Solar Energy is already the "energy source of choice" in many circumstances where power is required, but the user does not have the option of connecting to a local electricity grid. This market segment is providing the economic platform from which a self-sustaining, commercially driven, high technology industry is emerging.

The next economic challenge for the Solar Energy Industry is penetration of markets, where the user has the option to connect to the electricity grid. In these circumstances, it's often said that solar energy at 20-40c/kWh is two to three times as expensive as residential rates.

So why, in the light of this, have an increasing number of Utilities, whether Government Owned or Private Corporations, expressed interest in including solar energy in their portfolio as we start the 21st century? It may surprise you that it is based on sound economic principles.

Over the last two decades, the trend of solar energy prices has been consistently downwards, driven by  continuous advances in PV technology and manufacturing economies of scale. Investment in solar energy today is set against an economic backdrop of an industry that will approach break-even costs with other grid connected energy sources at the end of this decade.

With 427 Megawatts of global incremental solar capacity installed capacity last year, solar energy is still a tiny fraction of the world primary energy market. However, its reduction in unit costs has yielded growth rates and market share gains that suggest solar energy has the potential to become a mainstream energy source in the foreseeable future, as part of a growing Renewable Energy sector.

How does the electricity consumer feel about the energy sources of their Utility? Public surveys show three consistent messages:

• Consumers do care about where their Utility secure their power from
• Consumers have a preference for renewable energy, and solar ranks as their number one choice among renewable energy options
• Consumers are willing to pay a small price premium to support renewable energy

When Utilities assess their business strategy, an energy portfolio that incorporates solar energy, is one that will contribute bottom line value to their Brand. When Corporations assess their choices as users of energy, many are seeing a positive financial payback from Brand enhancement by securing a clean energy portfolio.

A key part of Utility decision making is about managing its energy portfolio mix. Each primary energy source has its own unique characteristics as it relates to total cost, fixed cost verses variable cost mix, reliability factors, price volatility and fit with load curve. So how does solar energy rate against these characteristics?

As already mentioned, solar electricity costs reach 20-40c/kWh in sunny regions and are on a decline cost path averaging 4% per annum. This is one of the fastest declines of any energy source and stands in stark contrast to hydrocarbons that require rising prices to bring on new reserves. Nonetheless, continuing the solar cost decline remains the Number 1 mission of the industry, driven mainly through manufacturing economies of scale and automation, solar cell technology enhancements and finally through enhanced procurement activities.

Once installed, solar energy has close to zero variable costs. In that regard it has characteristics similar to hydroelectric or nuclear power. This means that it is utilized as base load energy, leaving the swing or marginal production to the high variable cost energy sources, namely hydrocarbons.

Solar Energy is not exposed to price volatility. This means that it avoids both commodity market price movements and carries no forward exchange rate risk during its life. This is a common characteristic with other renewable energy sources. This element alone has value in a price volatility mitigation role in any Utility portfolio.

The recent California energy crisis has been a lesson in energy and de-regulation. Notwithstanding the short term squeeze on existing Californian Green Power marketers (which relied upon spot purchases of green power), the long term effect will be to increase the value of power sources, like solar. These energy sources can most easily be configured to create local ownership and control, whether by Government, Utility or consumers, while at the same time creating local jobs.

From the Utilities viewpoint, Solar Energy has one of the highest reliability factors of any energy choice. From the Consumers' viewpoint, it can be configured to provide back up power during periods of grid downtime. Solar Energy has technical reliability characteristics that allow it to access the premium power market. Solar Energy also has good fit with most Utility load curves. Its strongest fit occurs during the summer, when the daily air conditioning load in many countries fits closely with solar energy production.

Economic analysis of solar energy should take in to account that it's energy output correlates well with summer electricity peaks, but solar energy is ultimately a "baseload" energy source. "Baseload" means that it is one of the first energy sources to be called upon in the overall energy mix of a Utility. These two factors mean that solar energy can capture much of the value of the peak prices, but its value should take in to account prices paid by Utilities during other (off peak) periods too.

Another dimension to utility decision making is the growing in interest in distributed generation, enabled by new generation technologies such as solar, fuel cells and microturbines. Solar Energy can play a complementary role here, especially because of its ease of incorporation in to the structure of residential, commercial or industrial buildings.