Must-See Photovoltaic Industry Graphs on the Changing Economics of Solar
There’s a joke in the solar industry about when “grid parity” – the time when solar becomes as cheap as fossil sources – will happen. Ron Kenedi, the former VP in Sharp Solar’s U.S. business liked to throw out random dates, telling me once “November 21, 2012” in jest.
The truth is, it will happen in phases – one market and one technology at a time.
But according to two top solar executives – Tom Dinwoodie, CTO of SunPower and Dan Shugar, formerly of SunPower and current CEO of Solaria – “ferocious cost reductions,” are accelerating that crossover in a variety of markets today.
Dinwoodie and Shugar are responsible for developing over $3 billion in PV projects around the world. They were making the rounds in Washington this week, giving presentations to journalists and policymakers about the changing economics of Solar PV. Joining them was Adam Browning, the executive director of the Vote Solar Initiative, an organization responsible for much of the state-level progress for solar in the U.S. (Vote Solar helped put together the data.)
Their goal: To explain that solar PV is no longer a fringe, cost-prohibitive technology – but, rather, a near-commodity that is quickly becoming competitive with new nuclear, new natural gas, and, soon, new coal.
These slides are a must-see for anyone interested in solar, or in the business of energy generally. While I think some of the predictions and comparisons between technologies aren’t telling the full picture, the underlying data is very compelling: We are starting to realize grid parity in solar – all with technologies available today.
Let’s take a look.
Notice in the first chart how steadily manufacturing costs have come down, from $60 a watt in the mid-1970’s to $1.50 today. People often point to a “Moore’s Law” in solar – meaning that for every cumulative doubling of manufacturing capacity, costs fall 20%. In solar PV manufacturing, costs have fallen about 18% for every doubling of production. “It holds up very closely,” says Solaria’s Shugar.
The “Moore’s Law” analogy doesn’t necessarily work on the installation side, as you have all kinds of variables in permitting, financing and hardware costs. But with incredible advances in web-based tools to make sales and permitting easier; new sophisticated racking, wiring and inverter technologies to make installation faster and cheaper; and all kinds of innovative businesses providing point-of-sale financing (think auto sales), costs on the installation side have fallen steadily as well. The Rocky Mountain Institute projects that these costs will fall by 50% in the next five years. (Note: This chart is from RMI, not from the Dinwoodie/Shugar presentation.)
What has driven these cost reductions? A staggering ramp-up in installations around the world that have driven an even greater increase in solar manufacturing. (By the end of this year, GTM Research predicts we’ll have 50 GW of module global production capacity.)
As SunPower’s Dinwoodie puts it:
That 17 GW installed in 2010 is the equivalent of 17 nuclear power plants – manufactured, shipped and installed in one year. It can take decades just to install a nuclear plant. Think about that. I heard Bill Gates recently call solar “cute.” Well, that’s 17 GW of “cute” adding up at an astonishing pace.
He has an excellent rhetorical point, which highlights the brilliance of solar: This modular technology can be produced and installed at a pace far faster than most energy technologies. And businesses are getting amazingly efficient at doing so.
However, this comparison neglects the “value” of energy. Nuclear is a baseload resource; solar PV is more of a “peaking” resource. To compare 17 GW of global solar PV development to 17 GW of nuclear power plants ignores the fact that nuclear produces far more electricity than an equivalent solar PV plant.
With that said, solar brings a different kind of value to the grid. Not only can it be quickly deployed on existing infrastructure (warehouses, commercial buildings, residences) at rates that are orders of magnitude faster than nuclear, it offsets the most expensive peaking power plants – providing immediate economic value.
Here’s an amazing statistic told by Shugar: If only 500 MW of solar PV had been deployed in the northeast U.S. to help alleviate demand for electricity, the August 2003 U.S.-Canadian blackout wouldn’t have happened. That blackout was the second largest in the world, causing between $7 and $10 billion in economic damage.
