Over the last few years solar PV has got cheap. Cheap enough to start impacting some commodity energy markets today. Cheap enough that with continued progress, but no breakthroughs, it might alter the global outlook for energy supply within a decade.
I have long been skeptical of solar hype. In 2008 we did an expert judgment exercise suggesting only even odds of getting to module prices of 0.3 $/W in 2030. In 2011 we did some analysis showing how the power-law learning curve for modules appeared to be flattening. That analysis was done at the end of a decade that saw big increases in installed capacity, with little corresponding change in module prices. The solar market was driven by incentives, like tax credits and feed-in tariffs that drove rooftop solar seem systems which are (arguably) little more than green bling for the wealthy. I worried that deployment incentives (global total amounting to many hundreds of billions of dollars over the past decade) would simply lock in the current technologies and do little to drive the breakthroughs that were needed to get solar cheap enough to compete for commodity power.
I was wrong.
Facts have changed. Just a few years ago the cost for industrial systems was twice what it is today. A host of little innovations have driven costs down. Module prices are now around 0.5 $/W. The unsubsidized electricity cost from industrial-scale solar PV in the most favorable locations is now well below 40 $/MWhr and could very easily be below 20 $/MWhr by 2020. Compared to other new sources of supply, this would be the cheapest electricity on the planet. Lets look at how that cost is calculated.
The current state of play is captured in three facts:
Lets now proceed on the assumption that these facts are correct. What does this mean for electricity supply cost?
Assume that an average Capital Change Factor (CCF) is 6%, a low but not unfeasible value, as the risk premium for these facilities has decreased dramatically. (CCF is the ratio of the total annualized cost of capital, spread across debt and equity, divided by capital cost.) At 1,500 $/kW, 6%/year CCF, and 30% capacity factor, electricity cost is 34 $/MWhr
1500 0.06/(8760 0.3) = 34
Note that this low cost of capital would only make sense for a project that was selling into a low risk market.
Now suppose costs for big systems (>100 MW) get to 1,000 $/kW by 2020 and you install them in the worlds best locations using a North-South oriented single axis tracker to a capacity factor of 34%. These trackers used to add a lot of CAPEX, but disciplined manufacturing and scale has driven cost down to about 100 $/kW. (Here is info the Sunpower C1 tracker.)
Under these assumptions power cost is 20 $/MWhr. Two cents per kWhr!
1000 0.06/(8760 0.34) = 20 $/MWhr (or same cost at 750 $/kW and 26% CF)
Thats 5.5 $/GJ for electricity. (20 $/MWhr and 3.6 GJ/MWhr -> 5.5 $/GJ)
Even 40 $/MWhr is very cheap power. The 2013 median price of sales to industrial customers in the US was about 60$.
Thats the good news. But cheap solar does not deal with the problem of solar powers intermittency. It does not mean rooftop solar in New England makes sense. It does not magically decarbonize the world. In the long run we need low-carbon dispatchable power in the worlds demand centers. This will require some combination of gas for peaking, storage, and long distance transmission. Lots of the worlds demand is in places where insolation is at least 40% less than in the best locations, which are parts of Mexico, Southern-California, the Mid-East, or Australia.
But it does mean that one can now build systems in the worlds sunny locations and get very cheap power.
What does this mean?
Implication #1: In sunny places, solar will reshape commodity power markets.
Implication #2: There will be opportunities to bring electrical demand to where power is cheap.
One option is look for products that have very high energy cost and are easily transportable, and build solar farms and production together in high-insolation sites.
Four options are aluminum, ammonia, desalination, and transportation fuels. The first two are each about 1% of global primary energy demand. Niches yes, but not small. Desalination is growing fast and its much cheaper to store water than electricity.
If (a) most of the energy demand is from processes that can handle a diurnal cycle, and if (b) the amortized CAPEX is low compared to the energy cost, then one can deal with variability by simply cycling the production facility on and off.
For transportation fuels, if cheap solar means hydrogen prices under 10 $/GJ in sunny places, then carbon-neutral synthetic fuels look promising. It takes about 2 t-CO2 and 40 GJ of H2 to make 1000 liters of gasoline using a process like Exxon Methanol-to-Gasoline. If we can get CO2 from the air at 125 $/t-CO2 then the idea of making fuels at prices of order 1 $/L looks plausible over the next few decades.
Cheap solar is limited by intermittency and by the fact that many of the locations with the highest energy consumption dont have good solar resources (e.g, NE US, northern Europe, coastal China).
In the near term, a surprising amount of intermittency can be managed cost effectively with gas turbine backup, and this works even as electricity sector carbon emission are pushed down to a third of todays values. Looking further ahead, long-distance electric transmission can move solar power from good sites to demand centers and can reduce the impact of intermittency by averaging supply and demand across larger areas.
Looking even further ahead, if we want a stable climate humanity must bring net carbon emissions to zero. And, if we hope for a prosperous world with ample energy that can raise standards of living for the poor, then energy demand will more than double, growing to beyond 30 Terawatts. Climate is not the only problem: energy systems have other social and environmental costs, and the land footprint of energy is a good proxy for environmental impacts on water, landscapes, and the natural world. My view is that only two forms of energysolar and nuclear powercan plausibly supply tens of TW without a huge environmental impact. But thats a topic for future posts. For now, lets celebrate the last decades progress towards cheap solar.
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