Better industrial processes will cut solar costs: McKinsey

Forget about breakthroughs in cell technology; improvements in manufacturing processes will themselves drive down solar costs, say Mr Krister Aanesen and Mr Rajat Gupta, experts on the solar industry at McKinsey & Company.

They predict that ‘solar system’ costs will come down from $2.50 a watt today to $1.50 by 2015 and to $1 by 2020, just by the application of “well understood, identified, industrial levers.”

These “levers” are factors such as scale, procurement, design-to-value, modularisation and de-bottlenecking. And they will kick in, inevitably, as the industry matures. Productivity gains from these factors will drive down costs.

Mr Aanesan calls it “industrialisation of the manufacturing process”.

Mr Krister is an Associate Principal in Oslo and Mr Gupta is a Director in the company’s Mumbai office.

In a conversation withBusiness Line, Mr Aanesen drew a parallel with the more established industries, such as the automotive industry, which achieves 2 per cent cost reduction every year by process improvements.

He said the solar industry would also imbibe ‘lean manufacturing technology’ from the automotive sector. (Lean manufacturing refers to a process technique that strives to use less of — not just materials but — all resources, including space and effort.

Pioneered by Toyota, this technique today pervades the automotive industry and is spreading to other areas.)

Costs and efficiency

Costs of ‘solar system’ will come down necessarily because of such “industrialisation of process” — any breakthroughs in efficiency of photovoltaic cells will further help in cost reduction, Mr Aanesen and Mr Gupta said. (Efficiency is a measure of how much of the sun’s energy falling on the panels is converted into electrical energy.)

In India, the cost levels are likely to be achieved faster due to higher levels of competition.

Even today the costs are 20-30 lower than global levels.

This view adds strength to the prediction that solar prices will come down. Generally, such predictions have been predicated upon improvements in cell efficiency and scaling up, but the McKinsey experts see a stronger reason for a fall in prices.

Not that breakthroughs in cell technology are any less significant— only, they are a somewhat uncertain.

The technologies

Within the three ‘thin film’ technologies — cadmium telluride, CIGS and amorphous silicon — the dynamics are different. Cadmium telluride is more established. CIGS (copper, indium, gallium, selenide) promises big efficiency upsides but, according to MrAanesen, “there are issues in scaling up.”

‘Amorphous silicon’, because of fall in poly-silicon prices, is “back in the drawing room”.

Amorphous silicon “could well be the technology that proves itself very applicable for new markets with different climatic conditions,” Mr Aanesen said.

This view has to be understood in its context (not mentioned by the McKinsey experts.)

The cadmium telluride technology, which today dominates the Indian market, thanks to marketing by US company First Solar, is now looked at askance because of the doubts over its suitability in hot climates.

In a con-call last week, First Solar’s Chairman of Board of Directors and Interim CEO, Mr Mike Ahearn, admitted that the company’s (cadmium telluride thin film) PV modules “are potentially subject to increased failure rates in hot climates.”

(This article was published in the Business Line print edition dated March 6, 2012)


Mechanical engineer with experience in Power Plant maintenance , operation and auditing for ISI marked products. MBA in Power Management from National Power Training Institute, Faridabad. Working as Consultant for Bridge to India Pvt. Ltd. Expertise in: 1) Power sector regulations 2) Financial Modelling 3) Project Development solar PV plants 4) Strategic consulting 5) Report writing

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