Notice in this chart how beautifully solar PV fits in to the highest demand periods in the middle of the day.
“We are considerably lower than natural gas peaker plants,” says Dinwoodie. We’re also coming in lower than new nuclear and becoming lower than new coal. Gigawatts of these plants are being developed in months – not years or decades.”
Here’s their comparison between solar PV, natural gas peakers, nuclear and coal. The figures come from Lazzard, an international financial services firm that tracks energy data, and the Department of Energy.
You can see that natural gas peaker plants, which sit idling most of the day, are an expensive option for utilities.
In sunny markets like California, solar is becoming competitive with large combined-cycle natural gas plants as well. According to Dinwoodie, there have been 4 GW of contracts for solar PV plants in California signed below the Market Price Referent – the projected price of a 500-MW combined cycle natural gas plant.
While that is a major milestone for the solar industry, we need to be careful about jumping to conclusions based on these figures. Some in the solar business fear that many developers are signing contracts too low – which means they get the contract, but investors may be hesitant to provide financing because they’re concerned the projects won’t pencil out. But the trend is clear: continued declines in the cost of building solar plants is allowing developers to compete with fossil energies in certain markets.
Here’s another important statistic: When SunPower built the 14-MW Nellis Air Force Base system in 2007, it cost $7 per watt. Today, commercial and utility systems are getting installed at around $3 per watt. In 2010 alone, the average installed cost of installing solar PV dropped 20%.
It would appear that solar PV is also cheaper than new nuclear.
This year, the U.S. industry may install 2 GW of solar. The last nuclear power plant to come online in the U.S., Watts Bar 1, has a capacity of 1.1 GW – but that took 23 years to complete, not two years.
When looking at the time and cost of construction of new nuclear – as well as insurability issues – solar PV (in sunny areas) is already competitive with those plants. Again, I believe there is a big difference in the “value” of electricity from nuclear and solar PV given that they play such opposite roles; but these figures do tell an interesting story. (These figures were put together before the Fukushima accident.)
And what about coal – supposedly our cheapest form of energy? Dinwoodie and Shugar argue that solar PV is becoming competitive against that technology too.
Over the last few years, 153 coal plants have been abandoned, in large part due to uncertainty over environmental regulations. Dinwoodie and Shugar believe that by the time a new American coal facility is built in the next 6 years, solar PV in the sunniest regions can be competitive with those plants.
Again, we have to recognize the differences in energy value. Resources like biomass combined-heat-and-power, geothermal and hydro may be better equipped to make up for the loss of coal. But if these projections are accurate – and experience suggests they are on target – getting solar PV competitive with coal would be a huge boost to the industry.
So what does all this mean? It means that the notion that “solar is too expensive” doesn’t hold up anymore. When financing providers can offer a home or business owner solar electricity for less than the cost of their current services; when utilities start investing in solar themselves to reduce operating costs; and when the technology starts moving into the range of new nuclear and new coal, it’s impossible to ignore.
According to SunPower’s Tom Dinwoodie: “The cross-over has occurred.”
Below are the earlier comments from the Facebook commenting system:
Great post, Stephen. I did a white paper a few years back that made a similar argument for the forthcoming parity of clean energy (CSP in particular) with fossil fuel alternatives. One more related point that I think is valuable – a big advantage that clean energy has over fossil fuels for electricity generation is the reduction in price volatility. The prices for natural gas and coal have swung wildly over the last decade, in stark contrast to solar/wind/geothermal, which offer investors more stability and certainty. Further, the introduction of any sort of meaningful price on carbon would make the fossil-fuel alternatives even worse, financially. In sum, the uncertainty on the fossil fuel side is all on the side of rising prices, while any uncertainty on the renewable side is on the side of price reductions.
Thanks, Zach. Agreed about the fuel price volatility — another compelling reason for RE. With that said, RE has much more intermittency, which can be handled through geographic spacing, intelligent demand response, etc — but there’s always a trade-off!
