Cheaper solar PV is key to addressing climate change

While Google nailed the switch from R&D to deployment, it arguably still bet big on scaling up the wrong technology. In the early 2010s, the solar race looked like a tight competition between solar photovoltaic (PV) and utility-scale concentrated solar power (CSP), which uses sun-heated fluids to drive power turbines. Google quickly invested more than $1 billion in a slew of renewables companies and utilities, including big investments in CSP outfits BrightSource Energy and eSolar. A decade later, such choices aren’t looking promising, as CSP, too, has been losing out to PV’s continuing rapid cost declines. 

Google is not alone in repeatedly misjudging the dropping price of solar cells over the last few decades and its impact on how we think about clean energy. Solar PV costs fell roughly by a factor of 10 in the past decade, on top of already impressive cost declines up to that point, for a total decline of around a factor of a hundred since US President Jimmy Carter unveiled solar panels on the White House in 1979. (Ronald Reagan took them down in 1986, during his second term as president.)

To put it in perspective, if gasoline had similarly dropped in price from 1979 levels, it would cost pennies a gallon today. Gasoline, of course, is a commodity, with prices fluctuating for a number of technological, economic, and political reasons. Solar PV prices are also driven by all these factors, but over the years, technology has clearly dominated. (This year, prices for solar PV modules have increased by around 18% because of a temporary crunch in the silicon supply chain.)

In its latest annual World Energy Outlook, the International Energy Agency declared solar PV to be “the cheapest source of electricity in history” for sunny locales with a low cost of financing. These two qualifications are important. Sun is obvious—solar is always going to be cheaper in Phoenix, Arizona, than in New York City—but the report concluded that solar is now cheaper than coal and natural gas in many places.

Financing is key to why this is true. Solar PV and other renewables such as wind have low or close-to-zero operating expenses—upfront costs have always been the big hurdle, and financing has been a big reason why. Thanks in part to various government policies, solar investment has become much less risky over the last decade or so, freeing  up cheap money.

As a result, solar PV deployment has increased rapidly; it’s now the fastest-growing source of electricity globally, and figures to be for some time to come. It’s starting from a low base of installed capacity, however, far behind coal, gas, hydro, nuclear—even wind, which has been cheap for longer. And therein lies one of the biggest problems for solar PV. It might be the cheapest form of electricity for many, but that on its own doesn’t make the clean-energy transition nearly quick enough.

We need ever further technological advances. Why stop at grid parity, the point where it’s as cheap to build and operate solar PV as to supply electricity via fossil energy sources? Why not 10% cheaper? Why not strive to slash costs by another factor of 10 within a decade? Such drops are needed because the hallowed grid-parity goal is misleading—the real question is at what point utilities will actually abandon existing coal plants and switch to solar, rather than merely avoid adding new coal capacity. Solar needs to be so cheap it makes financial sense to build new solar capacity and shutter working coal and gas plants still making money for their owners.

All that calls for policy to both push existing solar technology and support R&D in new technologies. The entire package includes technology research, development, demonstration, deployment, and diffusion. Every step along this chain deserves direct government support, keeping in mind that it also gets increasingly more expensive the further down the chain one moves.

How to get cheaper

To better optimize investments to get to even cheaper solar, it’s worthwhile to understand what factors have driven down the cost of renewable power over the last few decades. 

MIT energy systems scientist Jessika Trancik and her group find that the dramatic cost declines in solar cells over the course of three decades can largely be attributed to three factors: R&D leading directly to improvements in module efficiency (how much of the sunlight is converted into electricity) and other fundamental technological advances; economies of scale attributed to the size of solar-cell manufacturing plants and the increasing volume of inputs such as silicon; and improvements achieved through learning by doing.

None of that is too surprising, but what is less obvious is that the relative contribution of each varies greatly over time. From 1980 to 2000, R&D accounted for around 60% of cost declines, with economies of scale coming in at 20%, and learning by doing a distant third at around 5%; other largely unattributable factors account for the balance. That makes sense; it was a period of impressive advances in the efficiencies of solar cells but not a time of significant manufacturing and deployment. Since then, the pendulum has swung from R&D and fundamental technological improvements toward economies of scale in manufacturing, now accounting for over 40% of cost declines. It’s worth noting, however, that research advances still account for some 40% of declines. 

The lesson for future investments that aim to make solar even cheaper: there should be direct support for all three, skewed toward economies-of-scale factors. Trancik’s findings only consider the solar PV module itself. That still leaves installation, connection to the grid, and other factors that make up total system costs. These are areas that will likely be improved as technicians and companies become more experienced. While the results of subsidies for increasing solar PV installations appear to be mixed at best, policies such as feed-in tariffs, which offer favorable long-term contracts to solar PV producers, and renewable portfolio or clean energy standards, which set quantity targets for renewables, show clear results in driving overall deployment.

No free lunch

Despite the dropping price of solar, the transition to renewables will still be costly. The big question, of course, is how expensive compared with what—climate change, too, comes with costs. Cheap solar gets even more financially attractive to developers if the social and environmental costs of carbon emissions from fossil fuels are considered.

A lot here hinges on the social cost of carbon (SCC), a tally of the financial damage each metric ton of carbon dioxide emitted today causes to the economy, society, and the environment—and, by extension, how much each ton of CO2 emitted should cost. It’s a number that says a lot about the true cost of coal and other fossil fuels—and about the appropriate support for solar PV and other renewables.