How to Make Solar Power Cost Competitive in 5 Years or Less

Last month, after a state senate bill increasing California’s renewable energy standard failed to pass, the state’s Air Resources Board (CARB) increased the goal on their own, establishing the 33 percent by 2012 renewable electricity standard.

California now claims the country’s highest renewable energy standard, with Colorado close behind — 30 percent renewable by 2020.

The power of the sun could serve as a strong ally to help these states reach their renewable targets and fulfill their efforts to transition off fossil fuels.

“The amount of solar energy that strikes the earth every hour is roughly equivalent to the total amount of energy that humans use in an entire year,” said Sam Newman, a consultant with Rocky Mountain Institute‘s electricity practice. “So when you look at ways to transition off of fossil fuels, it lends an importance to solar power.”

Important, yes, but the reality is that today only a tiny fraction of U.S. electricity is supplied via solar — well under 0.1 percent in 2009 — hardly enough to compete with fossil-fuel generated electricity or get California or Colorado any closer to their targets.

Although solar photovoltaic electricity has reached grid parity in select markets, the high cost of solar has hampered it from becoming a true game-changer. While module costs have come down significantly in the last decade, the balance of system costs — all the upfront costs associated with a PV system except the module — remain a barrier to large PV adoption.

“Getting to good economies of scale where solar PV can compete in the market on its own does not require a technological breakthrough,” said Stephen Doig, RMI program director. “We actually have all the components and pieces. We just need to drive out the waste in the system, get to scale, and then we will have competitively priced systems. New technologies, or new panels will abet this process, but we don’t need to depend on them.”

No Technological Breakthroughs Needed

RMI’s new report, “Achieving Low-Cost Solar PV: Industry Workshop Recommendations for Near-Term Balance of System Cost Reductions,” makes clear that by taking a whole-system approach, significant opportunities exist to achieve cost-competitive solar in the next three to five years with current technologies.

In June 2010, Rocky Mountain Institute convened more than 50 industry stakeholders and outside experts to a design charrette, offering a fragmented and multifaceted industry a chance to collaborate on strategies to reduce installed BoS costs for commercial and small utility systems.

Discussions at the charrette identified many opportunities that could offer the potential to reduce balance of system costs to $0.60 – $0.90/watt — a 45 percent to 65 percent reduction over current best practices.

Smarter technology and regulation, better information, and economies of scale offer important near-term cost-cutting opportunities that integrate three approaches:

• Optimized physical design to minimize total cost
• Efficient business processes to reduce cost and uncertainty
• Industry scaling to ensure growth and maturation

“All of these improvements are dependent on ‘coopetition’ — going across competitive boundaries to come up with strategies to bring down the levelized cost of electricity through BoS,” said charrette participant Robin Shaffer, vice president of sales and marketing at SunLink Corporation.

Crossing Competitive Lines to Optimize Design

Stakeholders are starting to harness the power of collaboration, however many of the most promising physical design strategies not widely deployed due to industry fragmentation and competition.

“As an industry, we are thinking about different ways to design products on the BoS side to drive down costs,” said Gene Choi, product strategist at Suntech, the world’s largest PV manufacturer. “When you take a new look at operational aspects of a rooftop or ground mount system — what materials you use, or how you assemble the system — each element seems very mundane and small. However, when you identify efficiencies, these things add up to millions in savings, both time and money.”

Focus on the Soft Costs

In addition to physical system design, much of the “waste” can be found in the inconsistent — and therefore risky — business processes associated with solar PV installation. Every PV system has to be permitted, approved, installed, inspected and connected to the grid.

“We’ve seen this process take anywhere from 12 to 18 months, with an enormous amount of risk on the front end. That is, if the project even makes it through,” Shaffer said.

There are considerable opportunities to make these processes more streamlined and less expensive, while decreasing project risk.

“In today’s economic climate, this is not something we can ignore,” said Doug Payne, executive director of SolarTech. “Looking at processes that can be stripped away or steamlined will allow businesses and companies to thrive. Other large industries have achieved scale based on predictable processes and standardization. The sooner we as an industry get to that point, the better.”

Getting to Scale

Stronger signs of collaboration are already starting to develop in some areas, as industry consortiums, research organizations, PV developers and manufacturers, and the U.S. Department of Energy are pursuing various initiatives to increase understanding and awareness of cost-reduction opportunities.

In August, Energy Secretary Stephen Chu kicked off the DOE’s “$1/W Workshop.” There, assembled experts validated the opportunities available on cutting installed BoS costs, and reached encouraging conclusions about the feasibility of the goal — an installed PV system cost low enough to beat all new central power stations.

An entrenched incumbent such as fossil fuels requires that a low-cost solar industry has scaled enough to offer truly game-changing potential. Actions now will go a long way to streamlining future challenges that could negatively impact growth. “We have to think very carefully about how to scale this industry because it could become the largest industry in the world,” Doig said.

For states like California and Colorado, lower costs would make including solar into their renewable portfolios a much more attractive and viable option. Hopefully, other states will follow their lead, continuing to add momentum to the U.S. solar market and make the transition away from fossil-fuel powered electricity.

(Originally published in Greenbiz on October 29, 2010)