June 9 at 3:26pm
That’s why you also want to look at the dropping costs of energy storage technologies. Lay the cost curves and timelines of energy-storage infrastructure across those of solar, and you’ll have a better idea about when firm RE can assume the mantle of baseload.
June 20 at 5:26pm
Great post; the graphs were particularly compelling. I also think what RE brings to the table is amazing and that is energy awareness.
July 3 at 5:10am
I’ve always thought the ability of PV to proliferate exponentially due to its modular nature, climbing down the cost curve as it did, was its secret power. The effects of this dynamic are now becoming visible in this encouraging report.
It may be too much of a stretch because of differing conditions in China, but on these shifting economic grounds is there an economic argument to be made against the proposed largest US coal port, meant to supply China and to be built north of Bellingham, Washington (itself 90 miles north of Seattle)? SSA, a global port company 49% owned by Goldman Sachs, is the initiator, promising a few jobs in exchange for massive local and global pollution.
Preventing this project is an opportunity to shut down a major institutionalization of coal-burning before it starts. The fight is gearing up, with local opposition organizating, a recent visit by Bill McKibben and the declaration of strong opposition by Dan Pike, Bellingham’s mayor. So I’m curious if there is an impact from the falling price of PV on this situation?
I confess I don’t know much about the capital investment situation in China. Are those plants already built or would stopping this supply source cause planners to shift to more renewable energy sources? Does anyone know? Sorry if this is highjacking the discussion but it is to the larger point of minimizing climate change.
Thanks for your comments on the coal terminal, they are very relevant. It’s a great illustration of how we in the US are inexplicably still developing expanded use of coal (whether we burn the coal here or over there, it does not matter from a climate point of view). At an excellent meeting a few weeks ago presented by RE-Sources, the mayor was equivocating, saying that the currently applicable issue was just about the scope of the impact assesment. His June 3 statement is most welcome leadership in protecting not just this local area but in doing our part to turn back this kind of expansion nationally.
June 12 at 11:50pm
This certainly shows why a “Carbon Tax” should be directly on the fuel (coal in this case) as an excise tax on production rather than on Carbon Dioxide emissions.
June 15 at 10:19pm
I’d like to applaude you. This is about the first time that I have read the statement about comparing GWp to GW and how this isn’t really precise or very meaningful. That’s how journalism is supposed to be, and way too often isn’t.
For those interested in a writeup of the specific issues in making these simplified comparisons of capacity vs. energy, read Koomey, Jonathan, Chris Calwell, Skip Laitner, Jane Thornton, Richard E. Brown, Joe Eto, Carrie Webber, and Cathy Cullicott. 2002. “Sorry, wrong number: The use and misuse of numerical facts in analysis and media reporting of energy issues.” In Annual Review of Energy and the Environment 2002. Edited by R. H. Socolow, D. Anderson and J. Harte. Palo Alto, CA: Annual Reviews, Inc. (also LBNL-50499). pp. 119-158.
Email me for a copy.
June 9 at 5:31pm
HI Jonathan, I would love a copy. – Dallas
June 12 at 11:08pm
my email is email@example.com
Stephen – Excellent presentation! Can you provide a link to the slides?
We’re trying to upload it, but have had some issues. If you want it directly from me, ping me through facebook.
June 9 at 11:06pm
Stephen, excellent article, please send me the presentation at firstname.lastname@example.org, thank you.
June 10 at 1:10am
Hi Stephen – I would appreciate getting the presentation via email as well at
jah(at)techsus.com.au regards James
June 10 at 9:00am
Great article- I am glad to see that Stephen has hit the ground running at Climate Progress. As a member of the board of a municipal utility, I especially like the attention paid to the shape of the output curve vs. the demand curve for tracking PV. Costs associated with our peak load are a significant part of our total costs.
