Richard Blackwell, The Globe and Mail, December 5, 2011
Over-production, intense competition and weak markets bedevil manufacturers, but buyers are enjoying bargains
The dramatically falling price of solar panels worldwide is giving a lift to companies installing them in fields and on factory and home roofs in Canada.
In the past year, over-production of panels, along with intense competition and weak markets, has sharply pushed down the price of solar modules and panels.
Those slipping prices are making life difficult for manufacturers of solar equipment – many of whom are struggling and seeing their stock prices plunge. But those buying their products are getting bargains that are making solar installations much more economical.
Most of the action on the Canadian solar front is in Ontario, where a provincial government program that pays high, fixed prices for solar-generated power has prompted a spate of activity. Dozens of companies are installing solar panels on factory roofs and new houses, while others are constructing huge fields of panels mounted on racks just above the ground, designed to provide enough power for thousands of homes.
While the high power rates are the main factor behind the expansion of Ontario’s solar sector, the low cost of panels is accelerating that growth.
Chris Stern, vice-president of business development at Pure Energy Inc., a company that installs solar panels on residential rooftops in Ontario, said the price of solar panels his company buys has dropped from about $2.50 per watt in 2010 to around $1.50 per watt.
From the developers’ point of view, “it is certainly a better situation,” Mr. Stern said. However, there is also concern that some of the companies making panels may not survive because of the falling prices, which could disrupt the supply chain in the months ahead, he said. “We’re going to see huge consolidation [among panel makers].”
Under the Ontario “feed-in-tariff” (FIT) program that pays the high rates for renewable power, solar developers must source 60 per cent of their goods and labour within Ontario. That means they must buy from the Ontario manufacturers that have sprung up to make solar panels, and these local panel prices are often somewhat higher than Asian imports.
Mr. Stern also noted that there are many other costs to a solar installation beyond the price of panels. Inverters (the electronics that turn the power generated by a solar panel into a useable current) have fallen slightly in price recently, but labour costs have risen sharply. When the entire installation process is taken into account, he said, total costs have fallen about 15 per cent in the past year.
Ian Robertson, CEO of Algonquin Power & Utilities Corp., a company with a large portfolio of hydro, wind, gas and biomass plants that plans to build its first solar farm next year near Cornwall, Ont., said panels make up about one-third of the total cost of a solar installation. Consequently, “the reduction in the panel prices just makes our projects look much more attractive and our return much higher,” he said.
However, Mr. Robertson noted that Ontario’s FIT program – like similar schemes around the world – was designed so that the price developers get for the renewable power they generate falls as the cost of producing it declines.
To that end, the Ontario Power Authority is currently reviewing the FIT pricing structure, and is expected to announce in January new, lower prices for future contracts for renewable power, including solar. The government has to balance concerns about potentially higher consumer prices with its desire to keep the province’s renewable industry flourishing.
The FIT program is meant to light a fire under renewable equipment manufacturing in Ontario, and cutting the premium price too much could stem that expansion.
The challenge for the provincial government in setting the FIT rate, Mr. Robertson said, is to determine whether solar panel prices will continue on a precipitous decline, or if they might bounce up again after a shakeout among manufacturers.
Virtually everyone in the sector believes the time will come – likely within the next decade – when the price of solar power equipment falls to the point where solar is competitive with other forms of power generation.
At that point FIT-like support won’t be needed and the sector will have reached the Holy Grail of “grid-parity.”
Source: The Globe and Mail