A new report from consultancy company McKinsey predicts that in hot countries solar power will be cost competitive with fossil fuel within two to three years: despite subsidy cuts and a number of high-profile bankruptcies, solar capacity globally will continue to soar as costs fall by an average of 10 per cent a year through to 2020.
Report author and McKinsey associate partner Krister Aanesen explained that this will happen even without major technological breakthroughs: economies of scale, improvements in manufacturing processes, more sophisticated procurement and greater efficiencies in the supply chain, and improved panel designs will allow manufacturers to continue cost reductions.
Such a rapid decrease in the costs of solar energy could have a revolutionary effect on the global energy industry and could bring electricity to millions of poor people living in rural areas, greatly improving their standard of living.
However, Aanesen acknowledged that in the short term many solar firms face a challenging future as they battle to cope with over capacity in the market and cuts to government subsidy schemes.
Solar companies will have to build scale, differentiate their technology offerings, and continue to optimise manufacturing processes if they are to maximise their chances of survival.
Eventually, they will find themselves operating in an industry that is able to compete without subsidy with established energy sources such as coal and nuclear ones.