Shine On: Solar Power is Eclipsing Coal, Oil, Gas and Nuclear Energy with Rapid Growth and Cost Reductions

A heatwave across Europe was a reminder of the dangers of climate breakdown, but also of the enormous opportunities for tapping into the clean renewable energy that can replace the fossil fuels that drive global warming.

Ever since 2013, the installation of new renewable energy capacity has outstripped all other major energy generating sources combined, coal, oil, gas and nuclear. There are impressive figures for all renewables but the growth and fall in costs of solar power has stunned even seasoned industry observers.

Since its invention in 1954 in the United States, the photovoltaic (PV) cell has offered access to the sun’s energy for free. But it is only in the last decade that the cost of manufacturing solar panels has plummeted dramatically, making them not only affordable but sometimes even the cheapest form of electricity, outcompeting fossil fuels. The City of Los Angeles is negotiating a 25 year power purchase agreement that would deliver solar PV generated electricity at 2¢/kWh and battery storage at 1.3¢/kWh. In the response, the leading authority on renewable energy, Prof of civil and environmental engineering, Mark Z Jacobson, commented, “Goodnight natural gas, goodnight coal, goodnight nuclear.” According to Forbes magazine, this is half the cost of electricity generated from a new natural gas plant, often touted as the efficient, acceptable face of fossil fuels.

Despite the sun being strongest in the predominantly poorer global South, the relatively high cost of PV kept most new installations in the richer global North. Since 2004, the world has invested $2.9 trillion in green energy sources, often led by government tax incentives for new solar installation and generation, with Europe and the US taking the lead. But in 2015, investment in solar systems in the global South overtook that of rich countries for the first time, making solar energy a true global player. In 2017, the gap grew even more sharply, with the so-called developing world accounting for 63% of the global total of renewable power generation, and wealthy countries just 37%.

The leading country by far for renewable energy investment in 2017 was China, which accounted for $126.6 billion, its highest figure ever and no less than 45% of the global total. There was an extraordinary solar boom in that country in 2017, with some 53GW installed (more than the whole world market as recently as 2014), and solar investment of $86.5 billion, up 58%. The world installed a record number of new solar power projects in 2017, more than net additions of coal, gas and nuclear plants put together. China has been the leading destination for renewable energy investment, accounting for 45% of the global total last year. Solar alone accounted for 98GW, or 38% of the net new power capacity coming on stream during 2017, with China accounting for just over half of that capacity.

However, China is not alone, with a wide range of countries now expanding their sectors fast. India has a solar mission, for example, inaugurated in 2010 with a target of 20GW by 2022 which was later increased to 100 GW in 2015. India increased its solar capacity by nearly five times from 2,650 MW on 26 May 2014 to 12,288.83 MW on 31 March 2017. The country added 5,525.98 MW in 2016–17, the highest of any year.

Even fossil fuel-rich countries are showing progress, with the United Arab Emirates, for example, recording an astounding 29-fold increase in renewable energy investment in 2017. This undoubtedly shows that they see where the future lies and, despite huge remaining oil reserves, are planning ahead for a low carbon world. It also helps that the oil-rich Arab states are situated in places where the sun is strong and population density is low, leaving vast areas for large scale solar installations. The Middle East has also been one of the leaders in concentrated solar power (also called concentrating solar power, concentrated solar thermal, and CSP), which generates solar power by using mirrors or lenses to concentrate a large area of sunlight onto a small area containing a medium that can convert the energy for use elsewhere.

Wider relevance

With two-thirds of greenhouse gas emissions originating from the energy sector, renewables and energy efficiency offer a safe, reliable and affordable way to achieve massive decarbonisation, in line with the aims of the Paris Agreement. The combination of renewables, energy efficiency and increased electrification could achieve 90% of the reductions needed in energy-related emissions, according to analysis from the International Renewable Energy Agency (IRENA).

