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Newsflash: solar power costs are falling below fossil fuels

Recent postings to The Conversation have enlivened the debate over the “Great Transition” that is underway all around the world from the fossil-fuelled energy systems of the 20th century to the renewably…

Do you see the light? Solar costs are comparable to fossil fuels, and are falling 45% annually. Flickr/MyEye85

Recent postings to The Conversation have enlivened the debate over the “Great Transition” that is underway all around the world from the fossil-fuelled energy systems of the 20th century to the renewably powered systems of the 21st century.

The future for solar is particularly bright, according to authors including Mark Diesendorf, Andrew Blakers, James McGregor, and most recently Lynette Molyneaux. Many of the postings point to a brilliant solar or wind or geothermal future – but then fall back on an argument for subsidies to make up for the higher costs of the renewables.

It can now be stated definitively that such arguments are out of date. Renewables in many cases are actually cheaper than their fossil-fuelled rivals. And the most important such case is that of solar photovoltaic cells – the cells that convert sunlight directly into electric power.

The Bloomberg New Energy Finance team in London have recently produced a White Paper on “Re-considering the economics of photovoltaic power” (available here) where they make some very important points. Consider the chart showing falling costs for solar PV over the past 35 years.

Figure 1: PV module cost curve 1976-2011. BNEF Bazilian et al (2012), Fig. 1

In this chart, the overall experience curve is shown in the upper blue line, indicating that costs had reduced to the long anticipated point of $1 per watt by the end of 2011. But the years immediately preceding this show that costs hovered for several years (2004 to 2008) at around four times this level ($4/W) – a phenomenon now understood to be due to the fact that suppliers were able to purchase modules at that price because feed-in tariffs were the dominant influence rather than cost of silicon.

But as silicon shortages were overcome price competition reasserted itself. As silicon supplies grew, so manufacturers reduced their prices, which in turn reduced input costs for solar cell producers, and their prices fell as well. The bottom blue line represents the cost curve for thin-film solar cell producers, dominated by the US firm First Solar. Because TF PV cells utilize much lower quantities of silicon their costs have always been lower – but are not yet enjoying the economies of scale of amorphous silicon cells.

The message for countries looking to develop solar energy systems is clear: the costs of solar PV cells are falling by around 45% per year. In many developing countries with above-average insolation (a measure of solar radiation received) - which means countries right across the tropical belt - this means that producing electric power from solar PVs should now be cheaper than producing power from stand-alone diesel generators, for example. The reason that such countries would go on utilizing the dirty, unreliable diesel generators, which offer no developmental momentum of their own (in terms of building new industries for the EDCs) must be inertia – and ignorance.

The China factor is vividly illustrated in the case of solar PV cells. Chinese PV cell producers have reduced costs by 4.5 times in just the last five years – as shown in Figure. 2.

Figure 1: Chinese crystalline silicon PV module prices ($/W), 2006 – 2011. BNEF Bazilian et al (2012), Fig. 2

This chart reveals that the real force driving down solar PV costs is the expansion of manufacturing in China. No other country can match such cost reductions – which, it must be pointed out, are real cost reductions, and not artifacts of trade policy. This is why the US decision to impose punitive tariffs on Chinese solar PV systems imported into the US is problematic.

For most countries, these cost reductions mean that building power systems that utilize solar input received within the country (rather than fossil fuel imports with all their energy insecurity implications) is an optimal development strategy, based on reliable and cost-effective power. It also demonstrates that developing countries need to benchmark Chinese manufacturers if they wish to enter the field of solar PV cell production for themselves.

Intelligent policy is called for, on both the supply and demand sides. On the supply side, solar PV subsidies should be declining, because the industry can increasingly compete on costs – but it does need to compete on a level-playing field, and that means eliminating now, and once and for all, the hidden subsidies still paid to the fossil fuel merchants (including the super subsidies paid to aluminium producers who use so much thermal power). And on the demand side, it needs intelligent phasing in of competitive tariffs through a national feed-in tariff scheme that should be able to be eliminated after five years – once it has done its job.

Consider a third chart from BNEF, showing how German feed-in tariffs are being drastically scaled back, because they have achieved their effect – just as the costs of mobile phone calls have been dramatically reducing and now approximate those of land lines. The industrial dynamics of technology transitions are all about falling costs – that is the message.

