Photovoltaic (PV) systems that directly convert solar energy into electricity are still too expensive to compete on an equal basis with grid-supplied electricity from conventional sources, but the gap has been narrowing in recent years. Mainstream implementation of PV technology for large-scale energy production is challenged by intermittent daytime-only electricity output, and the PV industry's still-developing technology and manufacturing infrastructure for converting sunlight into electricity.

To overcome these challenges, the industry is committed to further lowering costs by enhancing automated production equipment and systems for manufacturing solar cells and modules. The improved economies of scale that will naturally result from these steps will significantly increase output and reduce the production costs of solar PV systems.

To accelerate this trend, experts are urging the industry to take on the gigawatt challenge; i.e. creating highly efficient module factories capable of producing a Gigawatt peak (GWp) of PV electricity generating capacity annually. In addition, the industry acknowledges the need to achieve better conversion efficiencies for both silicon wafer-based and thin-film PV cells, while continuing to develop new, even less expensive technology solutions for PV cells and modules.

Ambitious subsidy programmes

These challenges are well within the solar PV industry's capabilities, as previous efforts to narrow the cost gap between fossil-fuel-based electricity and solar energy indicate. The industry's continuous technological innovations and improvements, increased cell conversion efficiencies and improved PV system reliability (with lifetimes of 20 to 25 years) have combined over the past 15 years to reduce the average cost of electricity from PV by 5% per annum.

The European Photovoltaic Industry Association (EPIA) now expects PV electricity generation to become cost competitive with conventional forms of electricity within the next 7 years, and to be worth more than €300 (US$441) billion a year by 2030.

Currently, solar PV systems contribute only minimally to the world's electricity needs, except in a handful of countries such as Germany and Japan. There, government-supported programmes, such as Germany's 1000 Roof and 100,000 Roof programmes and Japan's Residential Roof Program, have accelerated development of the alternative power source since the early 1990s. In Germany, thanks to low-interest installation loans and the feed-in program requiring utilities to buy back PV-generated power at attractive rates, 300,000 PV systems were installed as of the end of 2006.

Other countries, though slower in getting out of the starting gate, are also now making strides. Industry experts predict the USA in particular, could be a standout over the long term. Several US states have enacted ambitious subsidy programmes, including California's 10-year, US$3.3bn solar incentive programme. California hopes to supply 20% of its electricity needs with solar energy by 2010, while other states like Arizona, Texas, New Jersey, Pennsylvania and Maryland, have committed to fund the installation of some 10 GWp of additional solar electric generating capacity over the next 15 years through billions of dollars in subsidies.

At the Federal level, the US Department of Energy (DoE) gave a boost to the solar industry last year by launching the Solar America Initiative (SAI). The programme funds a variety of cooperative research programmes, which are structured as industry-led partnerships focusing on manufacturing and production. One of the key goals is to develop new, more cost-competitive PV materials for cells. The DoE budgeted US$148m for the PV energy programme during 2007, an increase of US$65m over its 2006 allocation.

By 2015, the DoE aims to make solar PV electricity generation cost competitive with conventional forms of electricity, while creating an installed base of PV systems large enough to produce 5 to 10 GWp. By 2030, the country's annual installed PV electric generating capacity could see a tenfold increase and represent roughly 40% of new electricity generation capacity.

Some experts claim that solar PV-generated electricity is already cost competitive, even without subsidies, for customers in California during peak daytime hours. But for most of the more than two billion people worldwide who currently have no access to electricity, solar PV systems are still far too expensive.

The industry's ultimate goal is to reduce the cost of PV cell production from roughly US$1.50 to US$2 per Watt peak (Wp) today, by 50% in 2010; this should be low enough to compete with traditional energy sources and make PV generated energy affordable for developing countries.

To tackle this important objective, a growing number of companies and organisations around the world are working to create technology that will further boost the acceptance of PV. Soaring demand for renewable energy has attracted an increasing number of industrial players to the PV field in recent years, including a number of Chinese manufacturers. Meanwhile everyone in the value chain, from silicon producers, cell and module makers up to production-equipment manufacturers, has been making serious investments.

Oerlikon Solar, for one, seeks to reduce costs even more aggressively and increase conversion efficiencies to a point where parity with conventional energy sources becomes a reality in the near term. The Switzerland-based company's equipment for producing thin-film solar PV modules enables high efficiencies while significantly reducing the cost per Wp.

Overcoming the Gigawatt factory challenge

The PV industry's next major cost-reduction driver is expected to be economies of scale in manufacturing. This is not a sure thing, however. Two key economic factors must change drastically for the industry to achieve this critical point: the cost of production and the power output of the PV modules.

Larger production volumes are already enabling the industry to lower its per-unit costs. Thus far, the rule of thumb has been that each doubling of capacity produces production-cost reductions of approximately 20%. To accelerate this trend and achieve the highest possible yield, however, it will be necessary to bring new, highly automated (for instance, less manual assembly and handling) manufacturing lines into production in a shorter timescale, for example in 6 months – versus 9 to 12 months at today's pace.

