Global production of solar photovoltaic (PV) cells increased 51 percent in 2007, to 3,733 megawatts, according to the latest Vital Signs Update from the Worldwatch Institute, produced in collaboration with the Prometheus Institute in Cambridge, Massachusetts.

More than 2,935 megawatts (MW) of solar modules were installed in 2007, according to early estimates, bringing cumulative global installations of PVs since 1996 to more than 9,740 MW—enough to meet the annual electricity demand of more than 3 million homes in Europe.

“Thanks to strong, smart policies in countries like Germany and Spain, the PV industry is making great strides in efficiency and cost, bringing solar power closer to price parity with fossil fuels,” says Janet Sawin, Worldwatch Senior Researcher and author of the update.

Over the past year, Europe—led by Germany—surpassed Japan to lead the world in solar cell manufacturing, producing an estimated 1,063 MW in 2007. Thanks to government policies that guarantee high payments for solar power fed into the electric grid, Germany remains the world leader in solar PV installations, accounting for almost half the world total in 2007. About 40,000 people are now employed in the PV industry in Germany.

Spain ranked second after Germany for total installations in 2007, but accounts for only an estimated 3 percent of global production. As in Germany, the Spanish market is being driven by a strong guaranteed price for PV electricity.

Despite a dramatic increase in solar cell production in the United States, up 48 percent to 266 MW, the nation’s share of global production and installations continued to fall in 2007.

In contrast, China raced past the United States for PV cell manufacturing in 2006 to place third globally, and it now ranks second only to Japan for national production. Over the past two years, China’s PV production has increased more than sixfold, to 820 MW in 2007. Despite these impressive numbers, the domestic market remains small and most PV cells made in China are exported to Europe.

“With billions of dollars invested in the solar energy technologies in the last 12 months, the PV sector is primed for accelerating its impact in both centralized and distributed generation at increasingly competitive costs,” says Travis Bradford, President of the Prometheus Institute. “As it reaches widespread cost parity in the next few years, demand will flourish in many places around the world simultaneously.”

Solar PV prices declined slightly in 2007, with even greater reductions held back by the hot pace of demand and a continued shortage of polysilicon, an essential ingredient for conventional solar cells. Analysts expect much more dramatic price drops—perhaps as much as 50 percent in the next two years—as more polysilicon becomes available, production and installation are further scaled up, manufacturing efficiencies increase, and more advanced technologies are introduced. As a result, solar electricity could soon be a competitive alternative to conventional retail power in many regions, including California and southern Europe.

According to Sawin, “PV and other renewables offer significant potential to meet global energy needs while addressing climate change, enhancing energy security, and creating jobs. Scaling up renewables is primarily a matter of political will and enacting strong, consistent policies that create demand.”