Solar power costs dropping, nearing competition

By Rebekah Kebede

NEW YORK (Reuters) – Solar energy is fast closing the price gap with conventional U.S. power sources and is likely to drop to near even in cost in many regions in the next few years, industry sources said this week.

Price declines for the clean energy have been driven by the ramp up in production of solar cells and panels and advances in technology that have increased the cells’ efficiency.

Under current laws that expire in 2008, installation of solar power systems are subsidized by a 30 percent investment tax credit that helps narrow the gap between the cost of 20 to 40 cents per kwh and typical U.S. retail electricity costs of about 10.5 cents per kwh.

Congress is debating a possible extension and expansion of current solar subsidies as part of a broader energy legislation package.

But much of solar’s viability hinges on whether the systems can feed power directly into the grid systems used by utilities, Michael Ahern, CEO of solar module manufacturer First Solar Inc., told Reuters Wednesday at the Renewable Energy Finance Forum.

Currently, utilities can buy power from low-cost coal-fired plants for around 4 cents per kilowatt, and sell the power to households and business at about 12 cents per kwh, although prices can be much higher during peak usage hours, said Ahearn.

However, in a supply-constrained market such as California, Ahearn said, power prices ranged from 12 to 23 cents per kwh, making solar nearly competitive.

First Solar hopes to offer retail energy buyers competitive power prices of 8 to 11 cents per kwh as early as 2010, Ahearn said.

“If we can hit 8 to 10 cents, I think we’re going to open some markets,” he said.

With power prices climbing and the cost of solar power falling, the outlook for solar energy is bright, said Alf Bjorseth, CEO of Swedish company Scatec.

In some markets, solar energy is already a cost effective source of power, Bjorseth said, and that trend is set to expand, especially in larger markets.

New technologies such as thin film solar modules and the use of nanotechnology will further boost solar energy affordability, according to company executives at the conference.

Tempering that optimism, however, were several challenges to the industry, including a shortage of the silicon that is used to make solar modules, which has hampered industry growth, said Bjorseth.

The regulatory environment may also prove to be an obstacle to solar power, according to Ahearn.

Investing in new solar installations also remained risky because no clear regulatory framework existed to compare how renewables would fare economically over the long-term against more conventional sources, even with federal subsidies, Ahearn said.

(Additional reporting by Matt Daily)

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