Figure 3. Cost premium over time for new technology (with added benefits). BNEF 2012

In Australia there is still no national feed-in tariff scheme, which would do far more to promote solar PV installations than the Solar Flagships program. The winner of the PV aspect of the Solar Flagships was announced very recently (awarded to AGL in conjunction with First Solar) – but with generating costs estimated at $2.80 per watt (see Tristan Edis at Climate Spectator) it is still well above the world best costs as revealed by the BNEF white paper.

The question that MPs should be posing to the federal government is why Australian PV projects’ costings are so far out of line with world best practice, and why the federal government has still not taken any initiative to instal a national feed-in tariff scheme which would be expected to have the same effect as in Germany, and could be eliminated within a few years after it has done its job.

Comments welcome below.

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24 Comments sorted by

  1. Trevor S

    Jack of all Trades

    John

    I would be interested in some clarification of this

    "this means that producing electric power from solar PVs should now be cheaper than producing power from stand-alone diesel generators, for example. The reason that such countries would go on utilizing the dirty, unreliable diesel generators, which offer no developmental momentum of their own (in terms of building new industries for the EDCs) must be inertia – and ignorance."

    I am not sure what sort of model of power generation you…

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    1. aligatorhardt

      logged in via Twitter

      In reply to Trevor S

      In order to make a comparison, one needs to consider the operating costs over time. How much do you spend on diesel over a 25 year period? Does the diesel generator last that long, or will several generators be worn out in 25 years? It is similar to a car; one can get a cab into town for $20, but how many trips are made over time, gives the reason to invest in your own car, which pays off over the lifetime of the car. It is a matter of figuring costs over time that allows solar to pay off the loan and keep providing electricity for many years, as compared to the alternatives. Batteries are needed for off grid systems, but low tech batteries are not too expensive. Just because lithium is most efficient, does not mean that you should ignore lower cost batteries, because they just sit in a room, and size is not very important for stationary use. Check www.renewableenergy world.com to find suppliers and prices of components for grid tied and off grid systems.

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  2. Wil B

    B.Sc, GDipAppSci, MEnvSc, Environmental Planner

    Does the cost of solar include the value of the panels at night time, or in winter, or cloudy? Does the cost of solar panels include the cost of batteries?

    I don't care a fig about "efficiency" in terms of per square metre, that figure is only of interest to engineers, but I do care about efficiency as a percentage of the total time that electricity is demanded compared to the time the solar panels are generating.

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    1. Wil B

      B.Sc, GDipAppSci, MEnvSc, Environmental Planner

      In reply to Wil B

      I find it strange that my question gets voted down, without a reply. Isn't it an honest, pertinent question?

      Surely the only way to compare costs is to talk real costs, to the consumer.

      Or is there some solar cult we're supposed to belong to?

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    2. Gary Murphy

      Independent Thinker

      In reply to Wil B

      I think it is pretty obvious to anyone who has read the article that the costs referred to are for the PV cells only.

      I think the negative votes might be because your comments look (not saying they necessarily are) like some kids smart-arse, knee jerk reaction - and not a well thought out contribution to the conversation.

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    3. Benjamin Shepherd

      Researcher in the Food Security Program at the Centre for International Security Studies at University of Sydney

      In reply to Wil B

      Two points, Wil (but no comment on why people gave you negative votes), one, efficiency by area is actually quite important - check this out: http://www.ted.com/talks/lang/en/david_mackay_a_reality_check_on_renewables.html
      two, the argument that solar is only viable in full sunshine is pretty much a thing of the past; see www.nrel.gov/news/press/2011/1575.html and (for an example of the technologies in existence) http://www.ecoult.com/
      Not sure it exactly answers your question, but hopefully it helps.

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    4. Wil B

      B.Sc, GDipAppSci, MEnvSc, Environmental Planner

      In reply to Gary Murphy

      Thanks Gary. Equally, I think it's pretty obvious to anyone that since solar only works when the sun is shining, you can't really talk about the costs of solar in a vacuum, unless you're selling something. Which i would hope was a contribution. Coal costs of course include the cost of fuel (but not the cost of their pollution), so we need to be honest.

      BTW for the record, I've got panels at home. Grid connected of course, since bno one can afford the batteries.

