Solar Power Prices Keep Falling. And Falling. And Falling

I’ve been collecting stories about the rapid downward trend of the costs of generating electricity with solar photovoltaic cells. Earlier this year, ABC reported that solar PV had achieved “grid parity” in Australia. This means that solar panels have become so cheap and efficient that they now produce electricity for the same price that is charged by the electricity grid even without subsidies. So basically putting solar panels onto your roof in Australia is now as cheap as buying power from the grid. Soon it will be cheaper.

Earlier this week, Reuters reported that solar power prices in India could fall by 40% by 2015, which would make solar competitive with oil and gas. “Given the current scenario with the way it is growing and the way costs are coming down, our industry will probably not require any financial support from the state going forward in maybe three to four years,” the head of one of India’s solar companies said.

And Grist recently ran an article by Kees van der Leun from consultancy Ecofys titled “Solar PV rapidly becoming the cheapest option to generate electricity”. Here are some of the highlights.

For a long time, the holy grail of solar photovoltaics (PV) has been “grid parity,” the point at which it would be as cheap to generate one’s own solar electricity as it is to buy electricity from the grid. And that is indeed an important market milestone, being achieved now in many places around the world. But recently it has become clear that PV is set to go beyond grid parity and become the cheapest way to generate electricity. (…)

At a very large scale, the cost of manufacturing anything drops to just above the cost of its base materials. As scale goes up, per-unit costs come down. This is known as a “learning curve” — the price per unit of capacity comes down by x percent for every doubling of cumulatively installed capacity. For solar PV modules, the learning rate has been exceptionally high, averaging 22 percent for the past two decades. The cost of the “balance of system,” i.e., all other components needed, follows this trend line closely.

The price for the learning curve was paid by the renewables feed-in tariffs in Germany and other countries.

In 2004, the feed-in tariff was $0.77 per kWh. For 2012, the tariff for large, ground-based systems is already down to $0.23 per kWh, in spite of eight years of inflation. (…) In a sunnier region, like the southwestern U.S., solar radiation is double Germany’s, so the same installed capacity (in watts) will produce twice as much solar electricity (in kWh). As a consequence, the cost of a solar PV kWh in Arizona is only half of the cost in Germany, i.e., already below $0.12. (…)

But what of the competition? (…) The Brattle Group published the Connecticut Integrated Resource Plan [PDF] in 2008. They found levelized cost per kWh for natural gas-fired power plants to be $0.076 to $0.092, and for coal, $0.086, both without carbon capture and storage. And in 2009, MIT issued its Update on the Cost of Nuclear Power[PDF], in which they found levelized cost per kWh for nuclear’s competitors of $0.062 (coal) and $0.065 (natural gas), without any charge for CO2 emissions. The cost of wind energy is already close to competitive with gas and coal. The recent Global Status Report [PDF] by REN21 states its kWh-cost for suitable locations as $0.05 to $0.09, for an average of $0.07. Wind power cost is still decreasing, due to learning effects, but at a much lower rate than the cost of PV.

It is highly unlikely that fossil fuels will get away without any charge for CO2 emissions in the long run. In a growing number of countries, such as the 27 countries of the European Union and Australia, this market distortion has already (mostly) come to an end. But let’s assume that the cost of solar PV electricity needs to drop to below $0.06 per kWh to live up to the claim that it’s the cheapest source of electricity. In sunny regions, we will need to halve the cost of PV power again to make that happen. Three doublings of cumulative capacity will do, since, according to PV’s rapid learning curve, every doubling of capacity leads to a cost reduction of 22 percent. After three doublings the cost will be multiplied by 0.78 * 0.78 * 0.78 = 0.47.

Cumulative installed PV capacity globally was 40 gigawatts (GW) at the end of last year. Three doublings mean this has to grow by a factor of eight, to 320 GW, to achieve the necessary halving of cost. From 2005 to 2010, PV capacity installed annually grew by an average of 49 percent per year. Even if this slows down to 25 percent per year in the near future, we will reach 320 GW in 2018 — that’s only seven years from now!

To be sure, that was starting from a present PV kWh cost of $0.12, valid for sunny regions like the Southwest U.S. As can be seen from the solar map above, the regions with at least comparable solar radiation include most of Latin America, Africa, the Middle East, Australia, and large swaths of Asia, including all of India. For all those regions, PV will be the cheapest option by 2018. After that, further increases in cumulatively installed capacity will drive PV cost further down, making it grow swiftly in the regions in which it is the cheapest option to generate electricity.

This development does not, in itself, make life easy. Developing a world energy system that runs on 100 percent renewable energy by 2050 is a major and complex global effort, involving large investments in energy efficiency, renewable energy, and infrastructure, as we have shown in “The Energy Report” [PDF]. But it sure helps a lot!

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