Furthermore, PV-generated electricity will need to become more cost competitive through improved conversion efficiency, module cost and total system cost. Total system cost is tied closely to easier and faster installation procedures, decreased installation material costs and less costly inverters. Today's market price to produce a PV module is between US$4.50 and US$5.50/W. That price will need to drop to less than US$2 for the industry to compete successfully against fossil fuels on a global basis without Government grants and subsidies.

To effectively leverage economies-of-scale advantages, today's traditional production facilities with outputs of 30 to 120 MWp must grow into 1 GW plants. Moreover, recent decisions by leading PV cell manufacturers to invest in major capacity increases by 2008 and 2009 signal that the industry is headed in the right direction. The leading producers have established a goal to surpass the 1 GW mark by 2010, but international competition to reach that milestone first will be fierce.

Close cooperation and collaboration between cell producers, equipment manufacturers and plant managers will be required to meet the GW challenge, since achieving that unprecedented level of production presents new technological and financial challenges for the industry and its suppliers.

Thin-film technology potential

Until now, the implementation of grid-connected systems, often sustained by subsidies, has driven growth. These advances have been slowed, however, by a shortage of silicon, which has forced the PV cell industry to compete with semiconductor manufacturers for silicon. The competition has also put upward pressure on PV prices. The good news is that worldwide silicon supplies should increase in 2008, thanks to several planned factory expansions. In addition, silicon supplies are likely to be further extended by recent advances in the production of thinner wafers, which use less silicon.

On the technology front, noteworthy improvements include reducing the cost of PV cells through new materials and processes that require little or no silicon. Moreover, newer technologies and topologies that benefit from these processes and materials have shown better conversion efficiencies and are likely to become more widely used.

Two main technologies are used to produce PV cells. The most prevalent silicon PV cell technology, which uses either c-Si or multicrystalline silicon (mc-Si), supplies about 90% of worldwide cell demand. The balance comes from thin-film technologies like amorphous Silicon (a-Si), Micromorph Tandem technology, Cadmium Telluride (CdTe) and Copper Indium Diselenide (CIS).

To help customers and consumers reach grid parity through its thin-film PV module technology, Oerlikon Solar has introduced an environmentally friendly, energy-conscious micromorph tandem technology that combines two different silicon materials – amorph and microcrystalline – in a top and bottom cell.

The amorphous top cell converts the visible part of the sun's spectrum, while the microcrystalline bottom cell absorbs the sun's power in infrared spectrum. This new micromorph tandem technology boosts the efficiency level by approximately 50% compared to traditional amorphous single cells. This process not only reduces energy production costs, it also has the potential for reaching conversion efficiencies of more than 10%. A further incentive to customers is that Oerlikon Solar uses materials that are non-toxic, low cost and readily available.

Thin-film cells present significant growth opportunities. Consultants Solarbuzz expect sales in 2010 to be at least 10 times higher than 2005 levels, as more manufacturers begin large-scale production. Worldwide, thin-film technologies are expected to account for 20% of the PV market by 2010.

History repeats itself

As Shakespeare observed, what's past is prologue. In many ways, the evolution of the PV industry resembles what occurred in the chip industry 20 years ago. With the feed-in laws pioneered by Germany now adopted in roughly 40 countries, technology advances in PV cells and production processes are continuously being realised. Looking ahead, the GW factory is likely to be the next important milestone on the road to lower production costs and grid parity. In this context, increasing solar PV adoption in the USA – where most regions have favourable climate conditions – suggests the market could evolve even faster than experts have forecasted.

As all of these factors come together, solar energy derived from PV technology could power more homes and businesses around the globe than expected even a few short years ago. Several PV cell manufacturers have said that the pivotal factor for PV-derived solar energy to become the energy of choice is a cost reduction of 40-50% in the next three years. And while that's a significant challenge, it's clearly within reach.
PV market growing at 35% per year

Over the past 15 years, the demand for solar energy has grown by about 25% annually. By 2006, the industry was producing 1744 MW of PV energy worldwide. Germany is leading the push for production, followed by Japan, Spain and, more recently, the United States.

The cumulative installed capacity of solar PV systems is estimated to be more than 6.5 GWp today, up from the 1.2 GWp installed capacity at the end of 2000. That's an annual growth rate of 35% – not bad for many industries, but not nearly reaching this industry's full potential. According to a 2006 report from EPIA and Greenpeace, the industry's annual installed capacity will be 5.6 GWp through 2010.

On the supply side, the production of PV solar cells grew to more than 2 GWs in 2006, an increase of nearly 550 MW over 2005, while global sales reached US$10.6bn (€7.2bn).

The market is indeed accelerating, and the investments are targetting the migration to mass production, to enable cell price reductions and industry economies of scale.

Building on this momentum, solar electricity using PV appears poised to finally become competitive with traditional energy sources in the pioneering regions.

About the author

Claus-Ulrich Mai is CFO of Oerlikon Solar.