Cheaper Solar on the Horizon?

The solar power business is bracing itself for a collapse in prices that could lead to a shake-out in one of the most promising areas of the renewable energy sector.

However, a price slump could hasten the take-up of the technology which would help boost the overall volume of future activity, even as margins fall, industry analysts and officials add.

Expectations of falling prices have been partly sparked by a surge in the level of manufacturing capacity for solar panels. This is likely to lead to demand outstripping supply for the first time in years.

Another factor driving prices is uncertainty over the degree of government subsidies in some key markets for the technology.

According to Dean Cooper, analyst at Ambrian, the global capacity for solar module production is set to increase “dramatically”, from 3 gigawatts last year to 15 to 20 gigawatts of production in 2010. Much of the growth is coming from China.

Prices for solar components would drop from about $3.80 per watt to about $1.40 a watt by 2010, he said.

That could prompt consolidation in the sector within the next six months, with smaller players falling prey to longer established companies.

But Mr Cooper argues that lower prices could deliver benefits, since the high cost of making solar components has hitherto been a major impediment to growth in sales. A supply shortage of silicon in recent years has compounded the problem.

Lux Research is forecasting that revenues in the sector will more than triple in the next five years, to $71bn in 2012, while margins will fall.