Executive Summary 

By Joel Conkling and Michael Rogol 

What is the true cost of solar power? A detailed review of the cost structure for crystalline silicon based solar power systems surprised us. Today, the fully-loaded cost (cost not price) of solar electricity is $0.25/kWh or less in most of the OECD countries. Within three years, the fully-loaded cost is likely to fall below $0.15/kWh for most of the OECD and reach $0.10/kWh in sunnier regions. These cost levels are driving three emerging trends: (1) vertical integration of the supply chain; (2) origination of power purchase agreements (PPAs) by solar power companies; and (3) unexpected risk for traditional Gencos, grid operators and turbine manufacturers. Overall, the rapid deployment of solar power on a much larger scale is nearly inevitable if interest rates remain low. This report presents detailed analysis of the current cost structure of the solar sector, estimates the cost of delivering solar power in 2010 and identifies companies most likely to benefit, including Conergy, REC, SolarWorld, SunEdison, SunPower, Motech and Suntech.

Grid parity in many markets today

Today: $0.25/kWh. While the price of installed solar systems is typically $7 to $8/W, the fully-loaded cost of these systems is under $4/W today. This takes into account all costs of manufacturing and installing solar systems from pre-silicon to connected installation without incentives or tax benefits. Similarly, the price of solar power without incentives is typically $0.50/kWh, but the fully-loaded cost is $0.25 or less. At these cost levels, solar power is currently at or below parity with the price of residential electricity for 5-10% of residential electricity consumption in the OECD.

Emerging trends: Integration, PPAs, 
risks for traditional Gencos

Solar companies are aggressively pursuing vertical integration to ensure that they can deliver electricity below grid price. The leading examples are REC and SolarWorld with Conergy, SunPower and Suntech making significant moves toward full integration in recent months. The result: these companies are increasingly able to offer electricity instead of components. Companies that do not integrate will be forced to share profits with suppliers and customers, and may not be able to approach costs of $0.10 per kWh.

There may be significant first-mover advantage for companies that sign customers who currently pay high grid-based electricity prices into long-term solar power purchase agreements (PPAs), and signs of a »land-grab« for those customers are increasingly apparent. A rising number of customers in key market segments are entering into solar PPAs, including utilities, governments, big box commercial customers and residential customers. 

Given the rapid pace at which solar production is expanding, solar electricity could emerge as a genuine threat to the economics of existing Gencos, grid operators and turbine manufacturers. Traditional electricity providers make a large portion of their profits at times of peak demand, which occurs almost precisely when solar electricity production is at its highest. As a result, even a relatively modest level of solar electricity production threatens to disproportionately affect the profitability of established electricity producers. 

Potential winners and losers from 
a disruptive technology

This report provides detailed analysis showing that the cost of solar is lower than most people think and will continue to fall through 2010.