Solar-Power Equipment Prices Drop

By REBECCA SMITH

Prices for solar-power equipment are plummeting in response to an oversupply of modules and components from the more than 250 global manufacturers, providing a potential boon for local governments, utilities and others trying to roll out new solar-power projects.
A report by Lux Research Inc., a New York-based energy research firm, says global spending on solar power is expected to shrink by nearly 20% to $29 billion from $36 billion, this year over last. But the amount installed will decline only slightly, reflecting more favorable pricing for buyers. Juiced by government spending, such as the just-signed economic stimulus package, the solar-power market is expected to grow to $70 billion in annual investing by 2013.
Many major solar-power installations are moving forward and the drop in prices means that backers of these projects could get more for less. Los Angeles voters, for example, will decide on March 3 whether to approve a ballot measure that would authorize the city-owned utility to fund 400 megawatts of solar projects during the next five years. California has a goal of installing 1,750 megawatts of photovoltaic projects by 2017 and has already installed 322 megawatts through 2008.
Manufacturers of solar cells and modules have ramped up capacity recently as high energy prices have refocused attention on renewable energy. That has allowed some manufacturers to benefit from an economy of scale, which has also helped reduce prices.
However, manufacturers are expected to roll out more than twice the amount of solar productive capacity -- an estimated 10.4 gigawatts -- than the estimated market demand of 5.3 gigawatts, according to the Lux analysis.
The Lux analysis, titled "Finding the Solar Market's Nadir," concluded that cell and module prices have dropped by 25% lately and price cuts are radiating back up the supply chain due to excess inventory of finished goods. "Capacity additions among suppliers have created a version of mutually assured destruction for the solar industry," said Ted Sullivan, an author of the report. Many expect consolidation among the numerous manufacturers of solar-powered equipment that have sprung up recently. Eventually, he expects demand to soak up excess capacity, a trend hastened by price cutting.
Separately, an analysis of some 37,000 solar projects constructed in the U.S. between 1998 and 2007 found that costs dropped from $10.50 per watt of capacity in 1998 to $7.60 per watt of capacity in 2007. Most of that 28% decline was due to falling costs for components, like inverters, and labor but not for modules.
That's expected to change this year. Researchers at the federally funded Lawrence Berkeley National Laboratory, who wrote the report titled "Tracking the Sun," think module costs could plummet.
"It looks as though the next couple of years will have steep price declines for modules due to growing oversupply," said Galen Barbose, a research associate at the federal lab.
Write to Rebecca Smith at rebecca.smith@wsj.com