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How Cheap Can Solar Get? Very Cheap Indeed
Ramez Naam   Aug 12, 2015   Unbridled Speculation  

Electricity cost is now coupled to the ever-decreasing price of technology. It’s profoundly disruptive to other electricity-generating technologies and businesses. And it’s good news for both people and the planet.


What’s the future price of solar?

I’ll attempt to make some projections (tentatively) here.

tl;dr: If current rates of improvement hold, solar will be incredibly cheap by the time it’s a substantial fraction of the world’s electricity supply.


Background: The Exponential Decline in Solar Module Costs

It’s now fairly common knowledge that the cost of solar modules is dropping exponentially. I helped publicize that fact in a 2011 Scientific American blog post asking “Does Moore’s Law Apply to Solar Cells?” The answer is that something like Moore’s law, an exponential learning curve (albeit slower than in computing) applies. (For those that think Moore’s Law is a terrible analogy, here’s my post on why Moore’s Law is an excellent analogy for solar.)


Solar Electricity Cost, not Solar Module Cost, is Key

But module prices now make up less than half of the price of complete solar deployments at the utility scale. The bulk of the price of solar is so-called “soft costs” – the DC->AC inverter, the labor to install the panels, the glass and aluminum used to cover and prop them up, the interconnection to the grid, etc..  Solar module costs are now just one component in a more important question: What’s the trend in cost reduction of solar electricity? And what does that predict for the future?

Let’s look at some data.  Here are cost of solar Power Purchase Agreements (PPAs) signed in the US over the last several years. PPAs are contracts to sell electricity, in this case from solar photovoltaic plants, at a pre-determined price. Most utility-scale solar installations happen with a PPA.

In the US, the price embedded in solar PPAs has dropped over the last 7-8 years from around $200 / MWh (or 20 cents / kwh) to a low of around $40 / MWh (or 4 cents per kwh).

The chart and data are from an excellent Lawrence Berkeley National Labs study, Is $50/MWh Solar for Real? Falling Project Prices and Rising Capacity Factors Drive Utility-Scale PV Toward Economic Competitiveness

This chart depicts a trend in time. The other way to look at this is by looking at the price of solar electricity vs how much has been installed. That’s a “learning rate” view, which draws on the observation that in industry after industry, each doubling of cumulative capacity tends to reduce prices by a predictable rate. In solar PV modules, the learning rate appears to be about 20%. In solar electricity generated from whole systems, we get the below:

This is a ~16% learning rate, meaning that every doubling of utility-scale solar capacity in the US leads to a roughly 16% reduction in the cost of electricity from new solar installations. If anything, the rate in recent years appears to be faster than 16%, but we’ll use 16% as an estimate of the long term rate.


Every Industrial Product & Activity Gets Cheap

This phenomenon of lower prices as an industry scales is hardly unique to solar. For instance, here’s a view of the price of the Ford Model T as production scaled.

Like solar electricity (and a host of other products and activities), the Model T shows a steady decline in price (on a log scale) as manufacturing increased (also on a log scale).


The Future of Solar Prices – If Trends Hold

The most important, question, for solar, is what will future prices be? Any projection here has to be seen as just that – a projection. Not reality. History is filled with trends that reached their natural limits and stalled. Learning rates are a crude way to model the complexities involved in lowering costs. Things could deviate substantially from this trendline.

That said, if the trend in solar pricing holds, here’s what it shows for future solar prices, without subsidies, as a function of scale.

Again, these are unsubsidized prices, ranging from solar in extremely sunny areas (the gold line) to solar in more typical locations in the US, China, India, and Southern Europe (the green line).

What this graph shows is that, if solar electricity continues its current learning rate, by the time solar capacity triples to 600GW (by 2020 or 2021, as a rough estimate), we should see unsubsidized solar prices of roughly 4.5 c / kwh for very sunny places (the US southwest, the Middle East, Australia, parts of India, parts of Latin America), ranging up to 6.5 c / kwh for more moderately sunny areas (almost all of India, large swaths of the US and China, southern and central Europe, almost all of Latin America).

And beyond that, by the time solar scale has doubled 4 more times, to the equivalent of 16% of today’s electricity demand (and somewhat less of future demand), we should see solar at 3 cents per kwh in the sunniest areas, and 4.5 cents per kwh in moderately sunny areas.

If this holds, solar will cost less than half what new coal or natural gas electricity cost, even without factoring in the cost of air pollution and carbon pollution emitted by fossil fuel power plants.

As crazy as this projection sounds, it’s not unique. IEA, in one of its scenarios, projects 4 cent per kwh solar by mid century.

Fraunhofer ISE goes farther, predicting solar as cheap as 2 euro cents per kwh in the sunniest parts of Europe by 2050.

