Three Charts That Illustrate Why Solar Has Hit A True Tipping Point

A new report from the prominent global consulting firm McKinsey shows why solar photovoltaics have hit a tipping point.

As the economics of solar PV continue to improve steadily and dramatically, McKinsey analysts conclude that the total “economic potential” of solar PV deployment could reach 600-1,000 gigawatts (1 million megawatts) by 2020.

In the year 2000, the global demand for solar PV was 170 megawatts.

That doesn’t mean 1 million megawatts will get developed by 2020; it’s just an estimate of the economic competitiveness of solar PV. When factoring in real-word limitations like the regulatory environment, availability of financing, and infrastructure capabilities, the actual yearly market will be closer to 100 gigawatts in 2020.

That could bring in more than $1 trillion in investments between 2012 to 2020.

The McKinsey report, appropriately named “Darkest Before Dawn,” highlights three crucial factors that are giving the solar industry so much momentum — even with such a violent shakeout occurring in the manufacturing sector today.

1. Because solar mostly competes with retail rates, the economic potential for the technology in high resource areas is far bigger than actual deployment figures would suggest. McKinsey predicts that the cost of installing a commercial-scale solar PV system will fall another 40 percent by 2015, growing the “unsubsidized economic potential” (i.e. the economic competitiveness without federal subsidies) of the technology to hundreds of gigawatts by 2020.

2. The most important cost reductions in the next decade will come not through groundbreaking lab-scale improvements, but through incremental cost reductions due to deployment. The McKinsey analysis shows how the dramatically these cumulative cost improvements can change the economics of solar. (For more, see: Anatomy of a Solar PV System: How to Continue “Ferocious Cost Reductions” for Solar Electricity.)

3. Solar is already competitive in a variety of markets today. As the chart below illustrates, there are at least three markets where solar PV competes widely today: Off-grid, isolated grids, and the commercial/residential sectors in high-resource areas. Of course, the competitiveness of the technology varies dramatically depending on a variety of local factors. But this comparison shows just how steadily the cross-over is approaching.

Wait, solar is actually competitive? Didn’t the death of Solyndra mean the death of the solar industry? Addressing the solar skeptics, the McKinsey analysts counter the notion that the solar sector is down for the count:

“Those who believe the solar industry has run its course may be surprised. Solar companies that reduce their costs, develop value propositions to target the needs of particular segments, and strategically navigate the evolving regulatory landscape can position themselves to reap significant rewards in the coming years.”

The short-term picture for solar is extraordinarily challenging, particularly for manufacturers trying to figure out how to make a profit with such a massive oversupply of panels on the market. But this is not an industry in its death throes; these are natural pains for a disruptive, fast-growing industry. The tipping point is upon us.

26 Responses to Three Charts That Illustrate Why Solar Has Hit A True Tipping Point

  1. Anne van der Bom says:

    Those cost projections for The Netherlands in the residential sector are already outdated. See this price list of a well known installer with good reputation. You can have an average system (around 3 kW) installed for about 2 euros per Watt peak including VAT. DIY is very doable and a lot cheaper. No permits required.

    Let’s assume an expected lifetime of 20 years, a yield of 1 kWh per watt peak per annum, and an interest of 5%. My spreadsheet says the price per kWh is 16 eurocents, including 19% VAT. That is 21 dollarcent per kWh. This report still says 30 cents. It is scary how fast costs are falling. Average rate here is 22 cents per kWh.

  2. fj says:

    The report also indicates the potential for healthy growth in the finance industry creating real value in secure financial instruments funding the photovoltaic buildout.

  3. Tom King says:

    No matter how cheap solar gets, we can’t rely solely on market forces to eliminate fossil fuels. The problem is that green energy will reduce the demand and therefore the price of dirty energy. There needs to be trade agreements that stop imports from carbon based economies.

  4. Leif says:

    My panels have been stress tested to 60 years with zero failure rate.

  5. fj says:

    Yep, the existing market is phony since natural services are not considered to have any value when the reality is just the opposite; and it should be just the opposite from so-called conventional market methods when valuing systems, i.e., natural including human capital first.

  6. Tom King says:

    “the existing market is phony since natural services are not considered to have any value when the reality is just the opposite”

    Such a succinct way of describing a fairly complex situation deserves to be admired and repeated.

