From EcoGeek 

Solar photovoltaics have their challenges, from shortages of silicon to the sheer cost of purchasing and installing solar panels, but a new report from the Prometheus Institute says that both these problems will be addressed over the next few years, leading to cheaper solar and an abundance of capacity to produce.

Based on their research, Travis Bradford, president of the Institute, says that prices for traditional silicon-based panels should fall from $3.66 per watt (2007 figures) to $2.14 per watt in 2010, and more impressively, thin-film PV should go to $1.81 per watt from $2.96. When coal, currently the least expensive source of power, is around $2.10 per watt to generate*, the expected drop in price for solar will make it far more competitive.

Any news that solar is becoming more affordable is great as it will encourage more individuals to install them at home, and businesses to do likewise, either to offset their electricity consumption or installing them in a for-profit initiative. The report, however, also highlights an interesting figure - and companies who are currently building silicon-producing facilities that will come online in the next couple of years, should pay attention: The current global production capacity for silicon and thin-film panels is around 3.14 gigawatts, but will hit 12.36 gigawatts in 2010. That's an increase of just under 400%, an enormous amount that is sure to be welcomed by the environmental community.The demand, however, is only expected to be 6.76 gigawatts, up from 2.94 gigawatts in 2007, leaving over 5 gigawatts of unused capacity. Hopefully this will drive prices further down, resulting in greater demand, but this may have already been reflected in the statistics.

The reason for the drop in prices is due to the expected hike in silicon production, a shortage of which is currently being felt. It is expected that silicon availability will quadruple to 125,302 tons by 2012, providing a massive oversupply of the material to the industry. Thin-film manufacturers who use no silicon will not be affected by this overabundance, however they will have to compete with the dropping prices of conventional panels, hence the drop in price.

It may also, though this is probably wishful thinking, push governments to start offering more incentives to those who install solar in a bid to use up the remaining capacity and financially support their manufacturers who by this point will be a very large industry, employing tens of thousands of people.