Obviously, quite a bit can happen between now and then. But the meta-observation is this: Electricity cost is now coupled to the ever-decreasing price of technology. That is profoundly deflationary. It’s profoundly disruptive to other electricity-generating technologies and businesses. And it’s good news for both people and the planet.

Is it good enough news? In next few weeks I’ll look at the future prospects of wind, of energy storage, and, finally, at what parts of the decarbonization puzzle are missing.

Ramez Naam, a Fellow of the IEET, is a computer scientist and the author of four books, including the sci-fi thriller Nexus and the nonfiction More than Human: Embracing the Promise of Biological Enhancement and The Infinite Resource: The Power of Ideas on a Finite Planet.  He writes at rameznaam.com.




COMMENTS

Yes professor Naam, I was going to whine, till I reached the end of your article, complaining, “well what about storage? Solar is impossible as a primary energy source, without storage!” You indicated in future articles you will cover storage as one of the topics, so I will happily, just shut the heck up.

These points lead me to conclude that it is extremely important to block the present construction of additional fossil fuel generating capacity.  If the demand remains unsatisfied for a while, it will be filled a few years from now with renewable generation.

@RMS
If and only if, Professor Naam is exactly correct, on capacity and the timeline, can your demand be correct. What we never want is a lack of electricity, no matter how polluting. When the Germans shut down the nukes in 2011 because of Fukushima, they ended up importing billions of tons of US coal to burn in old power plants because of an immediate shortfall of electricity. The result, more air pollution. Let us both cheer Naam’s analysis as being accurate and hope for the best.

Please do not exaggerate the annoyance of power cuts.  I’ve spent time
in countries where they occur regularly.  Yes, it’s a nuisance, but
consider what this is being compared with.

RMS, I respect your willingness to sacrifice for the greater good. I will say that most people in this nation will not willingly shrug their shoulders, at rolling outages. Please consider the political fate of California governor, Gray Davis.


https://en.wikipedia.org/wiki/California_electricity_crisis

Since the future of civilization depends on curbing global heating
sooner rather than later, we must not be so quick to write off any avenue.
We could write them all off and throw up our hands, but what good is that?

Well said.

I think a greater obstacle to blocking construction of fossil fuel capacity than political risks associated with outages is the difficulty of finding an alternative livelihood for those countries and employees that live off the fossil fuel economy. In my view the “swing state” in this game is Norway. If Norway, with an economy that still depends greatly on oil and gas but also one of the most prosperous and environmentally conscious populations in the world, can divest, then there may still be hope for the rest of us. If it can’t (or doesn’t), then I think we’re pretty much all doomed.

Yes, indeed, Peter. I don’t think even Norway, can be described, yet, as a transitional model. I feel that when they can claim Oslo is powered 70% by solar, then we’ll know we have hit the future, and can legitimately shutdown coal burning. People can turn off the power plants by government eddict, but it does not change the physics of the world. Shutting it all down now will guarantee (minus their hydroelectric), that a large percentage of Oslo residents will freeze and perish in the arctic winter. The secret to solar must be cheap and abundant electricity storage. Lots of projects on this world wide, but nothing beyond demo projects.

@rms re “Please do not exaggerate the annoyance of power cuts.”

That reminds me of how much furniture of modern life we could do without. A few years ago I used the cell phone all the time. Then when I had to cut expenses I cut cell phone usage and soon realized that I can live without a cell phone. I carry one for emergencies but I almost never use it and only very few people have the number. All that I do can wait until I am at home or in a place with free WiFi.

@Peter re obstacles to solar - of course the bigger obstacle is greed. Those who protect the fossil fuel economy do so because they make more money that way.

I agree storage is key.

Re “the biggest obstacle is greed”, the reality of course is that there are lots of obstacles: technical, political, emotional. Greed indeed being one of the emotions that get in the way. But not the only one. There’s also fear.

What’s clear is that there are always going to be some people just out to make a profit at everyone else’s expense, and it’s probably best not to focus so much on them. By contrast, the “ordinary” people whose livelihoods depend on the fossil fuel economy are worth paying attention to. And yes, also the CEOs of oil and gas multinationals and leaders of countries that depend on fossils. I recommend this for further reading:

http://www.carbontracker.org/report/companyblueprint/

Good point, Peter. The trick, I think, is to harness greed. To this end, I have wondered if a gigantic prize for cheap, reliable, rugged, and abundant, energy storage, might be what kicks that goal? The reward needs to be huge, for the greedy return on investment. I was thinking that pressuring the World Bank for such a prize might me a worthy international goal?

World Bank looks difficult, because it’s probably not within its mandate. Branson is into this kind of thing, though, and I’m sure other high net worths and public foundations could be brought on board. Definitely worth further consideration in my view.

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