Electricity From Solar Power Is Getting Cheaper

Studies Show the Price of Harnessing Solar Power is Dropping

Electricity From Solar Power Is Getting Cheaper
June 24, 2015

Solar energy seems to be reaching a mainstream tipping point worldwide. While solar power currently makes a small contribution to the world's energy production (accounting for 0.5% of global electricity demand in 2011 according to the Center for Climate and Energy Solutions), the percentages are growing rapidly. Within the U.S., the amount has grown from 0.2% in 2011 to 0.45% in 2014.

Solar programs and installations are booming worldwide. There is approximately 184 gigawatts (GW) of solar energy generating capacity worldwide, with just over half of that in Europe. Germany's program to eliminate nuclear energy has accelerated solar projects to make Germany the world's largest producer of solar power (35.5 GW capacity as of September 2014). Meanwhile, China has ramped up production and installation of solar cells, and has a target of 17.8 GW of new capacity to be installed in 2015.

In the North American market, Canada has shown remarkable growth with their feed-in tariff subsidy programs, especially in Quebec, and the U.S. reached 21.3 total gigawatts in the first quarter of 2015 according to the Solar Energy Industries Association (SEIA).

What is driving this increase? Costs are finally reaching levels that make solar feasible. Investors can see potential returns while environmentalists can see reduced carbon footprints on the horizon (not to imply that you cannot be both an investor and an environmentalist). A recent report from the UNEP (United Nations Environment Programme) revealed that worldwide solar-energy related investment increased by 25% in 2013 to $150 billion.

Costs for manufacturing the photovoltaic (PV) cells have dropped dramatically over the years and the efficiency has improved at the same time. The cost has plummeted from over $76 per generated watt to near $0.36 per watt in 2014. Add the costs of the overall panel and the price is still below $1 per watt in many areas. Predictions are for Chinese-made solar panels to reach $0.42 per watt.

This type of pricing already makes solar feasible in some environments. For reference, a traditional coal or gas-burning plant delivers electricity at five to ten cents per kilowatt-hour (kWh). A long-term contract in sunny Dubai was recently signed at five cents per kWh, and German solar output is already in the nine cents per kWh range in some areas.

A Deutsche Bank energy analyst went so far as to conclude that in 2016, solar power would be at least as cheap as traditional grid electricity in 47 states in the U.S. The Southwest U.S. is nearing grid parity already.

So why are things not moving faster? The biggest reason is storage and predictability. No matter how efficient solar energy gets, it is not generated at night. Storage technology is improving, but in virtually all areas right now, solar energy must be backed up with traditional power sources because of intermittent generation. Those sources are inefficient to turn on and off regularly, so that relegates solar and other intermittent renewables to secondary capacity instead of primary capacity.

The same problem hits individual homes trying to go off-grid. Power companies are trying to accommodate home usage by setting up arrangements to install systems and purchase excess capacity, or purchase all the generated power and meter some back to the home at a fixed rate. In either case, there is still a dependence on being wired into the grid for regulation of energy flow.

Tesla may have the answer. Their new Powerwall batteries are being used on both residential and commercial applications to store solar energy for nighttime use or during outages. Powerwalls can be installed in clusters, making them relatively scalable. The technology is not quite inexpensive enough to expand the residential market, but it has closed most of the gap in making solar energy feasible.

Another factor to consider is subsidies. While private investment has increased significantly, much of the solar growth is propelled by governmental renewable energy subsidies, whether it is through grants or tariff programs. Some of the rosier economic estimates fail to take into account the fact that government subsidies cannot (or at least should not) last forever, and they certainly do not lead to fair economic comparisons.

Even with those challenges, solar energy is making strides and is inching ever closer to mainstream. Just from an infrastructure and battery technology standpoint, realistically we are probably decades away from solar being the primary worldwide method of energy generation. However, we finally have a clearer path to get there.


Photo ©iStock.com/vencavolrab

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