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Solar costs heading to 4c/kWh, rooftop solar seen “unbeatable”

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The highly conservative International Energy Agency predicts the cost of solar energy will fall to around 4c/kWh in coming decades as the sun becomes the dominant source of power generation across the world.

As we reported yesterday, the IEA now expects solar to become the biggest single source of energy by 2050 and has now doubled its forecast capacity for solar PV.

Rooftop solar, it says, will now account for one half of the world’s solar PV installations, because as a distributed energy source the technology is “unbeatable”.

On costs, it says all solar technologies will fall dramatically in coming decades, with solar PV falling to as low as 4c/kWh, utility-scale solar to around the same level, and solar thermal with storage will fall to as low as 6.4c/kWh.

As this graph below shows, the minimum price tends to occur in regions with great sunshine, and it also assumes a low capital cost of around 8%.

iea solar lcoe

Indeed, IEA executive director Maria van der Hoeven said capital costs were a key element in bringing down the cost of solar technologies. To do this, she said, it was critical to have stable and long-term policies.

This graph below illustrates how financing costs have a critical bearing on the overall cost of solar – any technology for that matter, but particularly one where the bulk of the cost is in the upfront capital outlay for installation.

iea cost capital

Van der Hoeven said policy makers needed to make clear, credible and consistent signals, which can lower deployment risks to investors and inspire confidence.

“Where there is a record of policy incoherence, confusing signals or stop-and-go policy cycles, investors end up paying more for their investment, consumers pays more for their energy, and some projects that are needed simply will not go ahead.” The implications for Australia, where large-scale investment has ground to a halt because of policy uncertainty, could not be any clearer.

The forecasts from the IEA are not the most dramatic that can be found, but they are significant because the IEA is essentially a conservative organisation that was created in the 1970s to defend developed countries’ access to fossil fuels

It has a history of underestimating the impact of new technologies such as solar, as we pointed out in this article – even though it has doubled its forecast for solar PV deployment in just the last few years. Other agencies, such as IRENA, have a much more bullish forecast for solar.

The IEA insists that its figures are not forecasts, but what the world should be aiming for. The deployment of solar could be much higher – assuming costs come down faster than thought. The IEA’s base model still relies heavily on “baseload” generation.

If the IEA figures are right, solar PV’s share of global electricity will reach 16 per cent by 2050, a significant increase from the 11 per cent goal in the 2010 roadmap.

This will require 4,600 GW of installed PV capacity by 2050 – more than half of it in China and India. This requires the installation rate to nearly quadruple to 124GW year. It notes solar PV will be a highly effective abatement tool, avoiding up to 4 gigatonnes (Gt) of carbon dioxide (CO2) annually on its figures.

The IEA says variability is an issue, but it can be overcome with interconnections, demand-side response, flexible generation, and storage. The overall cost will require an increased investment of $44 trillion – but this will generate savings of $115 trillion in fuel costs.

The IEA says the dramatic cost falls in solar PV means that the sector is around five years ahead of where it thought it would be.

Solar thermal with storage, on the other hand, was lagging because its “dispatchability” was not being fully valued.

That would change, however, because solar thermal with storage would play a critical role in the energy systems of the future and would be a match for solar PV because of its ability to store energy for use at night or times of peak demand. In some countries, solar thermal deployment is expected to be greater than solar PV. In others, the opposite will be true.

iea regions

Paulo Frankl, the IEA’s solar expert, says half the large PV deployment considered in this roadmap would take place on buildings or nearby (such as over parking lots). More than half of this would be on commercial buildings rather than residential.

The forecasts rest, in part, on the concept of grid parity – when the cost of distributed PV generation is equal or below the per-kWh component of retail electricity prices – and on self-consumption. “At the utility level, solar PV has many competitors. At the distributed level, solar PV has a competitive advantage and is unbeatable.”  

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  • Zvyozdochka

    Dr David Mills believes that PV with battery storage will probably over take solar thermal with storage.

    • Bob_Wallace

      That’s going to be hard if PV drops to 4c and thermal with storage drops to 6.5c. Difficult to see where any <2.5c storage is going to be found.

      I can see lots of end user solar + storage but that storage won't likely flow back to the grid. That means the other 50% (?) of the population that doesn't have solar/storage will need to purchase from the grid and rely on utility owned storage.

