McKinsey: Solar Costs Could Drop 70% by 2020

Those who think that solar’s bright future has dimmed lately can take solace from research by McKinsey that says, basically, that reports of the industry pending demise have been greatly exaggerated.

According to the consultancy the solar power industry is merely suffering from “growing pains.” The article, “Solar power: Darkest before dawn,” dispels the notion that the industry has “lapsed into a classic cycle of boom and bust after a decade of unprecedented growth,” even though that might appear to be what’s happening.

Years of government subsidies boosted the global installed capacity of solar-photovoltaic (PV) modules and dramatically cut prices, the article says, and then new producers, including China, rushed into the market, prompting oversupply and pressure on margins that have threatened many of the pioneering players. “Demand today isn’t keeping up with supply, and governments continue to scale back support as they cope with the aftermath of the economic crisis.”

That does sound like a serious problem, but McKinsey says solar is entering “a period of maturation that, in just a few years, will probably lead to more stable and expansive growth for companies that can manage costs and innovate to tap rising demand from multiple customer segments.”

Its research indicates underlying PV costs will likely continue to drop as manufacturing capacity doubles over the next three to five years. In fact McKinsey says the cost of a “typical” commercial solar system could drop by 40 percent by 2015 and an additional 30 percent by 2020 “permitting companies to capture attractive margins while vigorously installing new capacity.”

So what this means is that even as subsidies dry up — or even disappear depending on election results — the overall solar market will continue to grow.

“This growth, over the next 20 years, will stem largely from demand based on viable stand-alone economics in five customer segments: off-grid, residential and commercial in areas with good and moderate sun conditions, isolated grids, peak capacity in growth markets, and new large-scale power plants.”

What it also means is that companies should focus on cutting costs while continuing to innovate — a difficult proposition.

Perhaps that topic will be on the table when solar industry executives who this month launched the Global Solar Council meet. The council is a CEO-level coalition of companies involved in the PV/solar value chain. The aim is to “expand the global deployment of solar energy in a sustainable and cost-competitive way.”

Global Solar Council founding members and their representatives are Applied Materials (Dr. Charles F. Gay, President, Applied Solar), Dow Corning (Robert D. Hansen, CEO), DuPont (David B. Miller, President, Dupont Electronics & Communication), First Solar (Michael J. Ahearn, Chairman and Interim CEO), Lanco Solar (Vutukuri Saibaba, CEO), Phoenix Solar (Dr. Andreas Hänel, CEO), and Suntech (Dr. Zhengrong Shi, CEO).

Perhaps the stars are aligning: those are some high-powered people powering the push to make solar sustainable and affordable.

[Image: solar power 03 by broodkast via Flickr]