Solar Could Be The Cheapest Power Source By 2020

Solar Could Be The Cheapest Power Source By 2020

With energy price hikes happening every year, alternative power sources are becoming even more attractive. In the U.S., retail residential electricity rates have risen across the nation at an average of 4%. The rise of renewables is becoming apparent. Leading the energy revolution is no other than solar.

The cost of going solar is decreasing so rapidly in some parts of the world that it’s likely to be the cheapest energy source in the coming years. In the recent World Economic Forum (WEF), it has been reported that the levelized cost of electricity (LCOE) for utility-scale solar plants has declined at a 20% compounded annual rate. The result - the average cost of producing one megawatt-hour of electricity through solar dropped at $50. What’s even more surprising is, producing the same energy capacity from coal costs $102, which is double the amount for solar!

Graph of solar and coal prices over the past decade

Better technology is key to boosting the industry, from the use of diamond-wire saws that more efficiently cut wafers to better cells that provide more spark from the same amount of sun. The boost in energy has also driven by economies of scale and manufacturing experience since the solar boom, which only started a little more than a decade ago. This is ultimately giving the solar industry an increasing edge in the competition with fossil fuels.

The average 1 megawatt-plus ground mounted solar system will only cost 73 cents a watt by 2025 compared with $1.14 cost now, a 36 percent drop, said Jenny Chase, head of solar analysis for New Energy Finance.

Prices In Other Parts of the World

After solar proved its capacity to yield profits, many countries from Chile to the United Arab Emirates have hopped on to the solar bandwagon. In 2016, Abu Dhabi broke records with deals to generate power from solar for 2.42 cents a kilowatt-hour. It’s half the average global cost of coal-sourced power! And it doesn’t stop here—more countries are looking to drop the price even further.

Early this year, Saudi-based solar company Abdul Latif Jameel Energy has been awarded a solar project in Armenia that will power more than 21,400 homes. The same company will start a hybrid solar-wind project in Chile and a Mexican solar farm that will power 150,000 homes. The price for solar in Mexico has been set at 1.77 cents kWh and is expected to continue to decrease to only 1 cent per kWh in 2019 or sooner. These numbers are definitely game-changing. It won’t be long until it becomes normal in more markets!

According to the WEF Handbook, it is projected that solar energy will have a lower LCOE (levelized cost of electricity) than coal or natural gas-fired generation throughout the globe by 2020. UN Environment’s 2019 Global Trends Report in Renewable Energy reveals that solar dominated the 2017 global investment in new power, attracting up to $160.8 billion in investment.

Solar Industry Forecasts

The Bloomberg New Energy Finance (BNEF) analysis published in the journal PV Magazine, expects the price of photovoltaic panels to decline by 34% this year and will fall by another 10% to 15% in 2019. By 2025, the average 1 megawatt-plus ground-mounted solar system will only cost 73 cents a watt. This shows a 36 percent drop in terms of its price now at $1.14.

Higher volumes and lower margins will cause solar industries to experience the ‘Wal-Mart effect’. GTM Research analyst MJ Shi expects some parts of the U.S. Southwest approaching $1 a watt today, and may drop as low as 75 cents in 2021. The U.S. Energy Department’s National Renewable Energy Lab expects costs of about $1.20 a watt now declining to $1 by 2020. By 2030, current technology will squeeze out most potential savings.

The International Energy Agency expects utility-scale generation costs to fall by another 25 percent on average in the next five years. The International Renewable Energy Agency anticipates a further drop of 43 percent to 65 percent for solar costs by 2025. That would bring an 84 percent cumulative decline since 2009.

Nevertheless, the speed at which the price of solar drops below coal could vary in each country. India and China, for instance, have very large domestic coal reserves. This would probably make them the last ones to enjoy low-cost solar. On the other hand, countries that import coal including Europe and Brazil, will see a crossover in the 2020s, if not before.

Better Technology Is the Key

Decades ago, solar modules were still experimental. It required high investment costs for consumers. Today, building a utility-scale solar plant is far cheaper than a fossil fuel-burning power plant of equivalent capacity. Thanks to innovations in the manufacturing process, fewer resources were needed during production. This led to better panel designs which became more affordable for all users.

For instance, the use of diamond-wire saws has been a sustainable manufacturing alternative to loose abrasive sawing. It increased the speed of wafering and reduced waste, resulting in decrease in prices of wafer by up-to 50%. Solar modules have also become cheaper because China has started manufacturing them on a very large scale.

What the Coal Industry Has to Say

For coal industry officials, the cost comparisons fail to consider the need to maintain backup supplies. Experts should take into account non-solar periods wherein the sun doesn’t shine. When these expenses are included, coal becomes a more economical choice, even until 2035.

Benjamin Sporton, chief executive officer of the World Coal Association, shares in one interview that “Wind and solar can only generate part-time, intermittent electricity. While some renewable technologies have achieved significant cost reductions in recent years, it’s important to look at total system costs," Even so, he recognized solar as a plausible competitor.

Image of the shrinking costs of solar farms

Solar Headed Towards a Brighter Future

Solar power has made steady progress that will likely continue in the coming years. While sunbelt countries are leading the cost decline in photovoltaics, there’s more to it than just the weather. The use of auctions to award power-purchase contracts is driving competition among energy companies to lower costs. In the US, solar still only provides 2% of the country's total electricity needs, according to the Solar Energy Industries Association. If solar continues to be cheap for the average consumer, the numbers will likely increase.