Good news on PV system trends?

On Friday, the San Francisco Chronicle reported on a new study on how the average cost of installed PV systems changed from 1998 to 2007. (H/t: Cleantech News). The report came from Lawrence Berkeley Labs, until recently the employer of Steven Chu, now Secretary of Energy in the Obama administration.

According to the Chronicle, the cost per watt of systems fell about 28% (presumably in nominal dollars rather than inflation-adjusted real dollars). The prices are approaching but have yet to reach grid partiy.

Small systems in Arizona and California (best in the country) have an installed cost of about $8/watt, while a UC study last year suggested that an installed prices $5/watt would be necessary to be cost-competitive.

Is the glass half-full or half empty? The author of the UC study, Prof. Severin Borenstein of UC Berkeley, argues for the latter

"What we're seeing in small-scale solar are incremental declines, not breakthrough declines," Borenstein said. "And in order for solar to really make sense, we're going to need breakthrough declines."

I don’t know what the appropriate analogies are. Going from the transistor to integrated circuits was a breakthrough, but most of what happened after that was incremental. Analog to digital communications was certainly a breakthrough, but most of what’s happened since has been incremental. And, of course, the nature of breakthroughs is that you usually can’t see them beforehand.

This morning, website BusinessGreen predicts that the price of (silicon-based) solar module prices will fall 30-40% in 2009, with an end to last year’s shortage of polysilicon. Angus McCrone of consultant New Energy Finance is quoted as saying that “massive increase in silicon supplies is coming through at the moment.”

Given that the capacity is coming online when capital is scarce for paying for solar systems, the increased supply and falling prices will either stimulate demand that might otherwise have disappeared, or lead to brutal price wars that weed out less efficient producers.