Published on October 26th, 2020 |
by Zachary Shahan
October 26th, 2020 by Zachary Shahan
The International Energy Agency has a long history in fossil fuels. It is not the first, second, or third organization that would come to mind when thinking of renewable energy bulls or fans. However, its latest report indicates that solar power is now the “cheapest electricity in history.”
The International Energy Agency (IEA) said much more than this in its 464-page World Energy Outlook 2020, but when it comes down to it, this is the line that matters most. The past decade has shown tremendous growth in solar power and wind power worldwide, but the next decade is where they’ll really shine, because the key crossover points have now occurred (like solar becoming cheaper than every other electricity source, on average) or will soon occur (like electricity from new solar power plants becoming cheaper than electricity from existing fossil fuel power plants).
— World Economic Forum (@wef) October 18, 2020
Like a couple of other major energy agencies, the IEA has long published absurdly pessimistic reports regarding renewable energy. The reason for that is up for debate, but there is no debating that’s been the case. The World Economic Forum writes, “The IEA’s main scenario has 43% more solar output by 2040 than it expected in 2018, partly due to detailed new analysis showing that solar power is 20–50% cheaper than thought.”
That’s not to say policies to support solar and stop subsidizing polluting fossil fuels aren’t important. There are always policies that could accelerate a transition and policies that could slow it down. Considering how tenuous our situation is with the global climate, there is still an urgent need for policies that hasten the transition, which means electing thoughtful, considerate, forward-looking politicians who believe in the importance of science and being guided by a service for the future of society rather than short-term financials gains of an upper financial tier of society.
“The IEA says that new utility-scale solar projects now cost $30-60/MWh in Europe and the US and just $20-40/MWh in China and India, where ‘revenue support mechanisms’ such as guaranteed prices are in place.”
Put into other words, solar power is considerably cheaper in China than in the US or Europe because the Chinese government more strongly supports the solar market and works to accelerate its growth.
It’s unclear at this point if the IEA’s forecasts will be shown to be obscenely pessimistic in years to come as we see how things play out, but whether they do or they don’t, no energy source will beat solar. “Renewables grow rapidly in all our scenarios, with solar at the centre of this new constellation of electricity generation technologies,” the global energy agency writes. “Hydropower remains the largest renewable source of electricity, but solar is the main driver of growth as it sets new records for deployment each year after 2022, followed by onshore and offshore wind.”
As I wrote recently, an average solar module came at a cost of approximately $2/watt in 2010, whereas the price of one today is 17.3¢/watt ($0.17/watt). As solar dropped to $1.50/watt and then $1/watt, you could of course see change in the market and could see solar power growth, but everything is better served with context, and solar prices alone don’t tell the story. The fact is that, at some point, the dropping cost of solar power makes solar more affordable than other energy sources. It passed up nuclear several years ago, then coal, and increasingly now natural gas (which is indeed still cheapest in some regions, if you exclude externalities) and wind power. The more you hit that crossover, the more solar power grows and other sources of electricity stagnate or shrink.
However, that’s still missing some important context. There are actually three main crossover points:
- New utility-scale solar power plants becoming cheaper than new power plants from other energy sources.
- New utility-scale solar power plants becoming cheaper than existing power plants from other energy sources.
- Rooftop solar power systems becoming significantly cheaper than retail electricity from the grid — in stages.
The implication of the first matter is clear — it becomes illogical to build more expensive new power plants that also pollute when you can build cheaper solar power plants.
The implication of the second matter is that solar power will start shutting down existing solar power plants “prematurely” because it will offer cheaper electricity even taking into account all of the costs of project construction than continuing to operate a coal, nuclear, or natural gas power plant. The “crossover” point, of course, concerns averages. In reality, there are a rolling number of cases in which new solar power will outcompete an existing power plant. A mass wave of shutdowns does not occur when the country or global averages cross over. Instead, on a case by case basis, solar comes onto the grid because it’s either to best option for new power capacity or because it outcompetes an existing power plant. Keep your eye out in the coming few years for stories of coal, nuclear, and natural gas power plants shutting down early and being replaced by solar and wind.
The third matter flows along the same river of logic, but it’s probably best to think about it in another way. Aside from regional or project-by-project variance, you have to recognize that buyers consider return on investment (ROI) and how soon they’ll get their money back and start making money on an investment. A 15 year payback shifting to a 10 year payback shifting to a 5 year payback results in a growing appeal to go solar. So, again, as costs go down, you can expect larger and larger portions of the market to decide it’s time to go solar.
In terms of rooftop solar, as I’ve also pointed out recently, “soft costs” become of larger importance as hardware costs come down. Solar options have much lower costs in several other countries than in the US, where we happen to have relatively high permitting and customer acquisition costs. However, it appears that Tesla has made some large cuts to these costs by building on its wickedly strong brand, almost non-existent need to advertise, Elon Musk’s bullhorn on Twitter, simplified system design (4 basic options rather than thorough customization), and certain financing benefits thanks to its growing car business. In a short chat with CleanTechnica, Elon Musk recently attributed some of these benefits as the key reasons Tesla’s solar power systems so sharply undercut the US rooftop solar price average. Tesla does spend a bit of money on referral benefits for Tesla owners, and by providing a $100 discount to solar panel buyers who use a referral code (feel free to use mine — ts.la/zachary63404 — if you’re now inspired to go solar and need a code), but these costs are relatively small compared to typical customer acquisition costs in the US solar industry, based on everything I’ve ever gleaned on this matter from years in the industry.
In all of these cases, whether talking about utility-scale solar or rooftop solar, solar power has come down in price so rapidly that the top thing that could boost solar power adoption is probably just greater awareness. Not everyone reads CleanTechnica, after all. Word will get around, though. A good deal has an uncanny way of finding its way into people’s ears.
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