By 2025, solar power in sunny regions of the world will be cheaper than power from coal or gas / Success depends on stable regulatory conditions
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In a few years, solar energy plants will deliver the most inexpensive power available in many parts of the world. By 2025, the cost of producing solar power in central and southern Europe will have declined to between 4 and 6 cents per kilowatt hour, and to as low as 2 to 4 cents by 2050, according to a study by the Fraunhofer Institute for Solar Energy Systems commissioned by Agora Energiewende.
Solar power is already cost-effective: In the sunny, desert country of Dubai, a long-term power purchase contract was signed recently for 5 cents per kilowatt hour, while in Germany large solar plants deliver power for less than 9 cents. By comparison, electricity from new coal and gas-fired plants costs between 5 and 10 cents per kilowatt hour and from nuclear plants as much as 11 cents.
These findings could have significant implications for reducing Europe’s energy dependence and for helping the EU achieve its decarbonisation targets for 2020 and 2030. Solar photovoltaic was until now often granted a very limited role due to its high cost when compared to other low-carbon solutions. The Agora-study shows that solar photovoltaic is not only a viable option among renewable energies, but that it could compete with allegedly cheaper options such as coal and gas.
“The study shows that solar energy has become cheaper much more quickly than most experts had predicted and will continue to do so,” says Dr. Patrick Graichen, Director of the Agora Energiewende. “Plans for future power supply systems should therefore be revised worldwide. Until now, most of them only anticipate a small share of solar power in the mix. In view of the extremely favourable costs, solar power will on the contrary play a prominent role, together with wind energy – also, and most importantly, as a cheap way of contributing to international climate protection.”
The study also reveals that electricity generation costs for solar power are highly dependent on financial and regulatory frameworks, due to the high capital intensity of photovoltaic installations. Poor regulation and high risk-premiums reflected in interest rates can raise the cost of solar plants by up to 50 percent. This effect is so great, that it can even outweigh the advantage offered by greater amounts of sunshine. Graichen says: “Favourable financing conditions and stable legal frameworks are therefore vital conditions for cheap, clean solar electricity. It is up to policy makers to create and maintain these conditions.”
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In a few years, solar energy plants will deliver the most inexpensive power available in many parts of the world. By 2025, the cost of producing solar power in central and southern Europe will have declined to between 4 and 6 cents per kilowatt hour, and to as low as 2 to 4 cents by 2050, according to a study by the Fraunhofer Institute for Solar Energy Systems commissioned by Agora Energiewende.
Solar power is already cost-effective: In the sunny, desert country of Dubai, a long-term power purchase contract was signed recently for 5 cents per kilowatt hour, while in Germany large solar plants deliver power for less than 9 cents. By comparison, electricity from new coal and gas-fired plants costs between 5 and 10 cents per kilowatt hour and from nuclear plants as much as 11 cents.
These findings could have significant implications for reducing Europe’s energy dependence and for helping the EU achieve its decarbonisation targets for 2020 and 2030. Solar photovoltaic was until now often granted a very limited role due to its high cost when compared to other low-carbon solutions. The Agora-study shows that solar photovoltaic is not only a viable option among renewable energies, but that it could compete with allegedly cheaper options such as coal and gas.
“The study shows that solar energy has become cheaper much more quickly than most experts had predicted and will continue to do so,” says Dr. Patrick Graichen, Director of the Agora Energiewende. “Plans for future power supply systems should therefore be revised worldwide. Until now, most of them only anticipate a small share of solar power in the mix. In view of the extremely favourable costs, solar power will on the contrary play a prominent role, together with wind energy – also, and most importantly, as a cheap way of contributing to international climate protection.”
The study also reveals that electricity generation costs for solar power are highly dependent on financial and regulatory frameworks, due to the high capital intensity of photovoltaic installations. Poor regulation and high risk-premiums reflected in interest rates can raise the cost of solar plants by up to 50 percent. This effect is so great, that it can even outweigh the advantage offered by greater amounts of sunshine. Graichen says: “Favourable financing conditions and stable legal frameworks are therefore vital conditions for cheap, clean solar electricity. It is up to policy makers to create and maintain these conditions.”
The study uses only conservative assumptions about technological developments expected for solar energy. Technological breakthroughs could make electricity even cheaper, but these potential developments were not taken into consideration.
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The cost of power from large scale photovoltaic installations in Germany fell from over 40 ct/kWh in 2005 to 9ct/kWh in 2014. Even lower prices have been reported in sunnier regions of the world, since a major share of cost components is traded on global markets.,,, The feed-in tariff for largescale solar photovoltaic power plants in Germany installed in January 2015 is 8.7 ct/kWh, not adjusted for infl ation. This compares to a feed-in tariff for wind onshore, ranging from 6 to 8.9 ct/kWh in Germany, and to the cost of producing power through newly built gas- or coal-fi red power plants, ranging from 7 to 11 ct/kWh.
A power purchase agreement for a 200 MW-solar farm in Dubai was recently signed for 5 ct/kWh (5.84 $ct/kWh). Projects under construction in Brazil, Uruguay and other countries are reported to produce at costs below 7 ct/KWh. These power generation costs largely confi rm the notion that the cost of building and operating a large scale solar photovoltaic power plant is comparable around the world, once market barriers are removed.
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The cost of electricity produced in conventional, large-scale power plants typically ranges between 5 and 10 ct/kWh. Cost competitiveness will thus be achieved under optimal conditions before 2025 and full cost competitiveness even under non-optimal conditions by 2050 at the latest.
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Results i dicate that solar power will become the cheapest source of electricity in many regions of the world, reaching costs of between 1.6 and 3.7 ct/kWh in India and the Mena region (Middle East and North Africa) by 2050. Cost competitiveness with large- scale conventional power plants will be reached in these regions already within the next decade, at a cost for solar power by 2025 ranging between 3.3 and 5.4 ct/kWh.
In North America, costs for large scale solar photovoltaics will reach 3,2 to 8.3 ct/kWh in 2025 and 1.5 to 5.8 ct/kWh in 2050, the wide cost range due to significant geographical differences within the region. In Australia, costs will reach 3.4 to 7.1 ct/kWh in 2025 and 1.6 to 4.9 ct/kWh in 2050. In both regions, cost competitiveness of solar photovoltaics at the best sites will be reached within the next decade and cost competitiveness for all sites only a number of years later.
For more information: www.agora-energiewende.org/pv-cost
Agora Energiewende www.agora-energiewende.org
Press Release dated February 24, 2015
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