**Abstract From** 2009 to 2012, global PV module prices dropped by an average of 27% annually, while system costs fell by about 19% each year. In 2010, photovoltaic modules accounted for 45% to 60% of the total cost of a photovoltaic power generation system, making them the most significant component. Today, global component prices have fallen by as much as 80%, and modules are no longer the main luxury in power plant construction. Currently, hardware costs—including components and inverters—have sharply declined in the cost structure of photovoltaic plants. Especially in developed countries with high labor costs, hardware expenses have become "pediatrics," while "soft" costs remain high. Reducing these "soft costs" has now become a top priority for driving the "hard growth" of the global solar industry.
**Hardware Costs Drop into “Narrow Alleyâ€**
According to the latest PV Insights sample data, as of September 28, the average price of polysilicon has dropped to $18.15/kg, and the average price of crystalline silicon modules is $0.70/W. In terms of polysilicon prices, $18.15/kg will definitely cause Chinese polysilicon companies to continue losing money. For example, GCL, the largest polysilicon company in China, had an average production cost of $17.3/kg in the first half of the year. Adding operating costs, the price would still be between $20–$25/kg. In the first half of 2013, GCL-Poly reported a net loss of HK$917 million, indicating that product prices remain at a low level. Polysilicon, being at the forefront of the solar industry, sees its price fluctuations directly affecting downstream markets and the overall installation cost of photovoltaic systems. So, how much will the price of polysilicon affect the hardware costs of PV power plants in the future?
On September 16, the Ministry of Commerce issued an announcement, deciding to implement temporary countervailing measures against imported solar-grade polysilicon from the United States. Earlier, China had imposed anti-dumping duties on polysilicon produced in the U.S. and South Korea. The author believes that with China’s efforts to suppress the dumping behavior of foreign polysilicon companies, Chinese polysilicon prices may rebound slightly by the end of 2013, but the rebound will be minimal, benefiting only a few companies that continue to operate. Others that have stopped production will not return to work. In the first half of the year, China's domestic polysilicon production reached 28,000 tons, and it is expected to increase to around 70,000–80,000 tons by the end of the year, exceeding previous industry forecasts of 50,000 tons.
It is predicted that the price of polysilicon products will not fluctuate drastically. A stable price range of $20–$22/kg is considered a good choice. This judgment is based on two main factors: First, the Ministry of Commerce has not yet successfully addressed the dumping issues of Korean and German enterprises, which still have strong dumping conditions, although they have suppressed the arrogance of American companies. Some Chinese battery component companies may shift their focus to domestic orders, increasing sales prices and operational efficiency, but a large portion of polysilicon is still imported. Second, rising polysilicon prices will increase the cost pressure on battery component companies, eating into their non-silicon cost savings, forcing them to either raise product prices or endure sustained losses. In short, polysilicon remains a key part of the "hard cost" of solar energy, and its price decline has been limited, with potential for a small increase in the future.
However, in the long run, as companies continue to improve the Siemens process and develop new silane fluidized bed technology, the production cost of polysilicon could be reduced by half. This technology is expected to become the main market supply within the next three years.
Compared to polysilicon, the component link seems less fortunate. I firmly believe that if there is still a significant drop in component manufacturing costs in the future, the price of polysilicon will fall, because the non-silicon cost process of the component has limited room for improvement, with a maximum reduction of single digits. During the past three years of "cold winter," component companies have managed to reduce costs through supply chain optimization, improved management, and increased operational efficiency. However, progress in these areas has been very difficult.
Currently, the production cost of mainstream component companies in the industry has dropped below $0.6/W, with some key enterprises reaching nearly $0.5/W, and it is expected to fall below $0.5/W by the end of the year. According to a report by GTM Research, the annual cost of China's top-tier crystalline silicon PV module manufacturers is expected to decrease by approximately 6.5% from 2012 to 2017, with production costs dropping to $0.36/W by 2017, which is significantly lower than the previous rate of decline.
However, in the next few years, reducing production costs through improving component conversion efficiency remains uncertain. The conversion efficiency of PV modules in China has remained between 18% and 20%, with a very slow rate of increase. It can even be said that the drastic drop in photovoltaic product prices in recent years is largely due to fierce competition, rather than technological progress. Technological advancement is essential for fundamentally reducing power generation costs, and a small breakthrough could bring a new dawn for the industry. It is understood that for every 0.1 percentage point increase in battery conversion efficiency, power generation costs can be saved by 5% to 7%. China's PV industry seems to have stumbled on this tiny 0.1%, with 20% becoming the threshold for many businesses.
The U.S. SunPower company achieved a battery conversion efficiency of 22.6%, while Japan's Sharp Corporation reached 21.5%, indicating that there is still room for improvement in China's PV module conversion efficiency. However, it is unclear when this time will come. In short, whether it is polysilicon or components, technology is needed to drive cost reductions again. Other companies should also do this. At present, it is difficult to make a big breakthrough in the short term, and only small improvements can be made through detailed efforts.
