Energy group predicts solar power costs will halve

The cost of producing electricity from the sun's rays will fall by more than half within a decade, according to a forecast.

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The cost of producing electricity from the sun's rays will fall by more than half within a decade, according to a forecast, boosting the economics of the UAE's investment in renewable energy and making solar power more competitive with fossil fuels. By 2020, the average cost of producing electricity from solar panels could decrease to as little as 10.5 US cents a kilowatt-hour (kwh) in sunny countries, which is just about 1 cent above the average price of power in the US today, the Paris-based International Energy Agency (IEA) says.

The cost of power from solar thermal plants, a rival technology to panels that uses the heat of the sun to produce steam like a standard power plant, could also fall as low as 10 cents a kwh, the IEA said. Both technologies now cost three to five times as much as electricity from conventional sources such as natural gas and coal. In order to reach the economies of scale necessary to achieve these lower costs, the industry will need significantly expanded subsidies and other forms of support, the IEA said.

The next 10 years are a "critical window ? during which [photovoltaics] is expected to achieve competitiveness with the power grid retail prices in many regions", the agency said. "Achieving grid parity will require a strong and balanced policy effort in the next decade to allow for optimal technology progress, cost reduction and ramp-up of industrial manufacturing for mass deployment." The IEA's forecast was "eminently reasonable" but long-term projections are difficult, said Jenny Chase, the lead solar analyst at Bloomberg New Energy Finance, a clearing house for data on the renewables industry.

Ms Chase said analysts two years ago were not able to predict a collapse in solar panel prices last year that changed the dynamics of the industry. "If you trend historical rates into the future, for photovoltaics you really do get world-changing numbers and that's really exciting," she said. "You start to run into currently unimaginable barriers like having too much solar for the grid." The two major solar technologies, solar thermal and photovoltaics, are likely to develop along different trajectories.

Solar thermal plants can be easily integrated with conventional power plants because they use standard turbines and retain heat long enough to continue generating power after dark, and during brief interruptions of sunlight by passing clouds. The technology is likely to get more support from many governments because it is a more secure electricity source, Ms Chase said. The downside is that the technology is less likely to fall in cost significantly in coming years. Ms Chase doubted that the cost of solar thermal electricity would fall to the 10 cents a kwh rate forecast by the IEA.

Photovoltaics, by contrast, are essentially panels of glass with tiny semiconductors that convert sunlight directly into electrical current. The cost of the technology fell by half in some markets last year as a result of a market glut of silicon, the principle raw material for most panels, and is forecast to continue decreasing with advances in the technology. Panels will be competitive with conventional sources in some markets by 2015, Ms Chase said, but there was likely to be fewer panel makers with higher rates of production.

"Consolidation is very likely. There will probably be far fewer companies," she said. "Beyond that it's just the experience curve - the more you build the cheaper it gets."