Looming Price Increases For Solar Panels
As solar power continues to progress down its learning curve we have experienced consistent reductions in total system costs. However, this trend is becoming increasingly unstable. In this post we focus on two looming issues – raw material costs and increased demand from new markets – that may have the potential to reverse recent cost improvements. If either or both of these developments drive up solar prices, the consequences may include decreased demand in many solar markets, and an overall reduction in market growth rates.
Raw Material Costs
Solar panel manufacturing relies on a variety of different raw materials, and until recently, technological developments that have increased efficiency and productivity have far outpaced any increases in raw material costs. The result has been continued reductions in overall system costs and rapid growth in the PV market. However, there are currently numerous raw materials with the potential to upset recent trends. This post will focus on silver prices, though silicon prices will also be a key determinant in module pricing moving forward.
In the search for good conductors in the solar industry, silver is just about as good as you can get. In fact, silver has worked so well that it has become virtually nonsubstitutable in solar panel manufacturing. Until recently, the price of silver has been relatively stable, never giving engineers a reason to search for alternate materials or designs. Now the price of silver has become increasingly volatile, currently resting 150% higher than 2006 levels and four times higher than the price in 2000. The only up side to the current situation is that silver costs less now than during the spike of 2011. This added volatility in the silver market results in additional strain to solar manufacturers, primarily by increasing costs. The increased manufacturing costs then move downstream, leading to a mark-up in solar panel prices on the market.
Transformation of Demand
In August of this year China introduced a new feed-in-tariff for the solar industry, which will guarantee long-term contracts and short payback times for solar producers. Already, the Chinese solar market has experience a surge of installations, paired with drastically increasing demand for the now affordable solar energy. While these gains reflect new support for solar power, the increase in demand may put additional strain on manufacturers. If the demand continues to rise at current rates, we may observe an international increase in panel prices to match.
What To Do About It
These looming issues in the solar industry make the decision to enter power purchasing agreements look even more favorable. Avoiding the capital costs of solar power allows the consumer to benefit from the renewable energy production without having to contend with increased volatility in the market.
- 27 Oct, 2013
- Kit Man Chan
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