The solar industry has long grappled with the timing of arguably its most important milestone, grid parity, which will be achieved when the industry is able to become price competitive with conventional grid-supplied electricity. With the cost of raw materials, namely polysilicon, falling rapidly and certain manufacturers ramping up to achieve economies of scale, the light at the end of the tunnel may be closer than anticipated. The industry is closer to grid parity in certain geographic locations, particularly those that already have high costs of generating electricity like Italy. As electricity becomes more expensive and the industry continues to achieve economies of scale, which is an important factor in lowering the cost of producing solar energy, it will be possible to close the gap in many more geographies. Until then, the industry will continue to be dependent on subsidies to enable competitiveness.

At present, feed-in tariffs, tax credits, and other government subsidies offset the high cost of solar electricity in order to make it competitive with electricity generated by burning fossil fuel. The expensiveness of solar power is driven by high up-front capital expenditure, expensive raw materials, and a lack of scale. However, companies like First Solar (NASDAQ: FSLR, $156.25) are quickly ramping up capacity to achieve economies of scale. Elsewhere, the price of polysilicon has plummeted, and capital expenditures are looking more affordable as projects’ ROIs improve. These factors may contribute to the industry’s achievement of grid parity earlier than anticipated.

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