests that while system costs vary by geography due to local permitting mechanisms and siting regulations, cost trends are converging on a more predictable pattern.

However, drawing this conclusion, a new IHS Emerging Energy Research report also argues that European PV market volatility is underpinned by regulatory volatility and speculation that it is beginning to stabilise with wider adoption and experience.

The report suggests that geographic cost variances are largely driven by incentive rates, downstream competition and regulatory experience. Nonetheless, since the end of 2006, some 33 GW of PV have been added in Europe, allowing for significant cost reductions. Germany stands out as its system costs are consistently lower due to competition and deeper experience along the value chain. This contrasts with Italy, which shows the broadest price range, a sign of a still immature and volatile market.

Average PV system costs by country (Source: IHS Emerging Energy Research)

Even so, the analysis points to a trend toward price convergence between countries, particularly in the utility-scale sector. While in Europe the average turnkey price is €2.31/W (US$3.07) for large ground-based systems, commercial and residential rooftops are seeing installed prices at average premiums of €0.43/W ($0.57) and €1.05/W ($1.39) respectively, the study finds. It adds that commercial rooftop systems did average around 20 percent more than ground-based installations of less than 100 kW; this does, however, represent a 41 percent decline from the €0.74/W ($0.98) figure found in 2009.

Germany sees prices plunge

At the forefront of this development in the global PV sector, Germany’s PV system installers and developers have successfully leveraged an increasingly efficient permitting process and played a significant role in driving average system costs down to €2.58/W ($3.43) for rooftop and €1.95/W ($2.59) for ground-based systems in 2010.

It appears that capacity additions totaling 12.9 GW have allowed for more streamlined permitting and engineering, procurement and construction (EPC) processes in Germany than have been achieved thus far in the rest of the world.

Nonetheless, in an increasingly competitive environment for all system sizes, EPC provider margins are in decline and are expected to erode further in the coming months. “The Europe PV industry has reached a watershed moment as better financed, more experienced players are gaining a foothold in an oversupplied market while new development opportunities are dwindling,” says Josefin Berg, Associate for IHS EER’s Europe Solar Power Advisory service and lead author of the report. Berg added: “The economic turmoil in Europe is having a mixed impact on PV investments. While some developers are divesting earlier than usual to raise cash, we also see players with financial capacity, such as private equity funds, stepping in to pick up mature assets with stable returns.”

In addition, the influence of an increasingly global supply chain allowing the more efficient delivery of lower-cost modules and other components, coupled with an oversupply situation, has played a primary role in driving overall PV system costs downward.

Currently accounting for approximately 55 percent of overall system price, module prices are expected to continue their decline through improved manufacturing processes and low-cost manufacturing and are expected to drop 20-30 percent through 2011 as manufacturers expand capacity and global demand cools after an unprecedented 15 GW installed in 2010. Berg concludes: “In the coming months we expect a shakeout in the PV module market as not everyone can afford to see their margins squeezed.”

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