by Michael Sankowski, MonetaryRealism.com
I’ve been getting into Solar lately – the fall in prices has been absolutely shocking over the last 2-4 years. We are seeing price drops closer to 20% per year after several decades at 6% price drops per year. 6% year is a fantastic rate of decreases, but 20% is simply astonishing.
20% is an impressive number, but putting it into context will make your jaw drop with astonishment. My calculations show that if solar maintains 5 more years at current 23% rates per year price drops, solar power will be cheaper than using existing coal plants. That’s right – it will be cheaper to build new solar plants than to use existing coal plants.
It sounds absolutely crazy. But it seems true looking at the data.
First, look at this paper showing the levelized cost levels for using Coal and Natural gas. In this chart, we can see the Levelized cost of electricity for different types of energy. Photovoltaic Solar has a high initial cost, but after paying for the system, the cost goes to the lowest among any source of energy. Great news, but the initial cost for solar is quite high. It’s high enough to make almost anyone not want to use solar.
You can see the price drops for every single source of energy drops after 20 years, because the capital cost of building the plant is paid. After 20 years, the only costs are maintenance and fuel costs. It’s important to note after 20 years, coal drops to about $.05 per watt. That’s the cost of the fuel and maintenance for the plant.
But wait! These prices for PV solar are from 2010. We are in early 2013. You’d think three years would not make much difference, but you would be wrong. Prices have been dropping at over 20% per year since 2010.
As far as I can tell, installed PV solar prices have been falling at 22% per year over the last several years. Those are huge, huge drops in price over a few years. If you think 22% is too high, take a look at this chart from Forbes.
I did the calculations using estimates of the price drops shown in this chart for utility level solar. Q1 2011 is $3.80, and Q3 is $2.40.
You can put this into Wolfram Alpha and it will give you the answer right away: 23%. The recent of $.65 per watt in 2013 and $.48 per watt in 2015. Put this into First Solar announcement expects pricesWolfram Alpha and we get a price drop of 14% per year.
Bloomberg shows a huge price drop in 2012 of nearly 50% in 2011, and 20%+ in 2012.
Let’s use 18% as the yearly price drop as an estimate for the yearly price drop since 2010, and then plug this into the levelized cost of energy used in the Zwiebel paper. The current prices for PV solar are probably close to $.09. This is still higher than coal for existing plants, but much lower than in 2010.
But the more remarkable data point is that we can expect solar to be cheaper than existing (not new) coal is in just a few years. We can expect some solar to be cheaper than existing coal in 2016. That’s when the levelized cost of newly installed PV solar should be cheaper than using an existing coal plant. That’s not far away at all.
And then just a few years after that, PV solar could become much, much cheaper than coal. Imagine 10 years at 18% drops in price. Where would the price of PV Solar be then? It will be about 50% of the price of coal.
I hate to speculate, but imagine PV solar drops at 18% per year for 20 years? Solar will be about 1/10th the cost of coal. Basically, people will start begging for Solar power in just a few years, because it will be so much cheaper than coal power.
Even if we use the First Solar numbers – which is almost certainly a low ball estimate - we are still talking 15% per year price drops in installed PV Solar. Even using 12% a year, Solar becomes cheaper than coal in under 10 years.
18% is a pretty big number, but we have seen much, much larger decreases in price over the last 2 years. Over the last 5 years, we’ve seen far larger drops than 18% per year. The pipe line for putting new PV solar discoveries into production makes it pretty clear we can see 18% for the next 5 years at least – and if that is the case, PV solar will be cheaper than coal.
But that’s not even everything. Something to notice in the Forbes article is the lowest number for installed utility solar. The lowest number for installed PV Solar was under $2.00 per watt in Q3 2012. This lowest number is going to drop at a healthy clip too – and that is the number some people are going to be looking at when they consider their own projects. In some places, PV Solar will be cheaper than coal in under 3 years.
Then, there is this Edison Electrical Institute report to consider. (Update Mike: Something is strange with this link here – Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business)
One prominent example is in the area of distributed solar PV, where the threats to the centralized utility business model have accelerated due to:
- The decline in the price of PV panels from $3.80/watt in 2008 to $0.86/watt in mid-20121. While some will question the sustainability of cost-curve trends experienced, it is expected that PV panel costs will not increase (or not increase meaningfully) even as the current supply glut is resolved. As a result, the all-in cost of PV solar installation approximates $5/watt, with expectations of the cost declining further as scale is realized;
- An increase in utility rates such that the competitive price opportunity for PV solar is now “in the market” for approximately 16 percent of the U.S. retail electricity market where rates are at or above $0.15/kWh2. In addition, projections by PV industry participants suggest that the “in the money” market size will double the share of contestable revenue by 2017 (to 33 percent, or $170 billion of annual utility revenue);
In the first bullet point, they note that Solar has gone down in price by about 22.5% per year for the last 4 years up to mid 2012. Using 22% going forward, we can expect to see Solar competitive with coal across much of the country in just a few years.
In the second bullet point, they note that PV solar is cost competitive for 16% of the market today. And it will be cost competitive with 33% of the market by 2017!
This is absolutely huge. In just 4 years, Solar will be competitive with current power for 100 for a huge part of the market.
But this is not all from this report. The real banger comes in that shifting even a small amount of generated power over to PV solar will cause coal prices to go up for consumers still using coal.
“Assuming a decline in load, and possibly customers served, of 10 percent due to DER with full subsidization of DER (distributed energy resources) participants, the average impact on base electricity prices for non-DER participants will be a 20 percent or more increase in rates, and the ongoing rate of growth in electricity prices will double for non- DER participants (before accounting for the impact of the increased cost of serving distributed resources). The fundamental drivers previously highlighted could suggest even further erosion of utility market share if public policy is not addressed to normalize this competitive threat.”
This is probably too high of an estimate, but they say coal/natural gas power prices could go up by 20% if Solar takes over 10% of the market, and the rate of future price increases will double. Ouch!
I did a quick chart in R to figure out how quickly Solar will be cheaper than even pretty cheap coal electricity, with a variety of cost per year reductions. It turns out solar will be cheaper than even cheap coal in 20 years as long as the price reductions are greater than 4% per year. Solar will be cheaper than cheap coal in 10 years as long as price falls at more than 15% per year.
Remember, we’ve seen price reductions of more than 22% per year for the last 5 years. Solar will be cheaper than cheap coal if this keeps up for another 5 years. These price reductions add up very quickly. If we can keep up the 20% per year for 15 years, we are talking about essentially free power, because the cost of solar will be 3% of its current levels, and 1/10th the cost of current coal.
It’s remarkable. And it has implications for our monetary system.