      • wideEyedPupil

        Smart grids would see some of that flow back into the grid — if the utilities don’t hate that concept out of existence. I agree that 2.5c battery storage is pie in the sky even with this sunny IEA prognosis.

      • Zvyozdochka
        • Bob_Wallace

          $150/kWh won’t cut it unless the cycle life is high.

          $150/kWh and 5,000 cycles is 3c/kWh.

      • neroden

        Distributed storage has a major advantage over concentrated storage — less money spent on expensive high-capacity transmission lines. There’s your difference, which is why battery storage will generally beat solar thermal. The batteries can be located at substations, reducing transmission loads.

  • Rob G

    Elon Musk said a couple of years ago on a TED interview that he predicts solar to be 50% of global power in less than 20 years. I hope he is right! The audience and host gasped and thought it was just unthinkable.

    • patb2009

      sooner then that, PV is poised to make an explosive breakout.

      People want to put some PV on the roof, i’ts becoming a thing.

      • wideEyedPupil

        Once battery storage gets within consumer’s reach there’s a synergistic benefit to maximising one’s solar investment. That goes for small domestic thru to large commercial players. A significant multiplier effect is waiting in the wings and plenty of can see it from the stalls.

    • Jouni Valkonen

      Ray Kurzweil and Google’s Larry Page predicted in 2008 that 100 % of electricity generation is solar by 2028. And the scariest part is that we are still in 2015 on the 100 % solar tack what they predicted! They predicted in 2008 that global solar power generation capacity will expand about 40 % each year until we are in 100 % solar.

      • neroden

        Musk is making an *extremely* conservative estimate

        I think he’s assuming that the conversion of all cars & trucks to electricity will add a lot of electricity demand (he does own Tesla, you know). He may also be assuming the conversion of fossil-fuel heating to electricity, which could also add a lot of electricity demand.

        If you don’t make these assumptions, my conservative estimates (based on expanding 30% each year) show that the US hits 100% solar around 2032.

        Kurzweil and Page are making pretty much the same estimate, only based on 40% expansion each year.

        Humans don’t seem to understand the exponential function very well. When you have a 30% or 40% growth rate, you go from “very little” to “everything” in less than 20 years.

        • Jouni Valkonen

          And if your prediction by 2032 fails. It is absolutely impossible that around 100 % solar power would take longer than by 2042. This too is fast enough.

          The exponential growth is very aggressive growth and even if it follows the S-curve, today there is still so much inertia in the exponential solar power growth, that 100 % solar is inevitable. We are still in the accelerating phase of the S-curve. This means that we are starting to move into decelarion phase of the S-curve around in early 2020’s and then it is already too late to stop going to 100 % solar power in United States (excluding Alaska).

          • neroden

            …Alaska’s probably actually going to be one of the first markets to go 100% solar. Although the supply of sunlight is terrible, the cost of fossil-fuel alternatives is astronomically high already.

  • Chris Fraser

    The IEA delivered a deft insult to the Australian situation by describing the problem with our Stop-and-Go policy cycles. Now it seems no less than the Industry Minister plans to negotiate with the other parties on the failed attempt to demolish RET. However if that plan fails, the Minister will seek to put the blame for that failure on the opposition, thus extending the industry investment uncertainty or policy incoherence. A classic case of governing by ideology rather than what is the best economic and environmental outcome, if we call it any attempt to govern at all. The ACIL Allen study found the sweet spot for investment right now is up around a 30% RET. Though this is likely to increase in future, sustaining ever increasing orders of RET. What’s needed to achieve it is policy leadership and responsibility.

  • Jacob

    Hopefully the cost of storing electrons in flow batteries crashes to 1-2c/kwh. Very low cost storage and solar PV for 4c/kwh would hopefully kill every coal power station on the planet.

    • Bob_Wallace

      Coal plants are going to die of old age, if nothing else, over the next 2-3 decades. It won’t make economic sense to replace them with more coal plants.

      Additionally, there is growing pressure in China and India to close coal plants simply due to air pollution problems. As wind, solar and storage become cheaper it will become harder and harder to argue for the continued use of coal.

      • Jacob

        The city of Beijing is replacing coal power stations with gas power stations now due to pollution.

        But huge new coal power stations in India promise to supply electricity for just 4c/kwh. That is what solar PV is up against.