Solar energy will become a low-cost source of energy within a decade

Release Time: 2022-02-16
The collapse in the cost of solar power is unstoppable. Could coal be far behind?

Solar power is already cheaper than coal in some parts of the world, and it could become the low-cost energy option worldwide within the next decade, Bloomberg reported.

In 2016, countries from Chile to the United Arab Emirates set new costs for solar power at less than 3 cents a kilowatt-hour, half the global average cost of coal. Saudi Arabia, Jordan and Mexico are now planning this year's auctions and tenders in the hope of further price reductions.

This could benefit companies such as Italy's Enel Spa and Ireland's Mainstream Renewable Power, which have accumulated vast experience in Europe and are moving overseas as subsidies at home fall or disappear.

Solar prices have fallen 62 per cent since 2009, bloomberg reports, and costs have been cut at every step of the supply chain. That has helped reduce the risk premium on bank lending and pushed companies' manufacturing capacity to new highs. According to Bloomberg New Energy Finance, the average cost of solar power worldwide could be cheaper than coal by 2025.

"These numbers are a game changer in the global energy market and will become generalized in more markets," said Adan Am, executive director of renewable Energy International. "Every time you double capacity, you can reduce the price of solar by 20 percent."

The International Renewable Energy Agency expects solar costs to fall a further 43-65 per cent by 2025, having fallen 84 per cent since 2009.

From diamond wire saws, which cut wafers more efficiently, to batteries that convert electricity to electricity more efficiently, technology has always been key to driving the solar industry. Moreover, since the solar boom began more than a decade ago, the industry has become better positioned to compete with fossil fuels, driven by economies of scale and manufacturing experience.

Jenny Chase, the director of solar analysis at Bloomberg New Energy Finance, said the cost of ground-mounted solar systems above 1 megawatt would fall to 73 cents a watt by 2025 from $1.14 today, a 36 percent drop. GTM Research, a market analysis firm for the renewable energy industry, also predicts that some parts of the Southwest will soon approach $1 a watt, and could fall to 75 cents by 2021.

Sami Khoreibi, founder and CHIEF executive of Enviromena Power Systems, an ABU Dhabi-based firm, says the solar supply chain is experiencing a "Wal-Mart effect", a low-margin, high-volume business model.

The price of solar energy has fallen below coal at different rates in different countries and regions. Places like Europe and Brazil, which import coal or have carbon transaction taxes, will see solar and coal prices equal by 2020. It may take longer in coal-rich regions like China and India.

The coal industry, however, has raised questions, arguing that the cost comparisons between coal and renewables do not take into account the need to maintain backup power supplies, which operate mainly when the sun is not shining or the wind is not blowing. Benjamin Sporton, chief executive of the World Coal Association, says coal is more economical when these fees are included in the total cost, and will remain so even in 2035.

"All advanced economies need a full-time power supply," Says Sporton. "Wind and solar can only be used as an intermittent supply. While some renewable energy technologies have achieved significant cost reductions in recent years, it is important to consider the total system costs."

Still, the inexorable decline in solar prices has made it a serious competitor to fossil fuels.

As a solar market, China's solar power will cost less than coal by 2030, according to Bloomberg New Energy Finance. China has overtaken Germany as the world's largest installed solar power country, as the government moves to reduce carbon emissions and increase consumption of clean energy.

Sunbelt countries are in a good position to cut costs, not just because of the weather, but also because governments award contracts for electricity through auctions, forcing energy companies to compete with each other to cut costs.

Last August, Chile auctioned a contract for 2.91 cents a kilowatt-hour; In September of that year, an auction in the United Arab Emirates made headlines with a low price of 2.42 cents per kilowatt-hour. Developers predict that the cost of solar technology will continue to fall and that bidding will lead to lower prices.

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