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Published on March 26th, 2014 | by Giles Parkinson

26

First Solar Module Costs To Almost Halve (While Natural Gas Prices Increase)

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March 26th, 2014 by
 

Originally published on RenewEconomy.

Another of the world’s leading solar PV manufacturing giants has underlined the potential for yet more substantial falls in the manufacturing cost of solar modules, even as the cost of fossil fuels – and gas in particular – surges in the opposite direction.

Beyond the near-term revenue forecasts that obsess market analysts, one of the big take-outs of First Solar’s annual market day in New York this week was its predictions about the cost of solar modules over the next five years.

In short, First Solar expects its average manufacturing cost to nearly halve – from an average $US0.63/watt in 2013, to $US0.35/W in 2018. That will bring the total installed cost of a module (including racking and inverters) from around $1.59/W to below $1/W by 2017 – so meeting the US Department of Energy’s ambitious Sunshot Initiative goals at least three years ahead of time.

This is significant because as solar prices are coming down, fossil fuel prices are headed quickly in the opposite direction. The US has been hailed as the nation of cheap gas, but that is proving to be an illusion betrayed by rapid depletion rates of wells and the growing challenge of deeper and more complicated reserves. Not to mention the water and other environmental considerations.

gas-pricesAs this story from EnergyWire states, wholesale prices in the north-east grid in the US jumped 55 per cent in 2013, thanks mostly to a 76 per cent jump in the price of gas to $US6.97/MMBTU, which is now back above its pre GFC, pre-fracking boom levels. (Bookmark the graph, and point it out to the next person that tells you how the fracking boom has guaranteed low electricity prices into the future. It’s bunkum).

The future of large-scale solar was in balance just a year ago, mostly because many of the initial big projects had been funded by California’s ambitious renewable energy target, and a strong solar mandate.

But First Solar now sees this large-scale market rebounding, mostly because interest is turning to solar because of those rising gas prices. Power purchase agreements, according to Deutsche Bank analysts, are in the range of $US50-$US70/MWh (helped by a tax credit because the LCOE of most utility scale solar is still probably above $100/MWh.

Solar companies are meeting those PPA prices – not making a whole lot of profit, but with costs to come down as dramatically as SunPower, SunEdison and First Solar have suggested, they are making enough to secure their future. Gas developers can simply no longer compete because the forward gas prices are pushing gas generation costs well beyond this.

First Solar is finding particular interest in the 20-50MW project size, which many utilities think will address their issues about daytime peaks. These offer lower execution risk for the likes of First Solar and offer the company the ability to improve overall cost of capital through a potential “yieldco” transaction (floating off projects into a new high yield company).

Note: The gas problem is also true in Australia, but because there is effectively no policy for a carbon price and no emissions standards on coal-fired power generation under the new Abbott conservative government, coal generation will be allowed to grow, particularly as the renewable energy target is wound back, and incentives for large-scale solar are diminished. The costs of large-scale solar are much cheaper in the US than Australia – not because the modules are any cheaper – but because the balance of systems costs are so much cheaper because they have built so many. Australia, to date, has just one 10MW solar plant completed.

But back to First Solar. The keys to its cost reductions are several. The first is the lift in conversion efficiency. This recently hit a high of 17.2 per cent for its cadmium telluride thin-film panels, and will increase to 19.5 per cent by 2017.

The balance of system costs which had previously put it at a disadvantage to silicon-based solar PV may soon put it at an advantage. And First Solar is about to announce major savings as part of its partnership with General Electric, which is looking at an even cheaper and more efficient utility-scale solar power plant design, and it has also purchased its own silicon-based manufacturing facility in Thailand.

It was interesting to note that Deutsche Bank analysts thought that the market were generally discounting these broader trends and focused – as it its want – on the near term financial numbers. Deutsche, however, was sufficiently encouraged by the potential for aggressive efficiency/cost roadmap, it had lifted its target price for the stock from $US50 to $US70.

This graph below is interesting. It shows just how small a role that module prices play in the ultimate cost of the technology. Two thirds of the costs are related to items that can only be reduced by deployment. This is important to note because it explains why the incumbents try everything to stop further development, and hold on to the nonsense sprouted by the likes of fossil fuel pin-up boy Bjorn Lomborg that R&D is the only solution to cost reductions.

first-solar-lcoe

This last graph shows First Solar’s estimation of the solar market in 2016. Interestingly, while it sees a resurgence in big utility-scale mandates, it recognises also that half the market comes in the household and commercial-scale market, which is mostly rooftop.

CEO Jim Hughes told the analysts that the company now believes it can compete for that rooftop market – something it had largely abandoned previously. It says it is competing for 15 commercial projects totaling MW, and is “shortlisted” for MW of those.

Hughes says the company is also targeting sales of panels to mine operators in remote areas and other industries that currently rely on diesel generators. Australia is one of those targets. At one location (not Australia), First Solar installed 10MW of solar panels to accompany 15.3MW generated by a diesel-fuelled generator.

irst-solar-market

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • FSC

    Prices forfossil fuels will rise as long there is demand for them. When renewables starts to make a dent in sales volume, prices for fossil fuels will plummet as oil and
    gas companies start hold a fire sale of their reserves (no pun intended). Oil
    companies’ have more “recoverable” oil on their balance sheets than what the
    planet can take.

    We must put a price on polluting and enforce compliance, or else renewables will hit a wall and we will roast the planet.

    • Bob_Wallace

      If we change electricity generation over to renewables there will be no place to burn fossil fuels.

      If we change personal transportation to electricity there will be no place to burn petroleum.

