Thursday, August 27, 2009

Supply & Demand for Solar Panels

Here is a recent article from the NY Times illustrating supply and demand in action in the solar panel market.

Solar panel prices are falling because...

An increase in the number of firms manufacturing polysilicon has increased the supply of this input used in the production of solar panels.

Increased supply of polysilicon lowers the price of polysilicon (as the polysilicon supply curve shifts to the right).

This lower input cost causes the supply of solar panels to increase (shift to the right), which causes the price of solar panels to decrease.

This increase in supply of solar panels appears to be coupled with a decrease in demand for panels (we can assume that this is largely due to lower incomes and cash-strapped governments eliminating subsidy programs).

Result? Lower prices of panels and an increase in quantity demanded.

Sounds good so far. More solar power is a good thing, right? But, what else might happen if prices stay low into the long-run?


Anonymous said...

The production of solar panels may not be profitable in the long run if the price stays low. If the supply demand curve stays significantly skewed towards supply, it will crash. Additionally, the price won't accurately reflect the cost of production(although few products do these days). One way to make up for this discrepancy between cost of production and price people are willing to pay is to subsidize the solar panel industry with tax i right?

Anonymous said...

I agree with the comment above...if prices continue to stay low into the long run than firms may not be able to sustain production. Subsidizing may prove to be effective at limiting a possible discrepancy between production costs and the price people are willing to pay. However, as mentioned in the article, it can be too expensive given the current economic climate. An example of this is in Spain, a world leader in terms of solar energy, who was forced to cut it's "generous subsidy" due to it's economic crisis. It does seem to be a viable option in the long run as we climb out of the world wide slump. - Ryan D.

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