SolarCity sees U.S. panel prices tumbling in 2011

Solar panel prices in the United States are likely to drop by 20 cents per watt this year, according to the head of SolarCity, one of the nation's largest photovoltaic solar service companies.

That drop would put the price of the panels that convert sunlight into electricity at about $1.40 per watt on average, or about 12.5 percent below prices quoted at the beginning of 2011.

Chief Executive Officer Lyndon Rive said the decline will help privately held SolarCity, which buys the panels from manufacturers and installs them for homes and businesses, to reach its cost-cutting target of 5 to 8 percent this year.

"It's hard to carve out 20 cents anywhere in this business," he told Reuters in an interview.

Prices for solar panels have dropped by about 75 percent in the past decade, and make up less than half the total cost of installing a rooftop system.

Most major solar manufacturers are increasing their output capacity of solar panels this year in a bid to grow their market share, even as key markets in Europe trim spending on the subsidies that are crucial to the fast-growing industry.

That could lead to a glut of solar panels on the market, squeezing margins at companies such as Trina Solar, First Solar Inc and SolarWorld AG.

However, market experts say those price declines are necessary to help the renewable power source compete with other sources of energy such as natural gas and coal, as well as reduce its dependence on government supports.

SolarCity recently bought groSolar, a solar power project developer and distributor, expanding its reach into 10 states.

The company's solar lease program for property owners has been a key part of its growth by enabling its customers to pay a monthly fee for solar panels rather than a large up-front installation price. That monthly fee is often offset by the customer's savings on electric utility bills.

While many states have instituted support mechanisms that aid the solar industry, some -- such as Massachusetts, Oregon and New York -- have set caps on the number of projects or how much of a subsidy a single company can get, which inhibits growth, Rive said.

"It doesn't help anyone but the small guy, and he's going to go away when the subsidy does," Rive said.

Driving down the costs of solar often means that companies must take advantage of economies of scale that are achieved by growing a company's size, he said.

"Unless you plan to (subsidize) this thing forever, you have to let them compete, and see who wins," he said.