The cost of solar electricity is likely to drop by 50% in 2009 from the previous year due largely to a big fall in solar panel prices, according to London-based New Energy Finance, provider of industry information and analysis to investors, corporations, and governments in clean energy, low-carbon technologies, and the carbon markets. The drop refers to what's commonly called the "leveilized cost of electricity," or the cost of producing the power over the lifetime of a solar power plant — from building to operating power plants. Utilities and banks use these metrics to determine their investments and operational costs for these generation facilities over time.

The levelized cost for solar electricity fell to as much as $160 per megawatt hour in 2009 for the worldwide market, says Jenny Chase, head of solar research at New Energy Finance. The $160 per megawatt hour came from installations in sunny spots — such as the deserts in the western United States — that used the cheaper thin-film solar panels. The cost of building solar energy systems using thin films can be as low as $3 per watt. For projects located in less sunny locations that use the more expensive crystalline silicon solar panels, their levelized cost could more than double, according to Chase. The levelized cost for other types of renewable electricity, such a wind and geothermal, are expected to drop 10% in 2009 over 2008. These levelized cost don't take into account any government subsidies.

"It's incredibly exciting," Chase says. "The price of photovoltaics has plummeted this year, and we are seeing that opening up new markets that wouldn't have made sense before. Governments around the world are going to cut subsidies, but they are still going to see a buoyant demand for solar."

Many manufacturers who posted a big drop in profits or even losses earlier this year have reported a big surge in sales for the third quarter.