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The Solar Price Revolution: Why Renewable Energy Is Becoming Cheaper Than Fossil Fuels

| April 7, 2015

But is Washington paying attention? (Dept of Energy Solar Decathlon)

But is Washington paying attention? (Dept of Energy Solar Decathlon)

Editor’s Note: To put some of the numbers below in context, the average cost of a kilowatt/hour in the United States, in January 2015, was 12.10 cents and 11.93 cents in Florida, according to the U.S. Energy Information Administration.

By Klaus Töpfer

A silent revolution is under way. In November, Dubai announced the construction of a solar energy park that will produce electricity for less than $0.06 per kilowatt-hour – undercutting the cost of the alternative investment option, a gas or coal-fired power plant.

The plant – which is expected to be operational in 2017 – is yet another harbinger of a future in which renewable energy crowds out conventional fossil fuels. Indeed, hardly a week seems to pass without news of a major deal to construct a solar power plant. In February alone, there were announcements of new solar power projects in Nigeria (1,000 megawatts), Australia (2,000 MW), and India (10,000 MW).

There can be no doubting that these developments are good for the fight against climate change. But the major consideration driving them is profit, not the environment, as increased efficiency in energy distribution and, where necessary, storage, reduces the cost of producing renewable energy.

As efforts to improve the management of electricity from fluctuating sources yield further advances, the cost of solar power will continue to fall. Within ten years, it will be produced in many regions around the globe for 4-6 cents per kilowatt-hour, according to a recent study by the Fraunhofer Institute for Solar Energy Systems (commissioned by the think tank Agora Energiewende). By 2050, production costs will fall to 2-4 cents per kilowatt-hour.

Assumptions that generating electricity with natural gas or coal is less expensive or more efficient than solar power are rapidly becoming untenable. 

As Patrick Graichen, Agora’s executive director, points out, most forecasts of the world’s future energy supply fail to take into account solar power’s looming victory over its fossil-fuel competitors. Updating them would paint a realistic picture of the costs and impact of our energy production and consumption on the world’s climate, reveal the importance of renewable energy to economic development, and enable better planning of energy infrastructure.

We should not underestimate the tremendous potential the sun and wind have for building global wealth and fighting poverty. As solar power becomes increasingly cost-effective, countries located within the planet’s sun belt could develop entirely new business models as cheap, clean energy enables them to process their raw materials locally, adding value – and profit – prior to export.

Unlike large-scale conventional power plants, solar installations can be built in months; in addition to being cost-effective, they provide a quick means of responding to growing global demand. And, because solar plants can generally be operated independently of complex interregional electricity grids, they provide less developed countries a way to electrify their economies without building expensive new infrastructure.

Solar power plants thus could play the same role for energy that mobile phones did for telecommunications: rapidly reaching large, underserved communities in sparsely populated regions, without the need to invest in the cables and accompanying infrastructure that once would have been necessary. In Africa, 66% of the population has gained access to electronic communications since 2000. There is no reason why solar power could not do likewise for access to electricity.

The time to invest in large-scale solar energy production is now. For starters, construction costs for solar power plants are finally low enough to produce electricity at a competitive, stable price for more than 25 years. The price of oil may have plunged for now, but it will rise again. Solar power plants provide insurance against fossil fuels’ inherent price volatility.

Even more important, the cost of capital currently is very low in many countries. This is a decisive factor for the economic viability of solar power plants, because they need very little maintenance but require relatively high upfront investment. The Fraunhofer study shows that differences in capital expenditure are as important for costs per kilowatt-hour as differences in sunlight. Solar power is currently cheaper in cloudy Germany than in sunny regions where the cost of borrowing is higher.

The amount of sunlight that shines on a country is impossible to change. But the cost of capital is something over which a country can maintain a certain amount of control. By creating a stable legal framework, providing credit guarantees in the context of international agreements, and involving central banks in large-scale investments, governments can help to make solar power more accessible.

Factors like these explain why international climate policies increasingly focus not only on solar power, but on other forms of renewable energy as well. Technological breakthroughs have boosted these energy sources’ competitiveness relative to fossil fuels. As a result, instruments that make their adoption more affordable are becoming some of the most important weapons we have in the fight against climate change.

stKlaus Töpfer, former Executive Director at the United Nations Environment Programme, former Under-Secretary-General of the United Nations, and a former German environment minister, is Executive Director at the Institute for Advanced Sustainability Studies in Potsdam and Council Chair at Agora Energiewende.
© Project Syndicate.

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13 Responses for “The Solar Price Revolution: Why Renewable Energy Is Becoming Cheaper Than Fossil Fuels”

  1. I/M/O says:

    Until States exempt homeowners from increases in their assessed value of their home, on which property taxes are based,adding solar panels to your home is a losing proposition.

