Only a small share of the world’s power is currently generated by solar power, and high costs have been the main hold up to their widespread use. But things are changing quickly: the cost of solar has plummeted by 80 per cent in the last ten years. “Our new study shows that solar energy has become cheaper much faster than most experts had predicted and will continue to do so. The share of solar will be much larger than most present plans anticipate,” says Patrick Graichen, director of the German think tank Agora Energiewende that recently released a report on the subject.
Strong drivers of technology development
The new study claims that the steep drop in costs will continue until 2025 and well beyond, even in conservative scenarios. “On quite pessimistic assumptions we think that the levelised cost of large-scale solar power in central and southern Europe will drop to between 40 and 60 euro per MWh by 2025. If you combine that with estimates of battery development, the cost of producing and storing one MWh in Germany would be 110 euro in 2025,” says Johannes N. Mayer, lead author of the report.
If the numbers hold true, solar power would be one of the cheapest power sources when building new power plants. And even when the cost of full storage is included, solar would be on par with conventional power sources. By comparison, electricity from new coal and gas-fired plants costs between 50 and 100 euros per MWh and from nuclear plants as much as 110 euros, according to Agora Energiewende.If the numbers hold true, solar power would be one of the cheapest power sources when building new power plants. And even when the cost of full storage is included, solar would be on par with conventional power sources. By comparison, electricity from new coal and gas-fired plants costs between 50 and 100 euros per MWh and from nuclear plants as much as 110 euros, according to Agora Energiewende.
Ruud Hendriks, Head of Portfolio Analysis at Vattenfall Strategy, agrees with the overall thrust of the report. “Cost levels have come down much faster than we thought. The fact that solar power is already being produced and deployed globally much more widely than offshore wind, for example, is a strong driver for developing this technology. I expect sharp declines in costs, and this will already make photovoltaic systems a much more competitive source of energy by 2025.”
Future subsidies needed in Europe
But even if the predictions of Agora Energiwende come true, large-scale solar plants will probably need subsidies to enter the European power markets by 2025. The reason is that it is hard to compete with existing power sources in a market with very low electricity prices and oversupply. Some of the older power plants are today being paid less from the market than it costs t run them, but they have to run to minimize losses for their owners. So even if solar would be the cheapest option for building new plants, it would mean little if there is no demand for new power. “Wholesale market prices in Germany are currently slightly above 30 euro per MWh. So a very large increase in these prices is needed to make photovoltaic systems a profitable investment solely from wholesale market revenues,” says Hendriks.
But while many European power markets are over supplied there are other places in the world which will need to expand their electricity generating capacity in the future.
“It is true that solar power will continue to require subsidies to enter the European market. But it will be the cheapest option for building new plants in many parts of the world. Our assumptions have already been validated by recent deals concluded in Saudi Arabia and Brazil,” says Mayer.
Why the future role of solar is often underestimated
The findings of the Agora study are a lot more optimistic than other reports on the subject, but there is no real controversy according to Mayer. “Big studies rely on old data and can take two years to complete. Since these developments are so fast, those studies are already outdated when they are published,” he says.