Solar module prices are falling so fast that solar may be able to cost-effectively compete with fossil fuels within a matter of months. The latest bit of news confirming astounding price drops was from China’s LDK Solar. LDK is a producer of the main component of solar modules (wafers). While their second quarter guidance showed a boost in shipments, it also lowered their revenue expectations, translating into a cost per watt of ~$1.

Competing with Thin Film’s First Solar

The cost leader for solar has recently been First Solar, who lowered their production cost per watt to 93 cents during the first quarter. But the lower efficiency of First Solar’s modules (at ~10.9% vs. 14-22% for silicon-based cells) means that selling its modules at $1 per watt is equivalent to Yingli Green Energy, JA Solar or Sunpower selling its modules for $1.30-$2 per watt. I thought sub-$1.75 per watt was unrealistic for crystalline silicon producers in 2009. But LDK’s revised second quarter guidance

Prices Less than Half 2nd Quarter 2008

Such a price translates into less than half the price of just a year ago. If installation costs can fall in a similar trajectory, relative prices versus fossil fuels will be similar to last year at this time. And once economic recovery begins to lift the price of natural gas in coming months, solar will become competitive and demand will soar.

The Strong Will Thrive

Solar companies who are strong enough to weather the next few months by lowering their cost of production will emerge highly profitable as the recession subsides. In the meantime, the second half of 2009 may witness serious consolidation throughout the solar industry as impaired financial markets fail to provide enough capital for smaller players. But the stronger producers (such as First Solar, Sunpower, and Suntech) appear poised to thrive as solar becomes mainstream and grid parity expands into several markets by 2010.

Onwards in the Sustainable Energy Transition-