The pace of solar cost declines will bring average prices in “reasonably sunny” parts of the world down to a penny or two per kilowatt-hour by 2030 or 2035, according to new research by Ramez Naam, a clean energy investor and expert in disruptive energy technologies.
This would mean that building new solar would be routinely cheaper than operating already-built fossil fuel plants, even in today’s world of ultra-cheap natural gas.
“Solar has plunged in price faster than anyone – including me – predicted. And modeling of that price decline leads me to forecast that solar will continue to drop in price faster than I’ve previously expected, and [it] will ultimately reach prices lower than virtually anyone expected. Prices that are, by any stretch of the measure, insanely, world-changingly cheap,” Naam said.
From 2010 to 2020, the price of electricity from utility-scale solar projects dropped by a factor of somewhere between five and eight, Naam pointed out. His analysis looked at metrics of average cost of (unsubsidized) projects that were built since 2010 and averages of bids for projects scheduled to come online in 2020.
Solar prices drop through learning
“Every time the cumulative amount of solar we’ve deployed around the world has doubled, the price of electricity from utility-scale solar plants has dropped by a fairly consistent percentage,” Naam noted. In his analysis, he referred to Wright’s Law, which says that this learning-by-doing phenomenon happens because of a mixture of innovation that improves the technology itself and innovation that reduces the amount of labor, time, energy and raw materials needed to produce the technology.
It’s well established that Wright’s Law applies to the cost of solar modules, the price of which per-watt-of-power typically drops by about 25% for every doubling of cumulative manufacturing, Naam said. Yet because solar modules only represent about a third of the cost of solar electricity, Naam looked at whether the cost of electricity from entire solar systems drops in such a way.
To do this, he used data from four different sources encompassing both global average and costs in three countries (the U.S., India and China).
According to his research, the price of solar electricity from utility-scale solar systems drops about 305 to 40% with each doubling of cumulative solar deployment. Using the more conservative 30% learning per doubling rate to plot solar prices forward as a function of cumulative solar scale, the pace of solar declines should get to a penny or two in the next 10 to 15 years, he said.
History of outshining forecasts
In his analysis, Naam pointed out that solar costs are already 30 to 40 years ahead of the International Energy Agency’s (IEA) forecast in its 2014 Solar Technology Roadmap and 7 to 10 years ahead of his own ambitious forecast in 2015, which only used data from one source, Lawrence Berkeley Lab, and one country, the U.S. For its part, the IEA says that it doesn’t publish forecasts, it publishes scenarios of what would happen if the world failed to enact further energy policies.
“While it’s clear that new policies have made a difference in deployment, it’s also clear that, whatever you expect in terms of global energy policies, cost is a massively important fact,” Naam said. “You can’t expect to forecast the growth of a technology, if you consistently expect it to cost two to four times what it does,” he added.
Naam sees solar is an incredible tool for decarbonizing the electrical grid, but he thinks that it needs to be combined with other clean energy technologies and energy storage to have its greatest impact in decarbonizing society.