Fixed solar is pretty good at shaving the peak, but there’s a significant period in the late afternoon when fixed PV production drops off, but the demand is still high. I’ve done this exact same analysis with data from our little utility and a local fixed PV system. Tracking has much better late afternoon performance, which has significant economic consequences. I have become a big fan of tracking for ground mount systems. As we recently had a mid-size tracking system installed in our town, I’ll soon be able to quantify the economics of fixed vs. tracking PV, at least here in Concord MA.
- mightydrunken (signed in using Yahoo)
Sounds like solar power using thermal energy storage would be a good fit in that situation. I know that the infrastructure would be more complicated and it is less mature but it could pay for itself.
June 10 at 11:01am
Here’s an interesting thing for people to contemplate: As solar reaches grid parity based on retail prices we’ll start to see big changes in what is now called the peak demand period in most regions (summer afternoons, when air conditioners run full blast). The system is now set up to meet that peak demand with lots of inefficient gas combustion turbines that we can either retire or repurpose once PV comes in full force. And when you combine that development (which is coming over the next 5-10 years) with the advent of price responsive demand you’ll see big changes in how the utility system operates.
Most people who talk about “baseload power” misunderstand that reliability is a characteristic of a system with many plants, not something that can be attributed to any one power plant in a system (see Lovins’ 4 nuclear myths paper for expansion on this idea: http://www.rmi.org/rmi/Library%2F2009-09_FourNuclearMyths). When the peak demand period goes away and electricity demand is responsive to real time conditions the utility system as we have known it will be a quite different place.
Thanks for your article, Stephen. I found it very informative. I had one question: do the cost estimates that you cite for solar include subsidies such as the Investment Tax Credit (ITC) or do they exclude them? As you know, solar often receives subsidies to cover a significant portion of its project costs. Regardless, the steadily declining module costs is certainly good news.
June 9 at 6:10pm
Hi Devon: Yes, this includes subsidies for all technologies, including the investment tax credit for solar.
June 9 at 7:07pm
Good post. Also see “Is buck-a-watt feasible?”
Yes. With mass production and popularity of solar as an alternative energy source, solar costs will come down drastically.
Dr.A.Jagadeesh Nellore(AP), India.
Wind Energy Expert.
There is something I’m not clear about: Is there some standard time period over which you amortize the costs of constructing these different kinds of power plants? I assume that solar’s costs come mostly up front, while coal and gas costs depend heavilty on assumptions of future costs of fuel. What assumptions do you make when doing these comparisons? Do you always spread construction costs over the expected life of the facility being built? For fossil fuel plants, what assumptions are made about fuel costs? Are borrowing costs for construction included?
Coal-fired plants, because of the requirements for scrubbers, etc, are the most expensive to build, and, yes, the costs are amortized over many years. the assumptions of fuel costs are relatively flat. Gas is cheaper up front, but the fuel costs are not as easy to predict. With the current political climate allowng gas producers to rape the environment for Marcellus shale gas, and other products, the fuel prices should remain low. As to expected life, that will vary by design.
June 12 at 7:18pm
Timothy — here’s an answer from Tom Dinwoodie:
“The solar numbers assume what has become conventional financing for solar, roughly 80% debt, 20% equity, using institutional financiers, with roughly 15-18 year debt periods. The traditional energy sources are financed the way that utilities finance such projects. You may want to speak with people at Lazard for standard assumptions, but it is likely safe to say closer to 100% financing, low rates on debt. In summary, all numbers assume the way the real world works for financing, which can be technology specific.”
June 13 at 5:25pm
The U.S. must be the innovators of Solar. Let’s invest in making the car and everything else solar and watch us get out of this depression in a sec!
Equally impressive are the jobs and economic impacts that accompany investment in solar (http://www.solarpowerbuzzmedia.com/2010/10/solar-foundation-2010-solar-job-census.html).
Stephen, great article. Could I ask what the breakdown was in the 17GW of 2010 installions – the breakdown between large, medium, and small systems? (However those are usually defined… >1MW, 10kW – 1MW, <10kW maybe?)
