Tuesday, October 25, 2011

Math Guarantees Solar Will Be As Big As Shale Gas

Solar at 6 to 8 cents per kilowatt-hour will capture enormous electricity market share and make central station power plants a declining business, as David Crane, the CEO of NRG that owns power plants said in Virginia on October 18th.

But will solar hit those price points? And when?

Solar is at the 10 cents per kilowatt-hour price in Arizona, after a 30% to 40% decline in the last 12 months. Another decline of 30% to 40% and solar would be at 6 to 7 cents per kilowatt-hour.

Another 30% to 40% decline in solar prices is insured, since solar prices have been declining steadily for 20 years, and the pace of lower prices is quickening due to economies of scale and large investments in the industry. A rule of thumb is that solar prices decline 1% per month and that the efficiency of panels increases by 0.5% per year. Lower prices but more power production year after year.

Projecting an annual decline in solar pricing of 6% to 12% is reasonable and would mean in about 4 or less years solar will be in the 6 to 8 cents per kilowatt-hour where it is a deeply disruptive, creatively destroying resource. The math guarantees solar soon will be as big as shale gas is today.


  1. It is said the chinese have overproduced panels and that is driving the costs down. Any truth to that and, if true, does it mean the dip will not be sustained?

  2. Seven American solar panel manufacturers, with 6 remaining anonymous, have filed a trade claim, charging subsidization in violation of international trade laws of China's solar panels and "dumping" of solar panels or pricing below cost to capture markets. The global solar business is now about an $80 billion per year industry. Panels are only a portion of the business, with a rule of thumb that panel costs are now about 25 to 33 per cent of total cost of installation. Depending on type of solar panel, panel costs range from $0.70 to $1.20. Global solar installations have rocketed up in the last 3 years and global panel manufacturing has risen even faster and has been led by the Chinese. There is a large excess supply of panels as manufacturing capacity has overshot an even red hot solar market. Pricing of panels is certainly low now, but First Solar is moving from $0.70 now to 0.50 factory gate cost in a few years for thin film. Panel costs will decline further and the other costs of systems are declining too.

  3. Is this price per kwh adjusted to account for solar's lower capacity factor than natural gas and/or the costs associated with the backup power supply necessary to ensure grid reliability?

  4. The price per kilowatt-hour reflects the lower capacity factor. Kwh is a measure of actual electricity production by generation with different capacity factors.

    Currently solar is such a small part of the system that it does not pose any additional back-up costs. Remember every machine is intermittent. None of them run all the time. All of them breakdown and do so often without any warning. The grid has spinning reserves in certain amounts to account for the possibility a big nuclear or coal plant could just stop operating. It happens. As solar increases to 5% or more of supply back up issues get more significant. Gas is by far and away the best technology for backing up all machines on the grid, including solar and wind.

    Solar could increase or reduce local distribution costs, depending on particular characteristics of the grid.

    Peak Solar production in PJM and PA more closely aligns with peak demand so solar has much more capacity value than wind does, which tends not to generate much during the hottest days in PA or PJM.

  5. There is a lovely debate going on about alternative energy's dependence on the cost of non-ferrous metals. Any opinion?

  6. I would be very surprised if sourcing or pricing damages progress. I would expect china to leverage sensibly its temporary advantage, however.