“As solar becomes more economic, it will create new battlegrounds for business and new opportunities for consumers,” says an article by David Frankel, Kenneth Ostrowski and Dickon Pinner in the April 2014 issue of the McKinsey Quarterly.

First Solar

Indeed, costs of solar modules have fallen by nearly 30% a year between 2008 and 2013, but hearteningly, it’s not only hard equipment costs that have taken it on the chin.

Even “soft” costs, such as those associated with installation and service of solar installations, including financing, incentives and customer acquisition, are poised to become much cheaper, forecasts the article.

“The price US residential consumers pay to install rooftop solar PV (photovoltaic) systems has plummeted from nearly $ 7 per watt peak of best-in-class capacity in 2008 to $4 or less in 2013,” says the article, highlighting that the solar industry was able to achieve this even while battling headwinds such as the financial crisis, competition from natural gas, withdrawal of solar subsidies and numerous producer bankruptcies.

Solar’s new economics to prove highly disruptive

The falling costs make “grid parity,” the holy Grail for the solar industry, a very real possibility. “These cost reductions will put solar within striking distance, in economic terms, of new construction for traditional power-generation technologies, such as coal, natural gas, and nuclear energy,” say the authors.

Earlier this month, First Solar, Inc. (NASDAQ:FSLR), the top thin-film solar module manufacturer in the US, announced a three-year plan that would include, among other objectives, achieving efficiency in its cadmium telluride (CdTe) thin-film panels as much as 15.8% by 4Q 2015, up to 18.4% in 2016, and to a maximum of 19.6% in 2017.

These new efficiency landmarks, and an innovative manufacturing process developed together with General Electric Company (NYSE:GE) could together push its system cost down to sub-$1  levels by 2017, compared to $ 1.60 in 2013. The company is already set to be the world’s lowest cost solar cell manufacturer – core manufacturing costs, currently at $ 0.54 per watt, are projected to fall to below $ 0.40 per watt by the end of 2018.

First Solar, Inc. (NASDAQ:FSLR) is also making a determined thrust into residential installations using its 2013 acquisition of Tetrasun as a launchpad.

First Solar’s new opportunities

According to the McKinsey article, in addition to the rapid investment and adoption of solar in China, Japan, Europe and the United States, the industry will also find opportunities in Africa and India, where grid supply is notoriously unreliable. Even fossil fuel king, Saudi Arabia, plans to install significant solar capacity by 2032.

First Solar, Inc. (NASDAQ:FSLR) recently announced intentions to develop 200 MW of solar power capacity solely for the benefit of mining companies in Australia. “In an environment where profitability isn’t what it used to be, with the mining industry focused on cost control, the electricity that powers the mines is becoming a bigger line item, and the ability to put a dent in that and hedge against fuel price volatility is something that solar offers,” the company said to Bloomberg.

Other examples are cited in the McKinsey article, such as Wal-Mart Stores, Inc. (NYSE:WMT), Starwood Hotels & Resorts Worldwide Inc(NYSE:HOT) and Verizon Communications Inc. (NYSE:VZ), which are all taking steps to benefit from renewable power.

Utility sector to bear the brunt

“The utility sector represents a fascinating example of the potential for significant disruption as costs fall, even as solar’s scale remains relatively small… Solar could seriously threaten the latter because its growth undermines the utilities’ ability to count on capturing all new demand, which historically has fueled a large share of annual revenue growth,” warns the McKinsey article.

According to the study, during the first 10 months of 2013, more than 20% of new US installed capacity was solar. This is a telling comment on the way the market is moving in the US, and in many ways, is similar to what happened in Europe, where conventional power sources failed to take advantage of new demand, which was met by a rising supply of renewable energy alternatives.