Hi Andy — I don’t have the international breakdown on hand, but in the U.S. it was 28% utility scale, 42% commercial/industrial, and 30% residential. Those figures are from SEIA and GTM Research:
June 10 at 1:36pm
Thanks so much Stephen for pulling those figures. It is fantastic to see that a significant portion of the growth is coming from the residential sector, where projects can get built much more quickly than at utility scale. This is actually a very encouraging stat. Of course, if solar continues rapid growth I wonder whether the grid will be able to adapt quickly enough – but I’d be more than glad to see the issue forced and quickly. Thanks again Stephen.
June 13 at 11:18pm
Must read… Great article
Hi, Agreed with Jonathan.
This is important info, but it should be kept in mind that solar is coming from far behind the other sources. It now makes up only a few percents of one percent of the world’s energy mix. Doubling every year for about a decade would be needed for it to start making up a significant portion of the total. Let’s hop that this is a stem in that direction.
Of course, great reductions in total energy use would help make the goal of total reliance on renewables much closer to a reality. But that does not seem to be the direction we are going.
Limiting the market focus to the US misses the big picture, and big opportunity to miss. Solar PV is below coal, gas, nuclear for most of the world’s population – they don’t have nearly a century of government subsidies building rural electric power grids like the developed nations have.
Battery makers are ramping up for auto power with mining companies rushing to supply lithium which will lead to falling prices for both.
Combining both PV and batteries in modular systems will open huge markets around the globe. The US could get ahead of the market by using our far higher wealth and income to forward price systems to promote development for export of components and technology (patents).
If the US continues to further delay action, we will at some future date be importing modular systems with some customers never connecting or disconnecting, and others connecting only for sporadic high demand. If utilities have excess capacity from the wrong capital investment in nuclear or fossil fuels, their need to increase prices will only drive more off the grid.
This is just the same economics that hit the computer industry, driving mainframe companies under, then minicomputer, then workstation, and now even the PC companies are faced with shrinking markets. To a large degree, the computer industry failed to consider the rest of the world, shifted manufacturing out of the US so we didn’t see the dramatic changes in customers first hand, and other nations took the lead in developing products for the world. We now import the designs developed outside the US.
For solar, beating the subsidized grid built over the span of a century is one thing, but beating the alternatives of kerosene lamps or gas generators and pumps or manual labor have totally different economics.
This is an excellent article but there is one issue as to why solar prices are dropping and that is technology advances which have been considerable. The biggest barrier to solar acceptance amongst the electric power distributors is the intermittency issue. They are fearful that they will be taxed with the cost of adding energy storage to mitigate the problem of line voltage and frequency stability. There are solutions now emerging to remedy the situation. I would appreciate it if some of the distributors were to express their concerns so together, we can make solar an acceptable power source to everyone.
“This modular technology can be produced and installed at a pace far faster than most energy technologies” I think this is one of the reason to invest solar energy. Since we have to meet the need of our thirst to electricity, solar may be the best choice.
a real alternative to Electiricity finally has arrived, its time to shut down the power plants.
We are seeing a tremendous surge in interest in community based energy development – “solar gardens”. I am having a great time building a solar power plant for the local county seat ( see http://www.solargardens.org ).
General Electric: “Solar will be cheaper than coal in 3-5 years” as they build the largest solar plant in the U.S., buy a half billion worth of smart grid tech companies, buy large in to LED lighting co’s, and unveil a natural gas peaker that can kick up to power at the rate of 50 MW per minute. And their wind turbine business grows. To have a large energy corporation make the above statement is more convincing to climate deniers than a 1000 peer reviewed studies. Solar will save us all money, and maybe just save us too.
How long do solar panels last? I read a report a year ago that said their output degrades over time, that each panel needed to be tuned uniquely (electronically controlled) and that the tuning should change as the devices degrade in order to maximize power.
