In the last decade or so, solar energy really has come of age. There is serious money going into renewables like solar energy:
Also in the US:
In the past half-decade, venture capitalists have pumped more than $7 billion into dozens of solar start-ups developing cutting-edge technology, most of them in the San Francisco Bay area, according to data compiled by GTM Research and Ernst & Young. [Startribune]
World production is increasing rapidly:
And the US solar market is growing rapidly:
In fact, nine out of 10 Americans even support it.
All that money has led to rapid price declines and spectacular market growth worldwide.
Yes, we're aware that at present, most of the market for solar energy would not exist without subsidies, most notably the feed-in tariffs that make it worthwhile to install solar energy installations through a small (and declining) levy on energy bills. But most Federal Energy Incentives actually go to fossil fuels.
Of course, panel prices are just one element, overall installation prices have also declined precipitously.
According to some, grid parity (when solar energy can compete with electricity from the grid) is near in some areas already:
Mr. Zaman: We think that the march to grid parity has already begun, and we think that some of the earliest markets will begin to reach grid parity at the retail level starting as early as next year. Markets like Italy, Hawaii are among them, where the price of electricity is fairly high at the retail level, and there is a lot of sunlight, so the solar radiance is high as well.
In Southern California, for peak energy demand, peak electricity prices, solar is already at grid parity. We think the markets with grid parity will begin this year or next year and by 2015, we see an inflection point in terms of global grid parity. So we think by 2015, with the price of electricity continuing to grow, solar prices continuing to decline - we estimate it will decline at a 16% CAGR over the next five years - that most markets in the world will be at grid parity unsubsidized.
Ahmar Zaman is a Principal and Senior Research Analyst at Piper Jaffray & Co., where he covers clean tech companies. [Yahoo]
Others argue that if one includes the positive externalities of solar energy and the subsidies and negative externalities of alternatives like fossil fuel, solar energy clearly merits the subsidies (these cancel out the externalities):
The final conclusion, for the state of New York at least: the value of solar electric installations is 15-40 cents per kWh (for ratepayers and taxpayers). This clearly justifies federal incentives and government incentives for solar that are in place in many places today, because, unsubsidized, the cost of solar is 20-30 cents per kWh according to the authors (or, at most, up to nearly 40 cents per kWh according some other sources). If the incentives weren’t in place, the vast majority of people would not account for these extra benefits and societal value on their own and would not pay this price for solar power. If the costs (not adequately accounting for the value) were the price of electricity from solar, it would not compete with coal or other forms of electricity yet. [Cleantechnica]
But there are those that are highly sceptical of the whole concept of grid parity, which is riddled with ambiguities and measurement problems. A summary:
- Grid parity isn't a monolithic concept. (Wholesale or retail prices, time of using pricing, pre-incentive or post-incentive parity, lifetime issues, etc.)
- Grid parity won't come at a single moment in time. (PV system costs vary widely from installation to installation, electricity costs vary from utility to utility, and incentives vary by state. This is not even taking into account differences in electricity prices across countries.)
- We often don't know when we've reached it. (You generally cannot know whether a system has reached grid parity until the system is retired 20 to 30 years after installation.)
- The initial impact of grid parity on demand is overestimated. (The price elasticity of demand for solar is not understood at all).
So it's difficult to escape the conclusion that the figures don't really give a clear picture. It depends how the costs are measured, what is included, what the alternative is, etc. It also depends deeply on location as grid tariffs and sunshine, as well as installation cost vary widely the world over.
What is certain is that the cost of solar energy is falling rapidly, and that it produces fewer negative external effects (pollution, greenhouse gases, nuclear waste, armies abroad to secure crucial supplies, etc.) than many other energy sources. A graph above showed that module cost used to be $65 per watt in 1978, now it has fallen below $1 for many producers. That's quite a steep fall, unmatched by any other energy source. And there is no reason to assume this isn't going to continue.
So we think it's fair to say that there remains a good case for solar energy and the specific incentives, like feed-in tariffs it relies upon, as long as these are gradually declining to provide for the incentives to increase product and production efficiencies and learning effects.
Problems with solar energy: intermittent technology
As a parting shot, one disadvantage of solar energy doesn't get the attention it warrants. Germany is by far the biggest market for solar installations:
Germany is also a big market for wind energy. The problem is, both solar and wind energy are not exactly reliable sources. Without wind or sun, they produce little to nothing. However, in Germany they have so much wind and solar energy capacity installed, that they also suffer from the opposite problem, these sources are producing too much energy, flooding the grid;
The 15 mile-per-hour winds that buffeted northern Germany on July 24 caused the nation’s 21,600 windmills to generate so much power that utilities such as EON AG and RWE AG (RWE) had to pay consumers to take it off the grid. Rather than an anomaly, the event marked the 31st hour this year when power companies lost money on their electricity in the intra-day market because of a torrent of supply from wind and solar parks. The phenomenon was unheard of five years ago. [Bloomberg]
This sounds funny, but in reality, it isn't:
With Europe’s wind and solar farms set to triple by 2020, utilities investing in new coal and gas-fired power stations no longer face stable returns. As more renewables come on line, a gas plant owned by RWE or EON that may cost $1 billion to build will be stopped more often from running at full capacity. It may only pay for itself on days like Jan. 31, when clouds and still weather pushed an hour of power on the same-day market above 162 ($220) euros a megawatt-hour after dusk, in peak demand time.
“You’re looking at a future where on a sunny day in Germany, you’ll have negative prices,” Bloomberg New Energy Finance chief solar analyst Jenny Chase said about power rates in wholesale trading. “And a lot of the other markets are heading the same way.” [Bloomberg]
This makes investment decisions and life in general for utilities considerably more complex. The base load capacity that faces much more uncertain returns as a result of increasing energy production from renewables. However, we cannot do without a reliable base load, otherwise where would we be on days without sun (or at night) or wind? So there are some negative externalities from solar energy after all..