London - Solar power is now cheaper than coal in some
parts of the world. In less than a decade, it’s likely to be the lowest-cost
option almost everywhere.
In 2016, countries from Chile to the United Arab Emirates
broke records with deals to generate electricity from sunshine for less than 3
cents a kilowatt-hour, half the average global cost of coal power. Now, Saudi
Arabia, Jordan and Mexico are planning auctions and tenders for this year,
aiming to drop prices even further. Taking advantage: Companies such as Italy’s
Enel SpA and Dublin’s Mainstream Renewable Power, who gained experienced in
Europe and now seek new markets abroad as subsidies dry up at home.
Since 2009, solar prices are down 62 percent, with every
part of the supply chain trimming costs. That’s help cut risk premiums on bank
loans, and pushed manufacturing capacity to record levels. By 2025, solar may
be cheaper than using coal on average globally, according to Bloomberg New
Energy Finance.
“These are game-changing numbers, and it’s becoming
normal in more and more markets," said Adnan Amin, International
Renewable Energy Agency’s director general, an Abu Dhabi-based
intergovernmental group. "Every time you double capacity, you reduce the
price by 20 percent.”
Better technology has been key in boosting the
industry, from the use of diamond-wire saws that more efficiently cut
wafers to better cells that provide more spark from the same amount of sun.
It’s also driven by economies of scale and manufacturing experience since the
solar boom started more than a decade ago, giving the industry an increasing
edge in the competition with fossil fuels.
The average 1 megawatt-plus ground mounted solar system
will cost 73 cents a watt by 2025 compared with $1.14 now, a 36 percent
drop, said Jenny Chase, head of solar analysis for New Energy finance.
That’s in step with other forecasts.
A blocked access of a mine is seen during a protest demanding the government to provide funding for reopening Santa Ana coal mine, at Curanilahue town
GTM Research expects some parts of the US Southwest
approaching $1 a watt today, and may drop as low as 75 cents in 2021, according
to its analyst MJ Shiao. The US Energy Department’s National Renewable Energy
Lab expects costs of about $1.20 a watt now declining to $1 by 2020. By 2030,
current technology will squeeze out most potential savings, said Donald Chung,
a senior project leader. The International Energy Agency expects utility-scale
generation costs to fall by another 25 percent on average in the next five
years. The International Renewable Energy Agency anticipates a further
drop of 43 percent to 65 percent for solar costs by 2025. That would bring to
84 percent the cumulative decline since 2009.
The solar supply chain is experiencing “a Wal-Mart
effect” from higher volumes and lower margins, according to Sami Khoreibi,
founder and chief executive officer of Enviromena Power Systems, an Abu
Dhabi-based developer.
The speed at which the price of solar will drop below
coal varies in each country. Places that import coal or tax polluters with a
carbon price, such as Europe and Brazil, will see a crossover in the 2020s, if
not before. Countries with large domestic coal reserves such as India and China
will probably take longer.
Read also: Solar boom on the horizon?
China, the biggest solar market, will see costs falling
below coal by 2030, according to New Energy Finance. The country has
surpassed Germany as the nation with the most installed solar capacity as the
government seeks to increase use to cut carbon emissions and boost home consumption
of clean energy. Yet curtailment remains a problem, particularly in sunnier
parts of the country as congestion on the grid forces some solar plants to
switch off.
Sunbelt countries are leading the way in cutting costs,
though there’s more to it than just the weather. The use of auctions to award
power-purchase contracts is forcing energy companies to compete with each other
to lower costs.
An August auction in Chile yielded a contract for 2.91
cents a kilowatt-hour. In September, a United Arab Emirates auction grabbed
headlines with a bid of 2.42 cents a kilowatt-hour. Developers have been
emboldened to submit lower bids by expectations that the cost of the technology
will continue to fall.
“We’re seeing a new reality where solar is the
lowest-cost source of energy, and I don’t see an end in sight in terms of the
decline in costs,” said Enviromena’s Khoreibi.
BLOOMBERG