Solar module prices in the US and around the world are plummeting, and this has far-reaching implications for humanity’s transition from the age of hydrocarbons to the age of electrification. I have repeatedly defended on these pages that renewables will win out once they become economically competitive with fossil fuels and nuclear.
In Q1 2020, module prices averaged 0.21 US dollars per watt, in comparison to 0.63 US dollars per watt in Q1 2016. Solar system pricing has fallen in all markets, including residential, non-residential, and utility. The decline is largely explained by shrinking hardware costs, oversupply of modules due to increasing production from China, and lockdown-driven decreases in global energy demand. These factors have come together to push solar module prices down even in the face of tariffs on Chinese solar panel imports.
Declining solar prices are not limited to the United States: renewable energy systems around the world seem to be getting cheaper and growing faster compared to conventional power sources over the past year. According to Bloomberg New Energy Finance (BNEF), solar and wind reached 67% of new power capacity added in 2019, while fossil fuels slid to 25%.
Furthermore, the levelized cost of electricity (LCOE) – or the cost of producing electricity with all inputs and cost factored in – for solar energy is now low enough to threaten traditional thermal plants. China’s launch of its incredibly efficient monocrystalline solar modules last year pushed down the domestic LCOE of solar to $38 per megawatt hour (MWh), putting it on par with the cost of newly built coal-fired power plants. The implications of this are immense.
In Australia and Chile, the solar power cost from big projects over the last six months has hit US$23-29/MWh. According to PV-Magazine:
“On current trends, the LCOE of best-in-class solar and wind projects will be pushing below $20/MWh this side of 2030. Today, the best solar projects in Chile, the Middle-East and China – or wind projects in Brazil, the U.S. and India – can achieve less than $30/MWh. And there are plenty of innovations in the pipeline that will drive down costs further.”
Global solar PV capacity is expected to soar this decade, with an estimated $2.72 trillion to be invested through 2030.
Fourteen years ago, the average cost of a rooftop solar panel was in the $3.50 per watt range. Today, installed costs are as low as $0.40, with the Asia Europe Clean Energy Advisory (AECEA) predicting further solar component price falls next quarter in addition to the 10% retreat in module costs seen in 2020 thus far. This represents a massive 9x drop in the price of solar panels since 2006. Analysts predict that prices could fall below $0.20 per watt by 2040.
The rise in production capacity and efficiency is particularly noteworthy in China, the epicenter of global solar panel manufacturing. Module production capacity in China was 17% higher in the first three months of this year than in the same period of last year, even though export levels fell slightly. Earlier this year China’s top manufacturers announced plans to increase solar production capacity by nearly 18 GW, vying to increase market share in the world’s hottest solar market.
In the United States the solar energy market is expected to grow at a compounded annual growth rate (CAGR) of 17.32% during 2020-2025, despite massive Covid caused layoffs: more than 72,000 solar workers are expected to lose their jobs and solar PV capacity additions in 2020 are expected to decline by 30%. Per a new market study, continued growth in the sector is due to the following:
– Tax credits on renewables may expire in 2021 thus investors in solar power are expected to rush to finish their projects during 2020 and 2021. This trend is expected to partly offset the negative impacts of the COVID-19 on investments in the solar industry;
– A 30% tariff on solar panel imports forced US producers to become more competitive, thus increasing domestic manufacturing capacity and insulating the US market from Covid-related supply disruptions;
– The high attractiveness of the United States solar power market due to the expiry of tax credits and declining solar panel costs is expected to drive the United States solar energy market through 2025.
The current trajectory for solar energy adoption relative to conventional power sources is rising amidst increasing supply of modules, technology improvements and efficiency gains, stagnant energy demand, and the proliferation of green policies. Provided that cost-effective energy storage technology is developed and produced along the way to offset intermittency, solar will continue to displace traditional base-load power sources.
Global solar, it seems, is well positioned to weather the Covid storm.
With Assistance from Hayley Arlin