    Increasing the value of your home by adding $80,000 worth of solar power equipment increases ones property taxes.

    Why should that be?

  2. Sherry E says:

    @ I/M/O says. . . I’m thinking that your property taxes go up because somewhere, some how Big Oil and the Koch Brothers say so. There are very powerful lobbyists doing everything they can to stop or slow down the implementation of any energy source they do not control and profit by!

  3. Sherry E says:

    This from the LA Times:

    Of all the pro-business, anti-government causes they have funded with their billions, this may be the most cynical and self-serving. On Sunday, a Los Angeles Times story by Evan Halper outlined the Koch’s latest scheme. Along with anti-tax crusader Grover Norquist, several major power companies and a national association representing conservative state legislators, the brothers are aiming to kill preferences for the burgeoning solar power industry that have been put into law in dozens of states. Kansas, North Carolina and Arizona are their first targets, with more to come.

    They already have their first victory. On Monday, Oklahoma’s Republican Gov. Mary Fallin signed a bill passed by the GOP-controlled Legislature that authorizes electric utilities to tack a surcharge on the bills of private citizens who have installed solar panels or wind turbines on their homes. That’s right, Oklahomans who have spent money to generate their own clean and green power now must pay compensation to the power companies.

    • Outsider says:

      Could it be because the homeowner uses the electric company’s infrastructure to sell the electricity back to the power company? I can understand it being the power companies spend billions to maintain their grid every year, and it wouldn’t be fair to give homeowners free use of that grid to make a profit, which is basically what is happening when you tie your system to the grid. It would be like producing your own milk at home, then demanding Walmart put it on their shelf and give you all the monetary proceeds from the sale.

      • YankeeExPat says:

        The power company buys back the electricity at the wholesale price and sells it back to other consumers at retail. The homeowner produces it, the power company sells it.

  4. Sherry E says:

    Consider the possibility that if the power companies had invested in and helped solar power into mass production 20 years ago, they could still use their grid to turn a profit and we and our environment would all d have benefitted from cleaner, much cheaper power.

    Capitalism is not always the best way to provide vital services. . . the profit motive is now coming before the citizens.

  5. v says:

    Even if solar panels were free and gave free electricity, well batteries are not free specially batteries large enough for a large city. What happens at night? Wind power can help but not all areas have dependable wind nightly 365 days a year.

    You need some form of backup. If you dont have hydro or geothermal then that usually means fossil fuel or nuclear.

    Maybe battery tech will improve? Well we have to wait and see. But if we wait too long, climate change will get us.

  6. Sherry E says:

    There are storage techniques for solar power. Here is an example from from MIT 2011:

    • v says:

      well so far solar thermal with molten salt or some other heat storage fluid is a little rare because it is more expensive, specially with the drops in battery prices. But batt prices are still relatively expensive. These solar thermal plants with storage are almost all in deserts because the extra sun makes it worthwhile

      Thats one reason why during the recent solar eclipse (which happened during a non windy day), europe fell back on fossil fuel, hydro and nuclear. Europe only has small amounts of storage aside from hydro

  7. Sherry E says:

    If only our country had embraced solar and wind power many years ago, we would have been so much further ahead of the curve when it comes to energy storage and redundant systems. I’m just happy to see that we are finally beginning to turn the page instead of turning our backs to renewable, cleaner, cheaper energy sources.

    I have often thought that the reason the development of solar energy into cheap mass production has been stunted by the powers that be, is that the billionaire 1% couldn’t figure out how to charge big bucks for sunshine.

  8. Lancer says:

    Yep…we need massive solar power and wind power farms covering acres and acres of our landscape?

    Keep solar in residential, where it belongs.

  9. M McNamara says:

    Our family has been involved in solar power for over 30 years. The cost has gone down an incredible amount. Here in the Sunshine State, everyone should be using solar. We have solar water and are adding solar panels. Solar is not taxed on your property tax. The power company charges you 12 cents a kw, but refunds you only 4 cents once a year in January. A grid tie just turns your meter backwards. Power companies are making money off the solar. It isn’t costing them. You also learn to live with solar. Wash clothes, shower, etc, in the daytime, not at night. You can have battery backup, but it isn’t necessary. The oil industry does not want you to use solar. It takes away from them. Some states are so controlled by politics that they have made it illegal to put install solar to your home. I believe South Carolina is one. Florida is not even close to being one of the top solar producing states! New Jersey produces way more! So much for the Sunshine State!

  10. Sherry E says:

    We should have solar arrays on “every” roof top. . . where they belong. Bringing, cleaner cheaper energy into every home and business should be much more important than the profits of oil billionaires like the Koch brothers and the energy companies. PEOPLE BEFORE PROFITS!!!

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