The fierce global competition in 2011-2012 and assertive policies to champion solar in a number of countries have had a positive effect: solar power is becoming more and more competitive. For final customers, in around 15 countries, it already vies with other power sources.
- The most tangible way to gauge the competitiveness of a powerIn physics, power is the amount of energy supplied by a system per unit time. In simpler terms, power can be viewed as energy output... source is to compare its cost per kilowatt-hour (kWh) to the price charged to end users, all sources combined. "Grid parity" exists when the two are equal, and varies by local conditions. Solar has achieved grid parity in around 15 countries and regions of the world, including Germany, Italy and California
Falling Photovoltaic Panel Costs
The steady, worldwide drop in the cost of producing photovoltaic power has made this revolution possible in just a few years.
€0.56: Panel price for watt of capacity
The main driver of the decline has been falling PV panel prices. A vital component of the upstream industry, photovoltaic panels are now an international commodity – a basic, standardized product with well-defined specifications, like the transistors used to be. Its price does, of course, vary by technology employed, but it is the same everywhere. The usual yardstick — the price of a conventional siliconSilicon crystals come from silica, the main compound in quartz and sand. Silicon is a semi-conducting material. panel — has fallen by 80% in the last five years, a drop rarely seen in the industry. It leveled off in the euro zone at about €0.56 per wattThe watt (symbol W) is the derived unit of power (see definition) in the International System of Units (SI)... of installed capacityThe power generation capacity of a particular plant. It is usually expressed in megawatts (or sometimes even gigawatts)... in early 2014, down from €24 a watt in 1980. Consequently, it accounts for just 10 to 30% of initial capital outlays and has an even smaller impact on end power prices.
Competition among global manufacturers and policies encouraging renewable energies are the reasons for this change (See Close-Up: The Growth of Photovoltaic Solar Around the World).
The Financing Speed Bump
However, other costs keep solar power expensive. Besides the cost of the panel, the full production cost, or levelized cost of electricityForm of energy resulting from the movement of charged particles (electrons) through a conductor... (LCOE) in industry jargon, consists of two main elements:
- The cost of the systems and their installation, whether for a solar farm or rooftop panels. This is referred to as balance of system, or BOS. It includes the cost of inverters, electrical systems, civil engineering in the case of farms and installation for solar home systems.
- Financing, marketing and administrative costs, referred to as soft costs.
Commercial scale-up of installation processes has brought the BOS for ground-based solar power plants in Europe and the United States down from €0.65/W in 2010 to €0.35/W at end-2013. In some low-cost countries such as India, it has even dropped to €0.20/W. Further improvement still seems possible.
Panel costs have come down 80% in five years
On the other hand, financing or soft costs, currently estimated at 15 to 20%, are a huge challenge. Although solar has quite low operating costs over the life of a system (usually more than 30 years), it requires a steep initial capital outlay and therefore financing. Depending on how high they are, different interest rates can have an enormous impact on the end cost. One financial argument in favor of solar is that it can guarantee power prices for 30 years, something power plants reliant on fossil fuels and which depend on the global oil and gas prices cannot do.
The Cost of Externalities
That leaves the controversial issue of the "cost of externalities": since solar energy is an intermittent source, it requires backup power such as gas-fired power plants, which ensure continuity of service on cloudy days.
This expense depends on how utilities manage the integration of renewables into the power grid. In the future, decentralized power grid management, including the stepped-up use of smart grids and smart meters, would allow more demand response and leveraging of combined output (See Close-Up: Solar, a Boundless Unirversaly Accessible Energy Source).
Comparative Levelized Cost of Electricity
In November 2013, the Fraunhofer Institute published a detailed study of the comparative levelized cost of electricity (LCOE) for 1 MWh by various energy sources.