  7. What do you think about carbon fee and dividend? We’d like to pass this law in the U.S. and return 100% of the proceeds to the ratepayer. Start at $10 per ton of emitted C02 and increase $10-15 per year through 2020. Thoughts?

  8. Mulga Mumblebrain says:

    The market fundamentalist loonies see the economy as the bedrock reality of existence, and the ecology as, at best, a sub-set of the economy, or, more often, a mere ‘externality’, that can be ignored. This sort of magical thinking, irrational, unscientific and frankly deranged, is required by all adherents of the ‘Market Cult’. The Market has replaced God, Gaia, Nature, Reality as the supreme deity. The maniacs actually believe nonsense such as that remedying all ecological crises is merely a question of getting the ‘price signals’ right, then leaving it to the Market. Humanity is being driven to destruction by deranged simpletons who fancy themselves sages.

  9. ibsteve2u says:

    If you’re of a mind, there is a way you can use your idle computer time to do research into finding polymers to replace or augment the current silicon-based photovoltaics, thus opening up new methods of deployment and preventing the recurrence of more collusive monopolies of corporations and/or nations such as now manipulate the supply of energy:

    I’d note that the existing energy monopolies have a lot to do with the funding and direction of “the right”; breaking them would literally be a blow for freedom and our planet – and so the children of our world.

  10. Leif says:

    I am a “People” and come from a long line of “people.” If I throw a paper cup out the car window, Bingo, ~ $100+ fine. Corpro /People, a new kid on the block, gets to fill the air, water, dirt and seas with toxin. Even the tit milk the Daughter-in-Law feeds the grand kidder has some of those toxins, yet Corpro/People get to profit Big Time. Even get my tax dollars! What gives. You try spreading toxins around the neighborhood, even Real Thin and give me a report. Shake a broken CFL over each yard in turn,(still less than the proximity of a coal plant). Time Cropro/People learn to play nice with others.

  11. Mulga Mumblebrain says:

    Andrew, I think that it would be preferable to keep some of the proceeds aside for renewable research and development, and for the urgent need to address ecological repair. 100% could be returned to the poorest, and lesser amounts the higher up the income and wealth (inverted) pyramid you go.

  12. pluege says:

    I hate the ‘sustainable energy is more costly argument’. This has been the biggest ruse by the non-sustainable energy, i.e., fossil fuel industry interests on humanity in the history of humanity. There is NO WAY sustainable energy can be more expressive than non-sustainable energy – THE FUEL IS FREE!!!!!! Wind, Sun, waves, thermal – ALL FREE. No extraction costs, no shipment costs, no conversion to fuel costs, no storage costs, and capital investment AT A FRACTION of the cost; and lower maintenance costs. A NO ENVIRONMENTAL DESTRUCTION AND HUMAN HEALTH COSTS! It is not even close, sustainable energy is VASTLY cheaper than fossil fuel based energy: yesterday, today, tomorrow.

  13. S.D. says:

    Two of my co-workers got Solar panels (NJ) and they love it. Keep telling me I should consider it!

  14. Ernst says:

    Well said.

  15. RailroadMike says:

    This mornings news May 1st. Texas added 1,500 jobs this year due to solar power being expanded in the state.

  16. Anne van der Bom says:

    If I punch in 60 years expected life, my spreadsheet sez: 10.6 eurocents per kWh.

    Note however that panels outlive the inverter with ease. Inverters are said to need replacement every 10 years or so. That’s not part of my spreadsheet though.

  17. Nitin Gadia says:

    this was a great article.
    Great graphics, and the last one brings it all together nicely.
    Kurzweil says that solar installed capacity has been consistently doubling every 2 years for the last 20 years, and that’s still been consistent in the last 2 years.
    This means that solar could power the world in about 15 years. That’s consistent with the article, which shows that by 2025, the cost per kwh will be competitive with new large scale plants.
    Good stuff :)

    According to the numbers I’ve run, It’s going to look like this (of course, it will likely never be 100%)
    … so, the tipping point will really be closer to 2020 :)

    Solar % of Global Capacity:
    2010: 0.4%
    2012: 0.8%
    2014: 1.6%
    2016: 3.2%
    2018: 6.4%
    2020: 12.8%
    2022: 25.6%
    2024: 50%
    2026: 100%

  18. Kevin Schmidt says:

    “Didn’t the death of Solyndra mean the death of the solar industry?”

