Posted by: Eero Vartiainen
Solar electricity has continued its surge in recent years. The price of solar electricity has dropped dramatically and installed capacity has grown rapidly.
In 2017 about 100 gigawatts of additional solar photovoltaic (PV) power capacity was installed around the world; this is the equivalent of Finland’s annual electricity consumption. The cumulative solar electricity capacity increased globally to about 400 gigawatts at the end of 2017. This is enough to cover more than half of India’s electricity consumption.
My participation in the work of the European Technology and Innovation Platform Photovoltaics (ETIP PV) Steering Committee gives me a front-row seat to follow the development of solar electricity. The committee is tasked with producing up-to-date information about the sector and assisting decision makers in solar electricity-related research and industrial policy issues. According to the committee’s most recent estimates, about 3,000 gigawatts of solar electricity will be installed by 2030. That number will climb to 10,000 by 2050, when solar electricity will already cover at least one third of the global electricity consumption.
Solar module prices are plummeting
The market price of solar PV modules has decreased by more than 90% during the past decade. PV module prices have followed the so-called learning curve, meaning that each time the global PV generation capacity doubles, the price of modules decreases by 25%.
The biggest reason behind the dramatic cost decrease of PV modules is the huge growth in solar electricity production capacity.
Capacity has grown 50-fold in the past decade. With this growth, manufacturing processes have improved, the use of raw materials has lessened and module efficiency has increased.
Solar electricity is becoming the cheapest production form – almost everywhere
The price drop in solar electricity is so steep that it is already the cheapest electricity generation form in southern Europe and areas closer to the equator.
During the past six months, multiple record-low solar electricity Power Purchase Agreement (PPA) prices have been signed. The solar electricity price is already 20 €/MWh or lower in Mexico, Chile and Saudi Arabia, for example. This is enabled by low interest rates on the investments because of solar electricity’s low technology and environmental risk. In India, the current PPA price with no subsidies is a record low of 32 €/MWh and in Germany 43 €/MWh.
We estimate in the latest ETIP PV report that solar electricity prices will continue to decrease – by at least 40% until 2030 and by 60% until 2050.
Solutions for storing solar electricity are needed
From the perspective of an electricity system that requires a balance between production and consumption, the challenge with solar electricity is the same as with wind power: production varies a lot, depending on the time of day and the season. The more production variation in the system, the bigger the need for flexibility. Energy storage and demand-response can contribute to the solution.
The huge seasonal variation in the Nordic countries makes it not feasible to build the electricity system solely on solar or wind power. In a large part of the world, however, the sun shines fairly evenly throughout the year, so the system requires only a small amount of short-term energy storage for night-time consumption. In the Nordic countries, short-term storage won’t suffice; seasonal storage also will be needed.
Electricity storage prices – especially battery prices – are also continuing to decrease as manufacturing processes and materials improve. Future solutions for the seasonal storage of electricity also include power to gas or to other fuels through electrolysis. Additionally, the Nordic countries already have extensive seasonal storages in the form of water reservoirs. An advantage in the Nordic countries is, in fact, the abundance of renewable hydropower and biomass. A recent study by Lappeenranta University of Technology showed that a 100% renewable energy-based system in Finland by 2050 is not only possible, but also would be the cheapest solution.
Solar electricity’s big role in a low-emissions future
According to the International Energy Agency, 85% of the global energy consumption in 2017 was fossil fuel-based. That figure includes energy consumption by the transport sector. Even though solar electricity’s share has grown rapidly, it currently covers only about 2% of the global electricity consumption.
There are plenty of challenges to overcome on solar electricity’s path of growth, including the seasonal nature of production. But it’s already clear that, globally, solar electricity will play a big role in transitioning from fossil fuels to carbon-free energy sources.
Link to ETIP PV LCOE factsheet: http://www.etip-v.eu/fileadmin/Documents/ETIP_PV_Publications_2017-2018/Fact_Sheet_-_LCOE_update_April_2018.pdf
The blogger is Fortum’s Solar Technology Manager who represents Fortum and Finland in the Steering Committee of the European Technology and Innovation Platform Photovoltaics (ETIP PV). The committee is an expert group established by the European Commission and regularly produces reports about the solar electricity sector. For example, the now published PV LCOE factsheet is published once a year.
Fact: What goes into solar electricity production costs
The Levelised Cost of Electricity (LCOE) is usually calculated by dividing all the lifetime costs of a solar electricity system by the amount of electricity generated by the system during its lifetime. Solar electricity’s LCOE takes into consideration, e.g., the capital (CAPEX) and operational (OPEX) expenditures and includes the costs and price margins of financing, planning, manufacturing, installation, grid connection, and operation and maintenance.
A solar electricity system’s CAPEX can be divided between two parts: the solar modules and the Balance of System (BoS). BoS includes all the other costs related to the system, excluding the modules: i.e. the inverters, cables, mounting structures, and installation and design work. The growth in solar electricity capacity has led to advancements in manufacturing processes, the use of fewer raw materials and improvements in module efficiencies. Increasing efficiency automatically decreases also the BoS cost, because improvements in efficiency decrease the area and amount of materials needed.
According to ETIP PV’s latest report, the price of solar electricity will continue to decrease by at least 40 per cent by 2030 and by 60 per cent by 2050. Because the cost of solar electricity is CAPEX-intensive, the interest rate has a crucial impact in the calculation of production cost.
For example, assuming a 70/30 debt-to-equity ratio, a 10% interest on equity and 3% interest on debt would mean a Weighted Average Capital Cost (WACC) of approximately 5%. With this interest and 2% annual inflation, the LCOE for a utility-scale PV installation would currently be 28 €/MWh in southern Spain and 49 €/MWh in southern Finland. According to ETIP PV, with the same interest, the cost in 2050 will decrease to 12 €/MWh in Spain and close to 20 €/MWh in Finland. By comparison, the average wholesale spot market electricity price in 2017 was 52 €/MWh in Spain and 33 €/MWh in Finland. Consumer electricity price, including energy, distribution and taxes, in Europe varies from about 100 €/MWh in Norway to 300 €/MWh in Italy.