Prayoon Tosanguan I’m glad to see this happening….”Solar will be cheaper than Nuclear”…..We have to be able to do it in a commercial size to ensure that the grid load is guaranteed and sustainable…
Dollars and sense.
not a feasable alternative, as someday the sun will supernova…
June 14 at 3:05am
June 14 at 11:32am
“not a feasable alternative, as someday the sun will supernova…”
the sad fact is one day climate-change/pollution skeptics will use this argument
June 20 at 6:52am
Almost time to get some solar panels, now if the sun would just come out….
Buck a watt? , cheaper yet maybe , nano scale flexible CdTe panels could easily do.15 cents a watt to produce, and the much lighter panels will be on roofing, awnings, etc. Installation costs will plummet. check out “nano antennae CdTe” on MIT tech review. a tiny fraction of the CdTe thickness of today’s cells, they don’t care about the sun’s angle, light trapping in a wider spectrum at incredible efficiencies even for the lab. Glass CdTe will do wonders too, no doubt.
This is great news for us the US consumer and not good for the coal industry or nuclear. That is change for the better.
Great article, the grid parity with new nuclear appears to have occured according to a report from Duke University last summer. The Vogtle 3&4 plants under construction in GA will come in at a minimum of $7 Billion each. Their operating budgets are $60 Million annually. The Blackburn report states this equates to $.16 – $.17 per kWh – and I thought Nuke was base load! We are delivering solar at a faster pace than ever and if enough scale for developers exist in a given market, the price can continue to decline. In the process, we have build a great little company with 14 employees and dozens of subs over 3 short years Green Jobs really do exist!
nuclear is baseload, not because of the price, but due to the fact that it can generate its rated power 24 hours a day over 90% of the tune, Solar can not do that.
June 15 at 10:14pm
Also worth mentioning that coal and nuclear may soon not be labeled as the base load. Batteries, flywheels, wind, wave, geo-thermal etc.., will bring new possibilities to the table… Change is here
June 20 at 6:48am
Basically, this article, despite the two disclaimers, ignores the fact that solar can not provide baseload power. Therefore, it can not replace coal which currently provides most of the baseload power in the US. OTOH, nuclear does provide base load power and, therefore, can replace coal. It matters very little if solar becomes less expensive than coal if it can not replace it. And, if solar is actually less expensive than nuclear (which I doubt) it makes little difference since without storage, solar can not provide baseload power which nuclear does provide.
Stephen Lacey Great points. I am just returning from InterSolar in Munich and spent a lot of time speaking with module manufacturers about many of the issues you brought up. The feeling of the show was the brightest I’ve ever felt a solar conference, everyone seemed to finally realize that there may be bumps on the road, but that solar is now a real industry and it’s here to stay. I just wouldn’t want to be a manufacturer over the next 5 year, because they’re going to be killing each other!
Very use article with good graphs.
Now you tell me… (just signed a contract).
The Times they are a changin! Big Oil/Gas is scrambling to achieve 3 def. aims: Stall integration of Renewables, Block Safety Regulation of Drilling for O/G, and Ramp up demand and dependence by lobbying for increased Nat Gas Use in Fleet and personal vehicles, Power Plants, and Industry. Frack THEM before they Frack You!
Interesting comparisons for solar technology. It sure looks like actual pricing may drop fast enough to keep up with declining state and federal incentives, which is great news! but means that you may as well buy now as in two years, because it’ll cost the consumer the same amount (but you get two years of utility bill savings).
Hi Stephen! Our company, Cosmic Solar, highlighted this article in our most recent post on our blog. Keep fighting the good fight! This is just the beginning; we’re all pioneers in this movement! Please check out our blog here: http://cosmicsolar.blogspot.com/2011/06/experts-say-solar-may-be-reaching-grid.html.
DATI ALLA MANO : NON CI SONO PIU’ SCUSE , FOTOVOLTAICO ADESSO!