Competitiveness of solar energy
Solar energy, as a renewable energy, is one of the most fast-growing sectors in the global economy.
EPIA foresees the market to reach 12-22 GW by 2013, growing at a Compound Annual Growth Rate (CAGR) of 17-32% over the period 2008-2013, depending on the scale of sector support by national governments. Through 2013, production capacities along the PV value chain are expected to grow with a CAGR of 20 to 30%.
PV systems are modular, which means that they create generating capacity of almost any desired size and power. They can work both on- and off-grid.
The price of solar electricity has been rapidly declining over time. In 1976, it was about
$2.00 per kW/hour, and today it is $0.15 to $0.50 per kW/hour. Despite this progress, solar generation rates are still higher than those of fossil fuel based electricity and other renewable sources. Solar PV demand continues to be driven by government incentives in countries trying to reduce their dependence on oil and conscious about environment. These incentives are primarily aimed at generating economies of scale.
According to industry analysts and players, grid parity ─ the tipping point at which the solar energy is cost-competitive with other sources of energy on electricity grids ─ could happen within 2-5 years from now in some countries (such as Germany, Italy, Japan and Spain) and in parts of the U.S. (e.g. California where retail electricity prices for residential users already reach $0.36/KWh – same as unsubsidized solar power costs) if the price of fossil fuels continues to rise at its current pace. Other factors in reaching grid parity are technology advances and expected increase in supplies of silicon in 2009-2010 ─ will help drive down costs.
Source: McKinsey Quarterly. The economic of solar power. June 2008.
When critics of solar electricity point that its comparatively higher costs, they fail to consider such factors as:
· The type of PV application (grid-connected or off-grid)
· What exactly is PV competing with ─ what are the alternatives?
· The location, initial investment costs and expected lifetime of the system.
· Progress in PV cost reduction.
Many off-grid applications are already cost-competitive. PV here is generally competing with diesel generators or the potential extension of the public electricity grid. The fuel costs for diesel generators are high, while solar energy is free and inexhaustible. The extension of the electricity grid requires a considerable investment. While initial investment costs for off-grid PV can also be high, their lifetime operating costs are very low. Off grid applications are therefore often the most suitable option to supply electricity to remote areas.
For grid-connected systems, which is and will remain the largest market segment, a lot depends on pricing trends for electricity from conventional sources. For example, in Europe in 2005 – 2007 electricity prices increased by about 16%. At the same time, PV generation costs have been decreasing, and this trend is expected to accelerate: by 2020 the cost of solar electricity will have more than halved. This would make it competitive with typical consumer electricity prices. Grid parity is expected to be reached first in southern countries (in a few years) and then spread steadily towards the north (expected by 2020):
Development of utility prices and PV generation costs
Source: EPIA
Moreover, with the coming end of the polysilicon shortage in 2009-2010, module prices are forecast to decrease at their historical pace of a 20% reduction each time the cumulative PV power installed was doubled. If the module price decrease leads to a decrease in PV system prices, the grid parity with conventional retail electricity prices will be reached sooner. And, when grid parity is reached, the global PV market is forecast to grow faster than 32% CAGR through 2012, expected in the Policy-driven scenario (that implies large scale government support programs).
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