On Aug. 11 a bid of US$0.46/W was put forward to build 500MW of solar power in China (a roughly calculated levelized cost of electricity (LCOE) at $0.019/kWh). In the past week we saw a bid of $0.023/kWh to build 1.2GW of solar power in Abu Dhabi. This price of $0.023/kWh is nearly 25% lower than the $0.0299/kWh bid for a series of Abu Dhabi projects in late April. These extremely aggressive price falls are partially driven by unique situations – a Chinese solar panel production glut and historically low costs of money. But as Frank Wouters, the former director of Masdar Clean Energy puts it, “We’re still learning how to further reduce the cost of solar cells and other components, as well as operation and maintenance costs. There’s no reason why the cost of solar will ever increase again.”
The two projects have other variables driving these low prices. Abu Dhabi has some of the best sunlight resources in the world, with solar panels producing 10-40% more electricity than the same hardware in parts of China. Politics plays a role as well. The Chinese price per kilowatt hour is roughly 80% lower than the Abu Dhabi price. Despite that, it’s not considered the lowest because Chinese solar energy companies receives an incentive ranging from $0.18/kWh to $0.156/kWh while Abu Dhabi companies are without incentives.
The price drop in solar panels from the 2016 calendar first quarter through the third quarter of this year is probably the greatest driver of the overall project price fall. Anecdotally, deliveries of Tier 1 solar panels in 1MW volume to the northeast U.S. have fallen from ~$0.60-65/W to ~$0.45/W — coming out to price declines of 25-30%. With utility scale solar projects in the Middle East being developed for well below $1/W, a drop in price of $0.20/W for the solar panels could meet the price drops seen above all their own. Some places may be purchasing at $0.30/W.
An important analysis at PV-Magazine.com brings the profitability of the projects to the forefront. In an industry with collapsing prices throughout the supply chain, it’s expected that the investment market will put pressure to prove financial viability. SunEdison went bankrupt partially because they underbid the value of projects trying to gain market share. According to the Middle East Solar Industry Association (see image above), all projects that bid down to $0.0242/kWh showed internal rates of returns above 7%.
Other regions have seen price falls just as significant. In the U.S., a 100MW solar project in Nevada was recently approved to deliver electricity at $0.04/kWh. Chile set temporary records at $0.0291/kWh. In India, we’re seeing a steady ramping up of the solar power boom drive in part by the same Chinese solar panel prices.
In 2015, GreentechMedia made a now quaint seeming prediction that solar costs would fall 40% by 2020. Little did they know it the date was closer, with the possibility coming before the end of 2016. Expect broader consequences of these falling prices when combined with public support for taxing polluting energy sources. “Negatively” priced electricity will drive economic restructuring to take advantage of our new found energy bounty. Years ago, we saw (see image above) German energy prices during the daytime collapse due to peak solar power production. In advanced energy markets, users are paid to use energy at peak production moments.
We’re now testing and scaling infrastructure technologies to harvest this excess electricity – batteries to store the electricity, interconnecting countries to move the electricity, production of hydrogen to fuel cars and store and pumping water (and trains?) against gravity for later use. Soon we’ll change where/when we manufacture our goods, make our metals, power our transportation, grow our food and clean our water. These changes in energy costs will reverberate through the economic and technological system of the globe – destroying millions of jobs in old energy, while driving trillions of investment in new infrastructure.