Solar Continues Trumping Fossil Fuel Pricing, With More Innovations To Come
Solar power has come a long way in a short period of time. Just five years ago, the bulk of the energy community viewed it as being unreliable, expensive and difficult to source. Without massive government subsidies, utilities generally shunned solar, sticking with more traditional and reliable generation, namely, coal and natural gas. This was despite fossil fuels trading at or near record highs of $10 per mmBtu amid strong demand and tight supplies. If solar couldn’t even beat natural gas when it was trading that high, chances were it would never play a significant role in America’s energy mix and would only be economic through governmental intervention.
But five years on, America’s energy landscape looks significantly different. Natural gas has come well off its pre-recession highs and is now trading steadily around $4 per mmBtu, with little to no volatility. Oil and coal prices dropped as well. Given this, one would surmise that solar was now even farther out of the money. Surprisingly, though, the economics of solar power have changed at a much faster clip, and are now close to achieving pricing parity with cheaper natural gas in several places throughout the United States.
No doubt, over the last decade, America’s energy fortunes experienced a dramatic shift mostly due to the rapid development and deployment of energy technology. Advances in production techniques, namely fracking and horizontal drilling, managed to unlock great quantities of natural gas and oil trapped in shale formations throughout the country, dramatically increasing supply and depressing prices.
Ongoing Innovation Lowers Solar Cost
At the same time and even more profoundly, however, advances made in photovoltaic (PV) cells, combined with an explosion in solar panel manufacturing in China, helped send solar prices down far faster than fossil fuels. The average solar panel now costs around 75% less than it did just five years ago and continues to fall despite the total decimation of the heavily subsidized US solar manufacturing industry.
And the interesting thing here is that the more solar that is put in, the faster prices drop. Citibank estimates that the price of an average solar panel falls by 30% whenever installed solar capacity doubles in a given area. As such, by 2020, they believe solar will be ‘cutting it’ (successfully competing with fossil fuels on an unsubsidized basis) in most parts of the world, if it hasn’t done so already.
Global spot prices for solar modules, which are the large panels used in power generation, dropped to an all-time low in the second quarter of the year at around 63 cents per watt, according to research from GreenTech Media. The drop in the price of PV polysilicon, which represents the first step in creating solar panels, is a big factor here. The rapid proliferation of third-generation solar technology utilizing fluidized bed reactor (FBR) technology is a major upgrade to the second-generation Siemens process and has increased manufacturing efficiency. The FBR process wastes fewer resources and takes a tenth of the energy to produce polysilicon than that of second-generation techniques. As such, this shortens the fill time in the manufacturing of polysilicon, allowing producers to pump out solar panels cheaper and at a faster clip.
US Solar Uptake Increases
The drop in prices and the availability of solar panels have many utilities in the United States seriously looking to back large-scale solar initiatives to both replace dirtier coal generation as well as to fulfill new power generation needs. It is easy to see solar pop up in places like California where the state government requires utilities to derive a certain percentage of power from renewable resources, but it is another to see it happen in conservative places like Utah, which derives most of its power from cheap but relatively dirty coal generation. But Utah’s local utility, Rocky Mountain Power, recently signed a twenty-year solar power-purchase agreement with a developer that plans to build out a 320 megawatt solar plant. RMP didn’t sign the agreement because it was forced to; rather it did so because it was the cheapest alternative.
The U.S. installed 1,133 megawatts of solar photovoltaics in the second quarter of 2014, according to the Solar Energy Industries Association. Total US solar output now stands at 15.9 gigawatts of installed capacity, enough to power 3.2 million homes. By the end of the year, the US would have installed 6.5GW of new solar power, tripling the size of the market in just the last three years. Indeed, since 2006, solar installations in the United States have increased by 1600-percent according to the Energy Law Journal, and the overall market is expected to grow by a factor of ten between 2010 and 2016.
America’s reliance on expensive oil, relatively dirty coal and troubled nuclear power will inalterably change now that solar has become so competitive. But solar can’t be the only answer to America’s energy needs – just part of it. Indeed, despite the advancements made in PV technology it still remains unreliable given its dependence on the sun for fuel. Since power can’t be stored efficiently, at least not yet, solar is best used to cover peak demand during the day. The backbone of the grid will shift from coal to cheap natural gas to provide the baseload generation. This will allow for a consistent stream of energy to be available to people at night and at other times when solar power simply doesn’t work.
That is until grid-level battery storage becomes available somewhere toward the end of this decade. Then watch out again as solar takes another chunk out of the US merit order of generation assets. Gas and coal prices can only fall so much farther from here; but solar’s innovation curve (including ancillary technologies like batteries) is still plenty young enough to continue disrupting the energy economy for decades to come.
Read the original article here.