The Tipping Point for Solar Energy?

It is puzzling how the very people who care about the environment are now lamenting over high oil prices. Surely, high oil prices have at least this virtue: at long last, clean energy sources are becoming economically viable. A fascinating read from McKinsey’s June Quarterly puts forward the following claim: “Within three to seven years, unsubsidized solar power could cost no more than electricity generated by fossil fuels. By 2020, global installed solar capacity could be 20 to 40 times its level today.” Economic forces, it seems, will do more good to the environment than all the good intentions of all the good Samaritans. Here are excerpts from the (gated) article:

Government subsidies have played a prominent role in the growth of solar power. Producers of renewable energy in the United States receive tax credits, for example, and Germany requires electricity distributors to pay above-market rates for electricity generated from renewable sources.

But the sector’s economics are changing. Over the last two decades, the cost of manufacturing and installing a photovoltaic solar-power system has decreased by about 20 percent with every doubling of installed capacity. The cost of generating electricity from conventional sources, by contrast, has been rising along with the price of natural gas, which heavily influences electricity prices in regions that have large numbers of gas-fired power plants. These regions include California, the Northeast, and Texas (in the United States), as well as Italy, Japan, and Spain.

During the next three to seven years, solar energy’s unsubsidized cost to end customers should equal the cost of conventional electricity in parts of the United States (California and the Southwest) and in Italy, Japan, and Spain. These markets have in common relatively strong solar radiation (or insolation), high electricity prices, and supportive regulatory regimes that stimulate the solar-capacity growth needed to drive further cost reductions. These conditions set in motion a virtuous cycle: growing demand for solar power creates more opportunities for companies to reduce production costs by improving solar-cell designs and manufacturing processes, to introduce new solar technologies, and to enjoy lower prices from raw-material and component suppliers competing for market share.

We forecast global solar demand by estimating the payback period for customers in different countries and regions. (Payback estimates rest on projected system costs and power prices, as well as local sunlight and incentive schemes.) Our analysis suggests that by 2020 at least ten regions with strong sunlight will have reached grid parity [the point when the price of solar electricity is on par with that of conventional sources of electricity on the power grid] … From now until 2020, installed global solar capacity will grow by roughly 30 to 35 percent a year, from 10 gigawatts today to about 200 to 400 gigawatts requiring capital investments of more than $500 billion. Even though this volume represents only 1.5 to 3 percent of global electricity output, the roughly 20 to 40 new gigawatts a year of installed solar capacity would provide about 10 to 20 percent of annual new power capacity over that period. This level of installed solar capacity would abate some 125 to 250 megatons of carbon dioxide—roughly 0.3 to 0.6 percent of global emissions in 2020.

---

Possibly related posts: (automatically generated)

• I hate to say it, but I told you so ….!
• Exorbitant cost of nuclear power
• Financial risks of nuclear power
• Producer prices drop in September as energy costs fall