The cost of solar power has fallen by a factor of 5 since 2010, and it will keep falling for decades to come. That’s the gist of a May 14, 2020 blog post titled Solar’s Future Is Insanely Cheap (2020) from energy analyst Ramez Naam.
I’ll get to the highlights of the post shortly, but first let me take a moment to explain how solar energy prices are calculated. Feel free to skip to the highlights if you’re familiar with this.
National, state or local utilities buy electricity from energy producers on behalf of their customers – you and me. They sign contracts called power purchase agreements (PPA) lasting anywhere from 15 to 30 years for a certain amount of electricity usually measured in megawatt hours (MWh).
Wait! What’s a Watt hour? Well it’s the way we measure the amount of power used by an appliance such as a fridge, hair dryer or laptop computer. A typical laptop, for example, would use about 1000 Watt hours or 1 kilowatt hour (kWh) if you ran it continuously for a whole day. A megawatt hour is one million Watt hours, but it’s a bit more convenient to talk about kilowatt hours.
If you take a look at your electricity bill, you’ll notice you’re being charged for the number of kWh you use each month. Here in the US, you probably pay between 10 and 15 cents per kWh.
Utilities pay a whole lot less since they’re buying huge amounts of electricity directly from the producers. Recent reports, like this one from Portugal, show solar electricity costs coming in under 2 cents per kWh.
It’s important to note that these wholesale prices refer to the Levelized Cost of Energy (LCOE) which includes the cost to build and operate the solar energy farm over the life of the PPA. This presentation from the US Department of Energy explains in detail how LCOE is calculated.
OK, with that background, here are some highlights from Ramez Naam’s post:
- The cost of solar-generated electricity (I’ll just call it “solar” from now on) has dropped by a factor of 5 since 2010. Solar costs have been falling way faster than forecast. In fact, falling costs have beaten some forecasts by decades.
- Solar prices have been falling so quickly because of a roughly 30% learning rate. As we build more solar capacity, we get better at it. This follows a pattern known as Wright’s Law. For each doubling in total installed solar capacity, costs fall by about 30%. This rate of decline will likely continue for many years,
- Solar is now competitive with the cost of new fossil fuel generating plants. It’s cheaper to build a new solar farm than to build a new coal or natural gas generating plant in many parts of the world. Again, “cheaper” here refers to the LCOE, which for coal is 5 to 6 cents/kWh.
- By 2030 or 2035, solar will be cheaper than the operating costs of fossil fuel plants, as you can see from the graph below. It will cost less to build an entirely new solar farm than to continue running an existing fossil fuel plant. This is “insanely, world-changingly cheap” clean energy.
In most parts of the world today, there’s little reason to build a new fossil fuel plant. In about a decade there will be no excuse to even operate existing fossil plants.
As Naam points out, solar isn’t a panacea. The sun doesn’t shine at night. In colder parts of the world, demand for electricity is highest in winter, but it’s sunnier in summer. We’re going to need continued advances in utility-scale energy storage to tackle challenges like this.
But the stunning drop in the price of solar is a clear sign we can decarbonize electricity generation. It also means electricity should be cheaper for everyone.