The history of photovoltaic industry pricing and future direction in a low incentive environment

Pricing has historically been the most consistently misunderstood metric of the PV industry, specifically, it is typically inappropriately correlated with manufacturing costs or expected to behave perfectly within a theoretical context. For PV, and other products and technologies with similar pressures, the price function is highly correlated with the market and market behavior and less so with manufacturing cost. The primary reason for the imperfect correlation with costs is that demand in the photovoltaic industry remains incentive or subsidy driven. Demand for photovoltaic systems (specifically, into the grid-connected application) softens when incentives are not in place. Other aspects effecting pricing in the PV industry include aggressive pricing for share, high levels of inventory, high levels of manufacturing capacity, less expensive substitutes, lack of investor funding and to a lesser degree the cost of consumables and raw materials. Pricing behavior is reactive to market forces and related to costs only in ideal situations. Along with energy efficiency, conventional energy technologies (sources) are the chief competitors for the photovoltaic industry. Not only is the electricity generated by conventional sources a commodity, these energy sources enjoy significant subsidies. Pricing for photovoltaic products, therefore, is forced to compete one-to-one with sources that enjoy subsidies without similar pressure to compete without them. Unfortunately, when incentives are designed to stimulate demand for photovoltaic (solar) products, it is assumed that price will descend in an orderly fashion related closely with the cost of producing the technology. This dangerous assumption, along with a lack of understanding of PV industry behavior has helped to encourage disruptive behavior, including aggressive and/or defensive pricing. The photovoltaic industry is hence judged primarily on the price of the electricity generating component, the module, and not of the qu- lity of the electricity, which is both clean and reliable. This paper will offer a history of PV industry module pricing from 1974 through to 2012, with a five year pricing forecast. Pricing history will be broken to periods during which industry behavior can be identified and analyzed. The current period, 2009 through the forecast period, will highlight and analyze aggressive pricing for share (also a component of the 2000 through 2003 period of industry history), against the backdrop of decreasing incentives, historically high levels of manufacturing capacity, high levels of inventory and the return of low to negative margins for PV manufacturers. Also explored will be the effect of this pricing on other solar technologies (CSP and CPV). The methodology used for this paper is classic market research, relying on primary research of the supply and demand sides of the PV industry along with the CSP and CPV industries.