Solar energy can be used for electricity, heat and transport, but so far it has only made significant inroads into the first of these. Well designed government incentives and changes to laws to prioritise renewables could make solar energy viable in all three of these carbon-soaked sectors. Improved battery technologies will make this even easier as energy can be stored for use when the sun and/or wind is not providing power.

Solar PV installations can be combined to provide electricity on a commercial scale, or arranged in smaller configurations for mini-grids or personal use, as had happened with the roll out of solar home systems in many parts of the world. They also offer opportunities for community ownership, with not-for-profit local organisations in many countries setting up to install solar on community buildings such as schools and health centres.

Using solar PV to power mini-grids is an excellent way to bring electricity access to people who do not live near power transmission lines, particularly in poorer countries with excellent solar energy resources. Countries such as Pakistan, where people are accustomed to power cuts being frequent, are now looking to solar as a future solution, with Pakistani banks starting to lend for home installations. Mexico is also building a sophisticated solar industry, thanks to plentiful resources for wind and solar, growing electricity demand, an auction program resulting in low-priced bids, and a government certificate scheme linked to a target for 13.9% of generation to come from green power by 2022.

Context and background

Feed-in tariffs (FiT) guarantee renewable projects a set payment for every kilowatt hour of energy produced – often a fixed rate above the “brown power” price to help overcome the higher upfront capital costs of many renewable energy technologies. Over the past two decades, more than 45 countries and 20 cities, provinces and states have implemented FiT programs. Germany was the first European country to adopt a feed-in tariff program in 1991, with a tariff based on a percentage of the retail rate of electricity, but it was not set high enough to cover the costs of PV projects. Other countries in Europe followed, but in 2000, Germany and Denmark altered their FiTs to cost-based models, in which rates are set based on the cost of generation plus a reasonable rate of return. These governments mandated grid access for renewable energy, guaranteed payments for 20 years, and offered differentiated rates based on technology, project size, resource intensity, and application. These “advanced feed-in tariffs” established a new level of precision in setting rates for renewable energy deployment and many countries adopted this model, including major carbon emitting countries outside Europe such as China, India and South Africa.

Feed-in tariffs, when set at the right level, have proven highly successful in driving deployment of solar, encouraging people to invest in what was then a fairly expensive and unfamiliar technology. But they ran into the criticism that the resulting electricity costs for consumers was higher than they needed to be, because there was insufficient incentive for project developers – and the supply chain behind them, including manufacturers, construction contractors, landowners and financiers – to squeeze costs. In other contexts, such as Kenya, they have been set too low to encourage investors to invest in large scale solar for the grid.

Some markets have also become dependent on the tariffs, creating a “boom and bust” cycle: in the UK for example, the feed-in tariffs were set at a level which successfully kick-started the market, but when demand rose, the government decided it was too successful and reduced terms drastically, with a devastating effect on the sector, leading to a collapse in investment, firms going out of business, job losses and a drop off in new installations. Some of the leading solar markets saw the biggest falls in investment once subsidies ended: the UK was down 65% at $7.6 billion, Germany was down 35% at $10.4 billion, and Japan was down 28% at $13.4 billion. The U.S. slipped 6% to $40.5 billion. In recent years, we have seen an increasing shift by governments away from those policy support mechanisms, towards auctions.

Enabling factors

It is clear that incentives, subsidies and tax credit systems, although imperfect, helped to stimulate and develop the global solar industry. At the same time, however, governments facing up to the reality of climate change began reassessing the real cost of coal, gas and nuclear power generation and looking for ways to decarbonise their economies. In 2018, a Carbontracker report revealed that 42% of global coal capacity was already unprofitable, and the US could save $78 billion by closing coal-fired power plants in line with the Paris Climate Accord’s climate goals. Solar offered a ready-made solution that could be scaled up quickly as the cost of renewable energy dipped below fossil fuel generation for the first time.

By 2018, huge growth in solar panel production – mostly in China – also led unit prices to tumble, making the industry more competitive with other fuels even with no subsidy. In 2018, Lazard’s annual Levelized Cost of Energy (LCOE) analysis reported solar photovoltaic (PV) had dropped an extraordinary 88% since 2009. Some of this was due to a fall in capital costs, some to improvements in efficiency. Low interest rates for borrowing since the global financial crash also helped, both at the individual household and wider industry level.