      As we replace “burners” the opportunity to burn drops, regardless of the price of fuel. And fuel for solar panels and wind turbines will always be cheaper than coal, gas and oil.

      (A price on carbon would be wonderful. But there is not adequate public support to make that happen.)

  • JBecerrilEnergy

    In Mexico gas prices are steadily increasing ( see graph with PEMEX data in jbecerril.com). SInce those prices are increasing people are become more economically sensible and this can also foster renewables.

  • SoverenSolar

    It is hard for me to see how lowering panel prices by 28 cents/W will bring overall prices down by 59 cents/W. In our installations, nothing but panel price is going down. _Peter Thurrell, President, Soveren Solar, VT USA

    • Bob_Wallace

      First Solar is a vertically integrated company. They manufacture and they build solar farms. I suspect they see additional routes to lowering installed prices.

      I’m not sure it’s wise to list your company’s name if you don’t see a way to bring down your prices….

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  • sault

    I’ve always seen a disconnect in installed price numbers for PV. This article says that total installed costs are currently $1.59 / W. The NREL says that total costs are closer to $4 / W:

    http://www.nrel.gov/news/press/2013/5306.html
    This data is from 2012, so all-in costs might be 10 – 20% lower now.
    It seems like the lower cost quotes don’t include a lot of the “soft costs” like customer acquisition, financing and supply chain costs. First Solar is projecting that Financing will be 1/3 of the variable LCOE cost of PV in 2016, but as it stands right now, financing runs about $0.45 / W, so the variable components of LCOE will amount to $1.35 / W in 2016 unless financing gets much cheaper. NREL also seems to have much higher estimates for soft costs in general than First Solar’s projections. Is this just because they’re looking at different data and including different factors? Or is there a fundamental mismatch in the analysis from each of these organizations?

    • Brian Setzler

      The $1.59/W figure that First Solar is quoting is their cost. As far as I understand, it does not include their profit or most of the soft costs. Also, financing costs should be a percentage of the total costs, not a fixed $/W figure. I would expect them to go down slightly with time as solar builds up a proven track record and is seen as a very low risk investment.

    • Bob_Wallace

      Greentech reported the average installed price for utility scale solar for the third quarter of 2013 as $2.04/watt.

      First Solar may have their installed costs down to $1.59/watt by now. They’re starting with less expensive thin film panels and they are vertically integrated – they manufacture the panels and build the solar farms.

      LCOE (levelized cost of electricity) generally include financing costs. But not real estate or owner profits.

      A capital cost of $1.59 and 3% financing (what the NREL pre-loads in their LCOE calculator) along with 5.5 avg hours of sunshine (SoCal) would mean 6.3 cent electricity. No subsidies included. Add in something for real estate and profits. That starts to explain why we’re seeing solar PPAs for 5 cents (with subsidies).

      • Bob_Wallace

        I just found this comment posted by Jigar about 5 months ago…

        “First Solar bid $1.56/Wp all in on a 10 MW project in the USA to be installed this year”

        That’s got to include their profit.

        • sault

          So with the 30% ITC, the apples to apples cost comparison with the NREL figures comes out to $2.23 / W for the 1st Solar plant. Extrapolating NREL’s 2012 numbers to 2014 means that they would forcast around $3 / W currently all-in. With NREL trying to do an “average cost” over the whole USA and 1st Solar installing in very sunny regions (30% sunnier than average for the 10MW plant is entirely possible) then the figures seem compatible.

          • Bob_Wallace

            The ITC doesn’t go to the installer but to the site owner, I think. That’s how rooftop works.

            Perhaps First Solar is offering to sell a completed solar farm which would let them take the ITC prior to sale, but that’s not how I read it.

  • JamesWimberley

    $0.35/w manufacturing cost is in line with predictions for leading Chinese silicon PV producers. However, First Solar is not vulnerable to swings in silicon prices.

    ” … the new Abbott conservative government …”
    The “con” in “conservative” here is in French.

    • mds

      This will be interesting. cSi PV is reaching over 20% efficiency for some companies, better than 1st can do with CdTe right now. Purified Silicon has gotten much cheaper and (I think) a little easier to scale. 1st has TetraSun cSi PV technology. Stion and Siva in CIGS. Very, very interesting race for this huge market.

      • http://electrobatics.wordpress.com/ arne-nl

        But those companies (like SunPower) certainly can’t deliver those 20% panels at 1st Solar’s price.

        • mds

          Sanyo, Panasonic, soon Trina Solar will produce cSi cells over 20% efficiency. Are you sure they won’t be able to come close to First Solar’s price in 3 or 4 years when First Solar gets to 17% at 35c/W? Seems like a very tight race to me.

  • Ali

    Don’t trust that high gas prices will stick around. The supremely cold winter in the US has driven prices up. If we have a mild winter in 2014/2015, this advantage won’t stick around.

    • http://zacharyshahan.com/ Zachary Shahan

      They’re really unsustainably low. 5 or 10 years from now? Tiny chance they won’t be notably higher.

    • mds

      They’ll go higher. World market NG prices are higher. If there’s money to be made exporting NG, then in a country run by big business money… The greed of fossil fuel companies has been the greatest incentive for solar and wind. Bet on it again.

      • Shiggity

        World NG prices aren’t just higher, they’re 3-4x higher. NG prices will never stay low in North America.

        Remember the natural gas bridge? We’re almost all the way across it. Solar, wind, and energy storage are ready for prime time.

        • Doug Cutler

          I do like that analogy.

        • mds

          Yup, agree on both points.

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