**“Soft Cost†Saves Deep Space**
In the previous analysis, whether it is polysilicon or photovoltaic modules, the space for cost reduction has been very narrow, and subsequent declines will almost no longer affect the competitiveness of the photovoltaic industry. The entire industry needs to find another way while strengthening scientific research efforts.
According to media reports, the average installation cost of photovoltaic systems in Germany over the past one or two years is $2.6/W, while in the U.S., it has doubled to $5.2/W. Japan is the only country where the installation cost of photovoltaic systems is higher than the U.S., with an average cost of $5.9/W. Compared to the component cost of about $0.70/W, we can see that in countries with high labor and other high costs, components are no longer a luxury for photovoltaic power generation, and the "soft cost" of the industry has greatly increased, leaving a lot of room for further reduction.
Even in China, although the cost of power plant components is much higher than in developed countries, there are still many areas for improvement in terms of "soft cost." Take a 10MW western photovoltaic power station as an example. If you go through the "road strip," the cost will need to be 600,000–700,000 yuan. If you buy the "road" from others, the price is about 200,000 yuan. The investment in a 10MW photovoltaic power station is only 10 million yuan, and the proportion of approval fees of 60–2 million yuan is already very large. Obviously, there are many unreasonable places.
The application process for China's photovoltaic power plants, especially large-scale ground power plants, is cumbersome. The cost of applying for 10MW and 50MW is almost the same. As a result, many companies simply expand the scale of the application, leading to over-planning and the occupation of roads and hackers. According to incomplete statistics, about one-third of China's PV power plants are built through hackers, which invisibly increases the construction cost of photovoltaic power plants.
The same problem is more prominent in the U.S. Sunrise released a report stating that the cost of photovoltaic power generation approval in some parts of the U.S. is $0.50/W, meaning that installing a residential rooftop PV system requires $2,500 in approval fees. Considering the U.S. system installation cost of $4–$5/W, Sunrise's research results may not be sensational.
The results of the U.S. RMI study may be more illustrative of this issue. RMI recently released a cost roadmap for U.S. residential PV systems. The figure shows that when the installed cost of U.S. residential PV systems was $8/W in 2008, hardware and "soft cost" were almost equal, both around $4/W. By 2013, when the U.S. residential PV system installed cost was $4.99/W, the hardware cost was $2.47/W, and the soft cost was $2.52/W. The research results of the National Photovoltaic Laboratory are basically consistent with RMI, indicating that the "soft cost" still accounts for more than 50% of the total installed cost of residential PV in the U.S., with each PV system's soft cost ranging from $10,000 to $15,000. For the U.S. market, the industry still has a lot of room to reduce "soft cost," and any improvement will lead to a significant decline in the cost of photovoltaic installations.
**How to Reduce the “Soft Cost†of Photovoltaic Power Plants?**
The "soft cost" of PV power plants mainly includes application, inspection, grid connection, financing, and customer acquisition costs (including investigation, marketing, and advertising). To reduce the "soft cost" of PV power plants, several strategies can be implemented.
Firstly, from the perspective of financing, the financing cost of PV power plants in various countries is too high. This contradicts the inherent attributes of low-yield and stable PV power plants. The main reason behind this is that banks lack understanding of PV power plants. With their own experience and knowledge, banks believe that PV power plants are still investment projects with certain risks, resulting in high loan interest rates. If banks gain more knowledge about PV power plants, the financial support for power stations will naturally increase.
Not long ago, a company called kWh Analytics developed a comprehensive and accurate measurement system that helps investors evaluate PV plants more easily, eliminating the need for third-party evaluations. kWh Analytics believes this system can reduce the financing cost of PV power plants by $0.4/W.
Secondly, the customer purchase cost is high, accounting for about 45% of the soft cost, and there is still a lot of room for reduction. On the eve of China’s second batch of “Golden Sun†demonstration projects in 2012, some companies sent teams of hundreds of people to find suitable roofs, doubling the public relations costs. The soft cost of German PV is lower than that of the U.S. because German PV systems are mostly owned by households, while the U.S. is mostly owned by third parties, requiring more effort to find suitable PV roofs. To reduce costs, some U.S. companies, such as Clean Power, have developed software to find qualified PV projects online or let consumers estimate the cost and benefits of installing PV systems, increasing their willingness to adopt new energy systems. These are all effective ways to reduce the "soft cost."
For China, it is possible to gradually change the reporting system to a registration system and screen high-quality photovoltaic projects by reducing subsidies. Simplifying the approval process will help reduce construction costs. In short, reducing the "soft cost" must attract the attention of countries. Some scholars believe that the "soft cost" of the U.S. photovoltaic system can be reduced from the current $2.52/W to $0.65/W by 2020. It is believed that China's PV industry will also have a lot of room for improvement in this regard. If the "soft cost" can be substantially reduced, the global PV competitiveness will be further enhanced.
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