By the end of 2009, there will have been a 50% drop in the levelized cost--i.e. the lifetime cost per kWh before subsidies--of solar power, and a 10% reduction in the levelized cost of other sources of renewable energy sectors compared to the end of 2008, according to new analysis by New Energy Finance.

“So far this year, the steady decline in the cost of equipment in sectors like solar and wind has been largely offset by the increasing costs of financing,” said Michael Liebreich, chairman and CEO of New Energy Finance. “By the end of this year, however, as capital markets loosen up and equipment prices continue their decline, we will see the levelized costs decline, finishing the year 10% below the end of last year across the board and far more than that in solar.”

Photovoltaic (PV) module prices across the board have continued their downward trend, although the rate of decline has tapered. Thin-film remains the low-cost leader in solar with projects as cheap as $3/W, making thin-film projects 25% less expensive than crystalline silicon systems on a levelized basis.

PV projects with tracking systems have seen the least reduction in costs due to the fact that costs for single- and double-axis trackers have remained buoyant relative to panel prices.

Although new transactions have been few, turbine prices have fallen to their lowest levels in several years at 18-20% below early 2008 levels. To date, this drop in equipment prices has mostly been offset by higher costs of financing.

In the offshore market, costs continue to rise with projects moving into deeper waters, facing increasingly complex construction and capital costs. As capital markets begin to recover, both onshore and offshore projects should begin to see falling levelized costs.

Levelized geothermal costs are particularly sensitive to fluctuations in capital markets and drilling stage debt and equity has been in scarce supply through this year. Drilling costs fell by nearly 50% as drilling rigs flew into excess with a falling oil price, but these have recovered in the last quarter in step with oil. In the past quarter levelized costs have risen by 8-10% but should remain flat at year end.

Reprinted with permission from SustainableBusiness.com