There was a time when renewable energy was expensive and its doubters were justified in saying, “Well, it may be cleaner, but how can people afford it?” These days, that argument looks silly. Renewables are getting cheaper all the time and, in some cases, they already match prices for traditional power.
The price of solar, in particular, has fallen precipitously. Six years ago, the average rooftop module was about 75% dearer than it is today. All indications show that it’s likely to keep falling in price, because that’s what generally happens with technologies as they mature.
How much does solar cost today? In about 30 countries, it’s already cheaper than grid electricity, according to a new Deutsche Bank analysis, and in some cases, a lot cheaper. In other places, solar is set to reach “grid parity” by 2017 assuming modest (3%) increases in conventional power and ongoing cost falls in solar power. Eighty percent of the world’s largest markets could see grid parity by 2017, according to DB’s analyst Vishal Shah.
From the report:
We expect solar system costs to decrease 5-15% annually over the next 3+ years which could result in grid parity within ~50% of the target markets. If global electricity prices were to increase at 3% per year and cost reduction occurred at 5-15% [compound annual growth rate], solar would achieve grid parity in an additional ~30% of target markets globally.
Take a look at the charts. They show the “levelized cost” of solar per kilowatt-hour (that is, the total system price divided by the expected number of years of operation) compared to the cost of normal electricity. The biggest savings from getting solar today are in places like the Solomon Islands, U.S. Virgin Islands and Hawaii, where conventional electricity is relatively expensive. Bigger states with solar parity include Germany, the United Kingdom and India. The calculations are based on average prices in those markets, including low and high points.
The bank expects “30-40% reduction in cost per watt in key solar markets” with the biggest savings in the residential sector where competition is fiercest. The U.S. actually has high costs compared to less developed markets. Our panel prices are “among the highest in the world today” (which leaves room for reductions). At the same time, our “soft costs”–including installation, maintenance, and financing–are also above countries like Germany, where overall prices have fallen 15% a year for the last eight years. DB expects something similar here:
… we expect 40% cost reduction over the next 4-5 years as a solar module costs continue to decline, panel efficiencies gradually improve, balance of system costs decline due to scale and competition, global financing costs decline due to development of new business models and customer acquisition costs decline as a result of increasing customer awareness and more seamless technology adoption enabled by storage solutions.
The uncertainty in the U.S. revolves around policy. Congress will decide whether to renew the federal solar investment tax credit (ITC) in 2016, while there all sorts of important state support mechanisms in the balance, including California’s “net metering” law. At the same time, utilities want to charge solar households additional access fees for using the grid.
In the long run, subsidies may not matter. Solar will be cheap enough without government help. “While actual cost reduction may vary between these scenarios, we believe the trend is clear: grid parity without subsidies is already here, increasing parity will occur, and solar penetration rates are set to ramp worldwide,” the report says.