A recent report by McKinsey & Company, Solar power: Darkest before dawn, is forecasting an annualized drop in the underlying cost of solar PV cells by 10% per year from now through 2020. This continued drop in the cost of solar manufacturing, when combined with a doubling of manufacturing capacity over the next 3 to 5 years, will result in an unprecedented expansion of solar power installation. This mirrors the cost reductions seen over the previous 5 years, where panel prices have declined by approximately 75%, and growth in installed capacity from 4.5 GW in 2005 to 65 GW in 2012.
This dramatic drop in price has been the result of multiple, incremental improvements in each component of the installed cost of a system :
This is in striking contrast to the co-incidental drop in the cost of natural gas over the previous decade, where a massive influx of supply due to the breakthrough technologies of horizontal drilling and hydraulic fracturing have produced a glut of supply, applying downward pressure on wholesale prices. This precipitous drop in the price of natural gas in North America has led to lower market prices, and lower demand curves for all sources of electricity, including solar.
As solar continues it’s march to grid parity, McKinsey forecasts a price per watt (peak) installed of $1 by 2020. This echos what US Secretary of Energy Stephen Chu has previously predicted:
“Before maybe the end of this decade, I see wind and solar being cost-competitive without subsidy with new fossil fuel.”
Additionally, using a conservative estimate of $2 per watt (peak) installed, McKinsey predicts 400 to 600 GW of capacity installation between 2012 and 2020.
Regardless of the pace of cost reduction, certain applications have reached parity with alternative generation technologies already. For remote installations and isolated grids, solar is already the low-cost option. As prices continue their decline, more and more applications will become attractive, with or without subsidy.