The trend for solar costs to decline is expected to continue: the National Renewable Energy Laboratory projects utility solar PV costs will decline by 60% by 2050 under mid-level forecasts assuming continued industry growth, and technological breakthroughs could cut costs up to 80% by 2050. This also means more jobs: according to recent research from IRENA, “the renewable energy sector in the US provides nearly 770,000 jobs, with the solar industry alone now surpassing the number of jobs in the US oil and natural gas extraction industries.”

Government policy plays a vital role and poor policy can hinder progress. Many South East Asian economies have large populations with fast-growing electricity demand, but their solar energy generation levels remain low mainly as a result of policy uncertainty. Indonesia, for example, announced competitive tenders for solar, but the tender evaluation process has been unclear and participation limited to a few developers. In the Philippines, developers of more than 1GW of wind projects have been unable to progress because of the lack of a suitable regulatory framework.

Scope and evidence

• Since 2004, the world has invested $2.9 trillion in green energy sources.
  The world installed a record number of new solar power projects in 2017, more than net additions of coal, gas and nuclear plants put together. China has been the leading destination for renewable energy investment, accounting for 45% of the global total last year.
• Solar alone accounted for 98GW, or 38% of the net new power capacity coming on stream during 2017. China alone accounted for just over half of that capacity.
• The leading location by far for renewable energy investment in 2017 was China, which accounted for $126.6 billion, its highest figure ever and no less than 45% of the global total. There was an extraordinary solar boom in that country in 2017, with some 53GW installed (more than the whole world market as recently as 2014), and solar investment of $86.5 billion, up 58%.
• According to recent research from IRENA, “the renewable energy sector in the U.S. provides nearly 770,000 jobs, with the solar industry alone now surpassing the number of jobs in the oil and natural gas extraction industries in the U.S.”
• The National Renewable Energy Laboratory projects utility solar PV costs will decline 60% by 2050 under mid-level forecasts assuming continued industry growth, and technological breakthroughs could cut costs up to 80% by 2050.
• Fossil fuel-rich countries are also showing strong progress, with the United Arab Emirates for example recording an astounding 29-fold increase in renewable energy investment in 2017.
• After many years in which developed countries represented the lion’s share of investment in renewables, the balance shifted in 2015. Both then and in 2016, developing economies made up the majority of investment in renewable power and fuels – and in 2017, the gap grew sharply, so that the developing world accounted for 63% of the global total and developed countries just 37%.
• In 2017, costs continued to fall for solar, in particular. The benchmark levelized cost of electricity for a utility-scale photovoltaic project2 dropped to $86 per megawatt-hour, down 15% on a year earlier and 72% since 2009.
• Renewable energy investors financed just over 1,000GW of capacity since 2004, most of it in wind and solar.
• There were sharp increases in renewable energy investment in Australia, of 147% to $8.5 billion, in Mexico, of 810% to $6 billion, and in Sweden, of 127% to $3.7 billion. Just outside the world top 10, investment in Egypt leapt nearly sixfold to $2.6 billion, and that in the United Arab Emirates 29-fold to $2.2 billion.
• Between 2009 and 2017, the benchmark levelized cost of electricity, or LCOE, for photovoltaics without tracking systems fell from $304 per megawatt-hour to just $86, a reduction of 72%.
• According to recent research from IRENA, “the renewable energy sector in the U.S. provides nearly 770,000 jobs, with the solar industry alone now surpassing the number of jobs in the oil and natural gas extraction industries in the U.S.”
• 50% of Germany’s solar PV is owned by individuals and farms.
• Germany’s power grid, which takes about 28% from renewable energy sources overall, and in excess of 40% in certain areas  when conditions are good is proving more stable than the mostly nuclear and coal-powered grids in France and Poland. Annual outages total 15 minutes in Germany, compared with 68 minutes in France and more than four hours in Poland.