‘Solar PV soon to be the cheapest source of power,’ says Kees Van Der Leun
For a long time, the holy grail of solar PV, the direct conversion of sunlight into electricity by means of solar cells, was ‘grid parity’, a term used to describe the point at which it becomes cheaper to generate one’s own solar electricity than to buy electricity from the grid. Indeed an important market milestone, being achieved now in many places around the world. But recently it has become clear that PV is likely to become the cheapest option to generate electricity, beating other large-scale power generation technologies.
Working on PV solar energy at Ecofys since 1986, I have seen a steady progression in terms of rising efficiency and falling costs. But it was only on a 2004 visit to Q-Cells’ solar cell factory in Thalheim, Germany, that it dawned on me that PV could become very cheap indeed. They gave me a stack of 100 silicon solar cells, each capable of producing 3.8 Watts of power in full sunshine. I still have it in the office; it’s only an inch high!
I realised how little silicon was needed to supply the annual electricity consumption of an average European family (4,000 kWh). Under European solar radiation, that would take 1,400 cells, totalling less than 14 kilograms of silicon.
Of course you need to cover the cells with some glass, add a frame, a support structure, some cables, and an inverter. But the fact that 14 kilos of silicon, an amount that costs € 500 to produce, is enough to produce a lifetime of household electricity baffled me. Over 25 years, the family would pay at least € 20,000 for the same 100,000 kWh of electricity from fossil fuels, and its generation cost alone would total over € 6,000!
To unleash this potential, you need a market driver when costs are still high, and we should all be grateful that Germany has played the role of engine since the introduction of a feed-in tariff there in the year 2000. Under the feed-in scheme, a family, or a company, investing in a PV solar system, receives a fixed amount per kWh of solar electricity that they supply to the grid. The additional costs are distributed over all users of the grid, nationwide. Successive governments, in varying coalitions, have always kept the principle alive, periodically lowering the tariffs as scale went up, and costs came down.
Contrary to what some believe, competition on the German PV-market has always been fierce, which of course is a driving factor behind the ensuing cost (and price) reductions. The graph shows how system costs have come down by more than 60% in the last 6 years.
The graph assumes a current cost to the consumer for a small solar system of € 1.97 per Watt of capacity installed (excl. VAT). From Ecofys experience, we know prices can be substantially lower already, but for the purpose of this exercise let’s use a cost of 2.00 €/W. Average annual solar radiation in the sunniest parts of Germany, where most of their PV systems are installed, is 1,000 to 1,100 kWh per m², measured on a horizontal plane. Taking into account the higher irradiation for a tilted solar panel, and some system losses, it means that 1 W of capacity will roughly produce 1 kWh per year. At capital costs (depreciation + interest) of 10% per year, this means one solar kWh now costs around € 0.20 to produce. Since that’s roughly what consumers pay for electricity from their utility, that’s grid parity.
In a sunnier region, like the Southwest of the US, the solar radiation is double that in Germany, so the same installed capacity (in Watts) will produce twice as much solar electricity (in kWh). As a consequence, the cost of a household solar kWh in Arizona is only half that in Germany, i.e. already below € 0.10 now, without any subsidies or tax breaks.
Large solar PV power plants, now being built up to the scale of hundreds of MegaWatts, are cheaper, but they have to compete with conventional power plants, and wind farms. Let’s take a cost of 1.40 €/Watt, this time excluding VAT, since that’s not applicable for a power producer. In sunny regions, like Arizona, this will already produce bulk power at € 0.07, or $ 0.09, per kWh.
It should also be remembered that it is highly unlikely that fossil fuels will get away without any charge for CO2-emissions in the long run, and in a growing number of countries, such as the 27 countries of the European Union and Australia, this market distortion has already come to an end. But without attaching a cost to CO2, the cost of PV solar electricity needs to drop to below $ 0.06 per kWh to make it the cheapest source of electricity. In sunny regions (such as Arizona) we will need to shave off 1/3 from current solar PV costs to make that happen. That will take another 4 years, so expect this in 2016!
As can be seen from the map, the regions with high solar radiation include most of Latin America, Africa, the Middle-East, Australia, and large swaths of Asia, including all of India. For all those regions, PV will be the cheapest option by 2016. After that, further increases in cumulatively installed capacity will drive PV costs down even further, swiftly growing the regions in which it is the cheapest option to generate electricity!
Total global PV capacity reached 68 GW (68,000 MW) at the end of last year. In just 5 years, the PV capacity added to this total annually, grew from 1.6 GW (2006) to 28 GW (2011), an average growth rate of 77% per year (REN21, 2011).
Now solar PV is becoming huge. Total new power generation capacity installed in the world is around 200 GW per year, so in 2011 solar PV’s share was already 14%. New constraints will show up, not least in grid connection, so growth figures will probably come down somewhat. It is feasible however that we could reach 1,000 GW (1 Terawatt) of solar PV by 2020, even at a growth rate slowed down to 33% per year.
Developing a world energy system that runs on 100% renewable energy by 2050 is a major and complex global effort, involving large investments in energy efficiency, renewable energy, and infrastructure, as we have shown in The Energy Report (WWF/Ecofys, 2011). But this rapid development of solar PV sure helps a lot!
(Kees Van Der Leun is COO and director of Ecofys, an international renewable energy and energy efficiency consultancy)
Follow him on twitter: @sustainable2050