Munich, June 18:

Soaring oil prices have led to such a boom for solar power that the industry could operate without subsidies in just a few years, according to industry leaders. At the solar industry trade fair in Munich over the weekend, there was growing confidence that the holy grail known as ‘grid parity’ — whereby electricity from the sun can be produced as cheaply as it canbe bought from the grid — is now just a few years away.

Solar photovoltaics (PV), which convert sunlight into electrical power, have long been dismissed as too expensive to make a meaningful contribution to the battle against climate change. But costs are falling as PV production booms, and with electricity prices rising rapidly in line with soaring oil and gas prices, demand for solar panels is increasing sharply.

Germany, the world leader in PV thanks to its ‘feed-in tariff’ (FiT) support, installed 1.1 gigawatts (GW) of capacity last year — the equivalent of a large power station. It now has nearly half a million houses fitted with PV panels. The feed-in tariff pays people with solar panels above-market rates for selling power back to the grid.

“High oil prices have boosted demand even more. The market will probably expand another 40 per cent this year,” said Carsten Kornig, of the German solar industry association, referring to both PV and solar thermal systems, which produce hot water. His previous assumption — that grid parity would be reached in Germany in five to seven years — now looked very conservative since it allowed for only a three per cent rise in electricity prices each year. In many countries increases of 20 per cent a year are becoming the norm.

All the companies at the Intersolar fair are planning large increases in production of solar panels. The China-based Suntech, the world’s biggest maker of PV panels, plans to double production from 540MW this yearto 1GW in 2009.

Jerry Stokes, head of Suntech Europe, thinks grid parity in Germany can be reached within five years. In California and Italy, where there is lots of sun and high electricity prices, he said grid parity for PV systems had already been achieved.

“The great thing about solar power is that although you have an upfront cost, the fuel is free and is not controlled by another country,” he said. PV costs were falling rapidly and would continue to do so as the efficiency of panels improved and installation costs dropped, Stokes said.

Moreover, the price of silicon — which can be 70 per cent of panel costs — is also likely

to fall as new production comes on stream.

Although spot silicon prices have passed $400-a-kg — up from $25 five years ago — many firms have secured long-term supplies at about $50-$70-a-kg. Nitol, a Russian chemicals company, is building a new silicon production plant in Siberia that will take its output from 300 tonnes this year to 3,700 by 2009. Dmitry Kotenko, chief executive, said, “We expect to build five times that capacity in the coming years.”

The Norwegian company REC, which produces silicon, cells and solar panels, plans a 10-fold rise in production. REC’s Jon Andre Lokke said new plants were much more efficient than older ones and cut costs by at least 30 per cent. REC predicts that several countries would reach grid parity for PV by 2012, although rising oil prices could mean those targets are met earlier. REC also expects panel costs to fall by 30 per cent to 40 per cent by 2012.

But rising demand could mean panel prices remain high even as costsfall. “It all depends on demand and that could remain high for a long, long time,” Lokke said. Suntech’s Stokes agrees, “When we reach grid parity the demand could well be infinite.” Demand is particularly high in Spain, Germany and Greece but Britain’s PV market remains non-existent in the absence of a feed-in tariff.