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    5. Wil B

      B.Sc, GDipAppSci, MEnvSc, Environmental Planner

      In reply to Benjamin Shepherd

      Benjamin, thanks for the links. Without having the time to watch the TED talk, I assume that's the same David McKay who wrote Sustainable Energy Without the Hot Air? Where he comes to the conclusion that while solar will play its part, nuclear power will play a far larger part.

      The NREl link doesn't claim that clouds are a problem - in fact I find it remarkable that that sort of data didn't exist previously. And Ecoult are selling lead-acid batteries. I wonder how much that costs?

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    6. Hasse Schougaard

      Software Engineer

      In reply to Wil B

      The Australian company redflow.com is doing some nice work with flow batteries - http://www.abc.net.au/environment/articles/2012/03/26/3462426.htm

      From my understanding its very early days yet on this front.

      An additional interest tidbit I came across in the last few days; cheap single axis solar trackers are getting a bit of a rep in the northern part of Australia. There is some coverage in the current edition of the Renew magazine. From the mag - With trackers, customers are reporting full power into their inverters at 7:30am. An installer estimates 50% greater generation with a tracker in FNQ.

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  3. Benjamin Shepherd

    Researcher in the Food Security Program at the Centre for International Security Studies at University of Sydney

    Very interesting data. A report on the Schniederman V AFP case in New York state cites:
    "A recent study conducted by the independent economic consulting firm Analysis Group concluded greenhouse gas programs from the multi-state initiative [in 5 US states] added $1.6 billion to the economies, and 16,000 new jobs."
    (See: http://nyaltnews.com/2012/06/schneiderman-crushes-koch-brothers-climate-change-lawsuit/18514/)

    If that and the above is all true--and the evidence Prof Matthews provides is compelling--then it seems bizarre to say the least that the supposedly business-friendly Liberal Party remains so adamantly opposed to these massive commercial opportunities. Oh wait, new business and innovation don't have the lobbing power or decades of profits behind them of the coal and petrochemical industries. Is this what Schumpeter meant by "Creative Destruction"?

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  4. Mark Harrigan

    PhD Physicist

    Thanks for this informative article - it confirms trends that have been emerging for some time. That Solar PV - due to its volume of unit manufacture - has benefited and will continue to benefit from learning curve cost reduction.

    But it would be good so show costs in comparison to alternatives in terms of delivered cost per kWh at the point of consumption. Nameplate capacity of a panel is an misrepresentative metric (indeed nameplate capacity of any generation technology is miselading). This…

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  5. Gerard Dean

    Managing Director

    Professor Mathews,

    Your paper has shed new light on the plummeting cost of solar cells. In view of this, I cannot see why the government should have to subsidise solar installations. Am I missing something? My logic goes as follows:

    Statement 1. "Renewables in many cases are actually cheaper than their fossil-fuelled rivals. And the most important such case is that of solar photovoltaic cells".

    Statement 3. "..costs had reduced to the long anticipated point of $1 per watt by the end of…

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    1. aligatorhardt

      logged in via Twitter

      In reply to Gerard Dean

      I would expect the cost reductions can not fall that far, as materials, overhead and labor cannot be reduced infinitely. Even in Germany, the cost of installed solar has leveled out around $2 to $3 per watt. But that is due to a thriving market and high levels of production. In the US, the price of systems are nearly twice as much. There are further cost reductions to be had with standardization, efficient mounting hardware, and permits and connection fees.

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  6. Alan John Emmerson

    Former chief engineer , Civil Aviation Authority

    Dollars per watt of peak output is a valid measure of comparing PV cells one with another. It is not necessarily valid for comparing PV with generation by combustion of hydrocarbons.

    As the actual plant cost of electricity generation and reticulation depends on operating voltage, dollars per watt at a specified voltage might be more appropriate.

    Is any one really suggesting that an Al smelter could be run off PV cells. How about a high speed train?

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    1. aligatorhardt

      logged in via Twitter

      In reply to Alan John Emmerson

      For industries that use thermal energy, solar may not be the best choice. However, there is no reason to assume that solar would be the only form of power used in society. For electricity, solar is great, but some industries may need thermal power for heat, and that is fine. If we could reduce thermal heat to only those specialty needs, then we would still have a huge reduction in pollution . A mix of sources will provide the power needs. CSP can be used as a replacement for fossil fuel thermal power, geothermal heating can be used for thermal power, and some gas may be used for higher temperature thermal power. Just getting the electricity from clean power would displace a large percentage of dirty power, and that is a big improvement over using thermal power for all power needs.

