The solar revolution

13 Apr

In a couple of years, it is going to be cheaper to build solar panels in Hungary than nuclear reactors. And the best part is that it will not need any state subsidy.

By István Zsoldos, Péter Simon Vargha and Csaba Pogonyi

napelemek forradalma_FBszeretiThe revolution of solar panels – We photoshopped Delacroix

The revolution of solar panels has started. Soon electricity produced by solar panels may be cheaper than by conventional power plants. There are some countries where it is already cheaper. We were planning for some time to write about this, here is a short summary.

Nuclear can be substituted by solar

The cost of solar panels has been declining by 7% per year in the last decade. If we assume that this trend continues, then by around 2020, it will be cheaper to produce electricity by solar than by a new nuclear reactor.

solarVsnuke

Source: own calculations based on the MIT cost model. We assumed that the panel is in Hungary and the cost decline of panels continues with the previous trend; and that there is no cost overshooting or time delay for the nuclear reactor.

 

Both solar panels and nuclear reactors have high initial capital expenditures: this is the biggest part of costs in both cases. Thus the money we invest has to be spent upfront.

However, solar panels are scalable: one can put a panel on the rooftop, but a nuclear power plant can only be built on a huge scale. Moreover, installation of a solar panel is a matter of weeks. Thanks to the possibility of gradual installation of panels, one can enjoy the cost-decline in the future as well.

Large-scale solar power plants already exist, which can be compared to nuclear plants in terms of their capacity: in November 2014, a solar farm was built in California with the capacity of one of the nuclear blocks of Paks power plant in Hungary (550 MW).

This is how the price of solar has been declining

The cost of installing solar panels (so the panel itself plus installation and other costs) has declined by 60-70% in the last 8 years. Whereas the price of electricity produced by solar had been well above other technologies; nowadays its price is in the same ballpark the same as its competitors’ (coal, gas, nuclear).

As it can be seen on the graph, the price decline has been going on for decades, decades earlier than the recent start of large state subsidy programs. The price decline is thus not the result of subsidy programs, but rather the technology improvement itself.

The price decline took place mostly due to developments in electronics: the production of solar panels is similar to electronic chips, and we expect this development to continue.

As the price of the panel itself declines, other costs become proportionally more and more substantial (inverter, installation and other costs). These costs have also been declining, and this will continue: as more and more panels are installed, companies become more efficient and can use economies of scale.

Where subsidy programs failed: too early implementation

A lot of politicians from all over the world made the same mistake: they started spreading solar when it was still too expensive. Therefore, public opinion is still stuck with the idea of solar being a very expensive source of power and that it is only viable through huge public subsidy. Expensive subsidy programs and constant debates regarding subsidies have also exacerbated public skepticism regarding renewable energy sources in general.

Since the beginning of 2000s, lots of countries spent a lot of subsidies on renewables. The first boom happened in Germany, where today total solar capacity is 38 GW, twice (!) the size of its nuclear capacity, before the shutdowns began. Of course since the capacity factor for solar is smaller (they do not produce power during the night), their growth in production is smaller.

Due to the huge costs, today, German households pay more for subsidizing renewables than they pay the utilities for getting the wholesale electricity.

Due to substantial decline in solar prices, the latecomer countries benefitted, since they spent only a fraction of what they would have spent a few years ago.

A winner even without subsidies

The price decline made solar power more and more competitive. In some sunny places, solar PV is already becoming the cheapest power investment option, even without any government subsidy. Recently on the tenders of the United Arab Emirates, the price for electricity reached 55 EUR/MWh (Financial Times), which is around (or even lower) the price of other newly built power generation technologies.

If the price decline in solar continues according to the trend of the last decades (which seems feasible), then solar power can become a lot cheaper than any other source of power generation (where technology development is a lot slower).

On the next graph, we show how much it would cost to produce electricity in Hungary with newly built power plants. We assumed the PV cost decline trend to continue.

Naturally, the price of solar can be even smaller in countries to the south of Hungary. It is important to note that due to overcapacity on the European market the present power price is around 35 EUR/MWh, which is too low for any new plant to be built.

power prices

Source: own calculations based on the cost-model of MIT. We assumed that the price of gas increases to 350 USD/1000m3, the price of coal stays at 70 USD/ton, the solar panel is installed in Hungary, the cost decline of solar continues its previous trend and there is neither cost-overshooting nor time delay in nuclear power plant building.

 

It is important to note that solar power is not always available. However, battery costs have also been falling strongly (the key for the spread of electric cars is also battery costs – see for example our previous post on the Apple car) and we also expect that previous trends continue. So we will be able to store electricity for the night.

Moreover, the examples of both Germany and Denmark show that power grids can handle substantial renewable capacity as well: there is enough peak capacity that can be switched on and off fast (mostly gas power plants). By developing the existing infrastructure and the spread of demand-side technological advances (“smart technologies”) we will be able to accommodate a bigger share of renewables with relatively low costs.

Power market 2.0

Cheap solar power will change power markets for good in the long run. It will not only change wholesale production, but also create the market for home power production. Installing cheap solar panels on the rooftops of residential houses decreases the demand for wholesale production.

Therefore, there will be less and less need for nuclear and coal power plants, as well as for those companies which build their business models on them. It is not a coincidence that the German E.on announced last year that it is going to split itself: into an “conventional” capacity part, and into a renewable part, which has a lot higher growth potential. According to Johannes Teyssen, the CEO of E.on, the reorganization takes place due to technological development and not to politics.

Another important advantage of a home solar panel is that you depend less on the grid; therefore, cyberattacks are less dangerous for you.

The silent revolution of solar panels will soon reach Hungary as well. It will be so cheap that it will be beneficial to invest into solar farms and install panels on rooftops. And the best part is that it will happen without EU or state subsidy.

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3 Responses to “The solar revolution”

  1. Ivan Fenyves May 7, 2015 at 2:55 pm #

    I am very disappointed that your guys have published the unprofessional article about “Solar revolution” in English, but ignored my reply which was sent in Hungarian. I want you to translate my article and publish it in English!

    Ivan Fenyves

    • Istvan Zsoldos Zsopi May 7, 2015 at 3:13 pm #

      Dear Ivan,

      You are welcome to translate your comment to English and post it here, but we will not do the translation for you. We do not think that is our job.

      Best regards, Istvan

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