    Makes me wonder why the death of the Gulf of Mexico didn’t mean the death of BP. Instead it just means the premature death of tens of thousands of Gulf residents. BP’s bottom line is protected, again, with the blood of thousands, again.

  19. Dolph says:

    Has anyone looked into the damage done to the environment when they mine for the silica needed to make PV cells ?

    It might look shiney and new in the first world but I suspect it is creating Hell in those 3rd world countries where the mining takes place,

    Also the polution of the pv industry I am sure an industry racing along like that has some skeletons in the cupboard.

    And what about figures from populations using poluting technology for energy.

    Somehow I do not think these charts tell the whole story.

    Food for thought

    Charmaster Dolph

  20. Stephanie Liaci says:

    Of course, the cost for fossil fuel will drop dramatically (not sure, isn’t it extremely inflated now?) in order to keep dirty fuel in competition. But couldn’t this in fact be the death throws of the old order? At some point it will seem ridiculous to the dirty energy companies to stay OUT of solar energy. On the Desertec website we are told that in six hours, the sun shines more than enough energy down on the earth to power the world for a year.

    Maybe the old guard of Big Oil (and the rest) will resist, and use economic and political tricks, but at some point certainly the next generation will see this as the financial equivilant of shooting yourself in the foot, or marching to your own extinction. In the mean time, the rest of us keep in the discussion, keep in the challenge, and keep doing what we can to get the word out.

    Of course attention will have to be paid, as said below, to ensuring that the greatest level of care goes into manufacturing the cells and the components (as Dolph pointed out). But to think that this is any deterrant to solar-or a skeleton in the closet-is ridiculous. The cost environmentally of extracting, shipping, and burning the oil is gargantuanlly higher. Eventually, solar energy will power the production of solar cells.

    The future seems more hopeful, even though we are in a race against time.

  21. Robert Weiss says:

    Florida, the Sunshine State is pathetic in this Arena. It should be one of the leaders.

  22. ToddInNorway says:

    In fact silicon is the second most common element in the earth’s crust. Over 90% of the earth’s crust is composed of minerals that contain silicon. That is not a challenge with silicon-based PV. The challenge is that it requires relatively large amounts of energy to purify the silicon to the necessary level (about 99.9% pure). In China, the energy comes from coal power plants. So they are converting coal and polluting now in order to produce PV and pollute less later.

  23. h4x354x0r says:

    +1 Insightful: @fj says, “…the existing market is phony since natural services are not considered to have any value when the reality is just the opposite…”

  24. h4x354x0r says:

    I must disagree on the shipment and storage, unless you only want to use the energy close to where you’re collecting it, and you can live with intermittency.

    Storage for solar energy – i.e. electrical batteries – are a huge problem still facing our transportation industry. We just can’t pack nearly as much energy into batteries, as is packed into the equivalent weight of gasoline.

    But regardless of all the problems facing solar, it’s still the ONLY single energy source technology that can supply all of our energy needs, with plenty of capacity to spare, for tens of thousands of years. The conversion will have to take place eventually. Why not make the right decision the first time?

  25. h4x354x0r says:

    That timetable is actually pretty unrealistic. A 50% annual growth rate; double every 2 years? The mean growth rate of solar for the past 5 years has been 40% per year. Extrapolating that as a sustained growth rate, we get 10% of all electric demand in 2027. At that growth rate, we surpass all current nuclear production in 2030, and finally hit 100% of all energy needs in 2040.

    It’s completely unrealistic to believe solar deployment can continue such astounding growth rates at larger scales. Only so much rare earth minerals can be mined every year. Most industry forecasts show solar to settle into a 15% annual growth rate.

    Which, of course, is not enough to really meet future demands. We really do need sustained 50% growth rates into the foreseeable future, and that’s nearly impossible without a truly dedicated society. I sense an energy crunch train wreck on the horizon…

  26. Dr.A.Jagadeesh says:

    Though the projections from West and US favour Solar PV bright future, Developing countries are yet to start off (Except India and China).
    Dr.A.Jagadeesh Nellore(AP),India