Energy from solar photovoltaic (PV) installations will become competitive with conventional forms of power generation by 2020 in Europe if the right policy and market conditions exist, says a new report.

According to the European Photovoltaic Industry Association (EPIA), markets such as Italy could reach dynamic grid parity for commercial PV installations by 2013. It says that there is huge potential for generation cost decline in Europe’s PV sector, continuing the trend of the last 20 years.

In its report, carried out in conjunction with A. T. Kearney, EPIA says that solar PV technology has an important role to play in Europe’s future energy mix. It has called on governments to maintain support for solar technology, even when grid parity is reached.

The report indicates that the cost of PV electricity generation in Europe could decrease from a range of 0.16-0.35 €/kWh in 2010 to a range of 0.08-0.18 €/kWh in 2020 depending on system size and irradiance level. It analyses PV markets in five European countries and concludes that grid parity will start in 2013 and spread across the continent in different market segments.

The cost reductions seen in the PV sector in the last five years has been a double-edged sword for manufacturers: it has enabled greater uptake of PV technology but has resulted in reduced incomes at a time when competition from Chinese manufacturers has heightened.

The industry is also adjusting to reduced support from government subsidy schemes and an oversupply of PV components on the markets.

A recent study from China’s National Development and Reform Commission (NDRC) suggests that solar power in China could reach grid parity by 2015.

China is expected to have an installed solar capacity of 2 GW by the end of this year, up from 900 MW at the end of 2010.

“Renewable energy sources, including PV, will be essential to achieving Europe’s important goals of reducing greenhouse gases and guaranteeing the security of a safe and local energy supply,” says EPIA in the report. “But an appropriate regulatory framework and favourable market conditions will be needed to ensure that PV can roll-out its full and increasingly promising potential in our future energy mix.”