New studies by Bloomberg and Harris Interactive point to solar’s cost competitiveness
Are the decision-makers entrusted with determining the future of energy infrastructure operating under an outdated understanding of the cost-competitiveness of solar power? In many cases, the answer is yes, according to a paper released last week by Bloomberg New Energy Finance (BNEF).
In “Reconsidering the Economics of Photovoltaic Power,” (PDF) BNEF CEO Michael Liebreich and nine collaborators document the precipitous decline in the price of solar power since 2009. “Average PV module prices have fallen by nearly 75% in the past three years,” they write, “to the point where solar power is now competitive with daytime retail power prices in a number of countries.”
Those facts so quickly upended what had been conventional wisdom (i.e., solar power is prohibitively expensive) that the new economics of solar power apparently caught decision-makers flat-footed. Here are the authors’ conclusions:
• The shift in prices of solar technology carries major implications for policy and investment decision-makers, especially when it comes to the choice of generating technology and the design of tariff, fiscal and other support policies.
• Many observers and decision-makers have yet to catch up with the improvements in the economics of solar power that have resulted from recent PV technology cost and price reductions.
• Recent reductions in PV prices are likely to be sustainable. While overcapacity has caused severe pain for manufacturers, the price falls are primarily a reflection of reductions in manufacturing costs, not solely a reflection of stock liquidation and other short-run factors.
• Commonly used estimates for PV power’s competitiveness – including the concept of “grid parity” – are often misleading, given the complex realities of the electricity system. [emphasis in the above mine]
The aim of the paper, the authors say, is to “inform policy-makers, utility decision-makers, investors and advisory services, in particular in high-growth developing countries, as they weigh the suite of power generation options available to them.” That understated language masks a deadly serious message, with the authors’ words practically shouting from the page: We’re trying to help you prevent the conventional energy infrastructure lock-in that will tip runaway climate change.
Despite the forces arrayed against it – its perceived high cost, the lack of a price on carbon in much of the world, and concerted efforts by cosseted fossil-fuel incumbents to stifle its rise – solar power is booming. “Large drops in solar module prices have helped spur record levels of deployment, which increased 54 percent over the previous year to 28.7 GW in 2011. This is ten times the new build level of 2007,” the paper finds.
According to BNEF, the levelized cost of electricity (the cost distributed over a project’s lifetime) for conventional silicon PV declined by nearly 50% from an average of $0.32/kWh in early 2009 to $0.17/kWh in early 2012; thin-film PV dropped from $0.23/kWh to $0.16/kWh over the same period. As of the first quarter of 2012, BNEF pegs the levelized cost range at $0.11/kWh to $0.25/kWh. Residential customers in the United States pay an average retail price for electricity of $0.115 cents/kWh.
The authors contend that if decision-makers understood the new economics of solar, it would hasten the deployment of PV in existing and new markets. “Despite the substantial drop in PV costs,” they write, “many commentators continue to note that PV-generated power is prohibitively expensive unless heavily supported by subsidies or enhanced prices. Outdated numbers are still widely disseminated to governments, regulators and investors.”
Outdated information has led not just to poorly designed and overly generous feed-in tariff (FiT) schemes but to missed opportunities. “If PV power is perceived to be too costly,” write the authors, “governments are less likely to take on the financial burden. This was the case in China in 2010, where the anticipated national PV FiT was dropped because solar PV costs were deemed too high.”
Homeowners overestimate cost of installing solar
If policymakers have not fully grasped the new economics of solar, it should come as no surprise that homeowners are similarly unaware. A Harris Interactive survey released last month found that 97% of homeowners polled overestimated the cost of installing solar; just 3% of respondents knew that the upfront cost to install solar could be less than $1,000, and, in some cases, nothing at all.
To be fair, the survey was self-serving; it was commissioned by California-based solar installer Sunrun, which specializes in little- or no-money-down solar leasing. (The survey was basically an advertisement for Sunrun’s business model.) No matter. Gone are the days when homeowners determined to install solar had to pay $20,000, or considerably more, upfront to buy the panels outright. Forty percent of the Sunrun survey respondents still thought this to be the only option; meanwhile, nearly 8 in 10 said they would install solar if cost were not a factor.
The rapidly falling price of solar panels (combined with state and federal subsidies) has made viable the business model of Sunrun and competitors like SolarCity and Sungevity. The popularity of solar leasing (it now accounts for 75% of the residential solar market in California and more than 80% in Massachusetts) suggests that Americans wanting to switch to clean energy and hedge against rising electricity prices will increasingly choose to install solar.
It’s a shame that bad or incomplete information is holding back the growth of solar power. Those in a position to reach decision-makers and consumers, journalists like myself included, must ensure that the improved economics of solar power becomes the new conventional wisdom.