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Solar-Power Industry Hits Magic Number

While some investors feel they're still waiting for the sun to rise on the solar energy industry, it's already high noon for some parts of the sector.

In some places in the U.S. today, solar photovoltaic, PV, technology—the iconic glass panels being deployed on home and business rooftops—already allows users to beat what their local utility charges for electricity generated from coal-fired power plants.

"It makes sense if you look at it as a [retail] ratepayer," says Ted Sullivan, senior analyst at Lux Research. "We're there today."

For example, Californian utilities charge up to 40 cents/kwh for retail power users, while an installed solar PV system costs up to 18 cents/kwh.

The cost-benefit analysis, of course, depends mainly on local issues, like the rates utilities charge, the premium cost of using energy at peak demand times and the intensity of the sun in any given area.

Generally speaking though, solar energy users can expect a quick return on investment for installing PV panels and enjoy cheap energy for the system's lifetime, often guaranteed for 20 years or more.

Solar industry insiders argue that promoting out solar technology in a distributed manner—from the "end user up" rather than from the "power plant down"—better captures the real value of solar energy, versus trying to compare the cost of kilowatt generated from coal versus one generated from solar, or "grid parity."

"As an industry we've allowed ourselves to be painted into a corner," says Doug Payne, executive director of the solar industry trade group SolarTech, about aiming for grid parity while minimizing the industry's real efforts at saving their customers' money over retail electricity costs.

Large-scale, solar-power plant initiatives by utilities such as PG&E and Edison International are in place mostly to satisfy state mandates for renewable power generation and, to date, cost far more than coal's generation price of 8 cents/kwh or less.

Proponents are also trying to move beyond another drawback--the intermittent nature of utility-scale, solar power; since the sun doesn't shine all day, solar power isn't dispatchable on a moment's notice, and thus requires pairing with another energy source or storage system that isn't commercially viable yet. This also increases a solar power plant's costs.

Analysts say the issue largely disappears with the demand-side model. Utilities won't be swapping a 100-megawatt solar farm for a 100-megawatt coal-fired power plant to distribute power. Instead, distribution will be served by installing solar panels on rooftops, adding a few kilowatts of power at a time.

This model makes "economic viability visible on the horizon," says Deutsche Bank's solar research team, which predicts that distributed solar power generation costs could hit 10 cents/kwh or less in some geographies within three to six years.

SolarTech's Payne says commercial electricity users can benefit even sooner. "We're at a tipping point on the next 12-to-24 months," he says.

In the near future, several developments could make solar energy even more cost effective and coal-fired power more expensive.

Solar CSIQ
source: Canadian Solar
Solar CSIQ

The efficiency of the solar cells themselves has increased, with PV panels achieving an all-time high of 23 percent efficiency in the field, but Payne and others warn that won't continue indefinitely.

Additional savings will come from squeezing supply-chain costs by "commoditizing" solar panel modules from panel makers like Canadian Solar and sourcing module components efficiently from materials firms like Applied Materials. Standardizing installation procedures will also reduce labor costs.

"It'll happen much the same way that Formula -1 car [technology] trickles down to mass production vehicles," says Payne..

Meanwhile, the coal-fired, power-plant model is challenged more than ever, facing higher commodity prices, greater regulation and mechanical obsolescence.

The nation's portfolio of coal-fired power plants, with an average age of over 40 years, will need replacing soon, and while a national cap-and-trade law seems to be dead, the Environmental Protection Agency, as well as regional associations of state governments, may soon fill the climate change regulatory void.

The Carbon Challenge: A CNBC Special Report
The Carbon Challenge: A CNBC Special Report

For utilities, any new carbon-emissions rules will raise the replacement price for these plants, and will force them to look at other fuel sources, including solar, for future projects.

While the solar sector is still young, the economic viability of solar PV is proving itself, analysts say, and with some government assistance at this crucial stage, it could provide much needed economic and job growth.

"Creating a vibrant solar PV industry in the US can be done but thus far has not been," says the Deutsche Bank report. "The US can either wait for solar PV electricity costs to decline [further] and then chase an industry established elsewhere, or lead with the development of a [domestic] solar PV industry."

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