Solar’s Next Phase?

In a new study, the management consulting company, McKinsey & Company focuses on the future of the solar-photovoltaic industry, which now constitutes a $1000 billion global business with globally installed capacity of 65 gigawatts. While the study acknowledges the current travails of the industry, it concludes that its future is bright. This would be an excellent reading for students in energy courses, as it provides a very good summary of the development of the industry, an analysis of the current challenges facing it, and a solid prescriptive road map.

Among the take-aways from the study:

  1. Even with declining subsidies, photovoltaic (PV) manufacturing capacity is anticipated to double in the next 3-5 years, with costs potentially declining to $1 per watt peak for fully installed residential systems; even at double this price, anticipated additional capacity is still 400-600 GW of PV capacity by 2020;
    • Market penetration of this magnitude will “disrupt” the regulated utility industry in OECD countries, as well as bringing distributed generation to potentially millions of poor people in rural areas;
  2. As demand for PV rose in recent years, it stimulated manufacturing capacity, including in China, resulting in market oversupply, resulting in a boom-bust cycle and a number of prominent bankruptcies. However, these are temporary “growing pains.” The industry is likely to mature and dramatically reduce costs by adopting the approaches utilized by more mature industries, e.g. procurement, supply-chain management, and manufacturing. This could reduce costs of commercial-scale rooftop systems by 40% by 2015, and 70% by 2020
  3. Unsubsidized potential of distributed residential and commercial PV is 10-12 GW by the end of 2012; a tipping point could be reached that would facilitate demand to grow to between 200-700 GW by 2020;
  4. Global potential for PV is 1000 GW by 2020, but given barriers to implementation, installed capacity is likely to be 400-600 GW by 2020. Even at the latter level, installation rates could rival gas, wind and hydro, though revenue would remain flat because of anticipated price declines;
  5. Some the barriers to PV market penetration include, lack of low-cost financing in developing countries and a shortage of distribution partners, as well as regulations in developing countries, including potential efforts to alter rate structures to reduce incentives for switching to distributed sources;
  6. Extensive deployment of solar energy as an alternative traditional baseload generation isn’t likely before 2020; however, it could reach 110-130 GW by 2030, comprising about 15% of cumulative new solar constructed during this period;
  7.  “Scale will be crucial for solar manufacturers.” While manufacturers needed 50-100 MW of solar capacity to compete in the PV market a few years ago, this has jumped to 2-3 GW. This necessitates strategies e.g. development of proprietary technologies, a focus on wringing out efficiencies in production and focusing on reducing balance of system costs (solar components excluded PV panels).

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