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  7. John Browne
    John Browne is a Friend of The Conversation.

    Surveyor

    I suppose it's now getting to the point where, if the electricity retailer threatens to disconnect you, then you can threaten to disconnect them and install your solar PV system (maybe with a backup generator for the washing machine).

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    1. Janet Hutchison

      private citizen

      In reply to John Browne

      I appreciate that the article is about the most recent economies of scale being realised in manufacture of solar panels. while that''s important to me as a consumer and citizen, it's still the case that the kind of data i need as a consumer before i purchase is an independent source of info on average monthly returns to different roof angles and different orientations for my locality.

      One of the above links referred to the high peak demand 4 air conditioning. However, on late summer afternoons…

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  8. John Mathews

    Professor of Strategic Management, Macquarie Graduate School of Management at Macquarie University

    To Gerard and Alan

    Thank you for your constructive contributions to the Conversation.

    Here is a ‘fleshing out’ of my thoughts on the transition that is underway. The cost curve is the dominant driver, and as you say Gerard, if solar PV is going to get down to below 10c/watt by 2020 or earlier, then there should be no need for any subsidies. Precisely – which is how I framed my contribution in the first place. Such medium-term thinking is how the energy debate should be framed – as it is in…

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    1. Alan John Emmerson

      Former chief engineer , Civil Aviation Authority

      In reply to John Mathews

      On the contrary John, I have no difficulty visualizing specific purpose dispersed generating plant. We have been through this cycle several times..
      Steam loco rail 'morphed into remotely generated electric rail and so on.

      Dispersion is not contingent on the use of renewables.

      The automobile provides an excellent example of dispersed generating plant. Compare it with a trolley bus..

      High power operation (as distinct from high energy usage) and off design operation, are where inefficiency lies..In any given case the question to be answered is, if the total task is to do 10MJ of work in 1 second, is it better to use 10 independant units each putting out 1MW or 1 unit putting out. 10MW
      I think the future lies with reducing our power requirements by not moving large masses around the country at high speed...

      Perhaps we could put a much lower value on time..

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  9. Neil Gibson

    Retired Electronics Engineer

    Professor Matthews your paper is obviously the work of someone who has never worked in the power industry .Lowering the cost of a solution that does not work in the real world doesn't help. Electricity generation for a modern society must run 24/7 and to do that we have giant reliable turbines that operate under all weather conditions day and night. To compare these power stations with solar panels which peak at lunchtime (on sunny or non-rainy days) is ridiculous. Peak energy use is in the early…

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    1. Gil Hardwick

      anthropologist, historian, novelist, editor and publisher at eBooks West

      In reply to Neil Gibson

      Neil, your somewhat dated large generator model supplying a extensive grid on demand presupposes a monolithic industrial society comprised of nuclear families each living in their one family suburban bungalows, in which the power on demand feedback loop becomes both self-perpetuating and self-fulfilling.

      For a very long time, over 50 years in fact, the concern to generate alternative powers sources has been predicated instead on alternative social structures, alternative living arrangements…

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    2. Neil Gibson

      Retired Electronics Engineer

      In reply to Gil Hardwick

      Gil,
      The real world actually runs on the "dated" model you criticize.Turning a multi-million metropolis like Melbourne into a conglomeration of hippie communes cooking their meals on a communal methane stove is too silly to contemplate. You should ask the average suburbanite if they want to live in your alternative universe, and if they don't do you propose we should force them. We already force them to buy alternative energy at ridiculous prices and buy expensive water from unnecessary desalination…

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  10. George Naumovski

    Online Political Activist

    The PV panels need to be more “higher rates” 180w/190w/200w and up to 300w are available but you need lots of roof space and also facing N/NW. If the panels were at least 1kw each and a realistic price without government rebates, then the majority of people would take it up but at the moment it is not that cheap and efficient value for money.

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  11. Ian Adams

    Retired Investment Banker

    I suggest that you have your colleagues in the economics department do some modelling on the real cost of solar PV vs grid connected generated electricity. In a developed economy Solar PV panels are only a part of the cost of Solar PV as a source of power generation. They are certainly coming down in price but to compare apples with apples you need to compare the cost of providing a stand alone Solar PV system without subsidies, against the cost of grid connected power. Alternatively you need to…

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