On August 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). This 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 almost 25% lower than the $0.0299/kWh was bid in late April in Abu Dhabi.
These extremely aggressive price falls are partially driven by unique situations, a Chinese solar panel production glut and historically low costs of money. But also because of technology as Frank Wouters, the former director of Masdar Clean Energy, says, “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 unique variables driving these low prices. Abu Dhabi has some of the best sunlight resources in the world. A solar panel in Abu Dhabi will produce 10-40% more electricity than the same hardware in various places of China. Politics matter as well, the Chinese price per kilowatt hour is roughly 80% lower than the Abu Dhabi price, but not considered the lowest because Chinese solar energy receives an incentive ranging from US$0.18/kWh to US$0.156/kWh while Abu Ahabi solar is without incentives.
The price drop in solar panels from the 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 USA have fallen from ~$0.60-65/W to ~$0.45/W – 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 to the forefront profitability of the projects. In an industry with collapsing prices in all areas of the supply chain – it is to be expected that the investment market will put pressure on you to prove financial viability. SunEdison partially went bankrupt because they underbid the value of projects in order to gain market share. According to the Middle East Solar Industry Association (see image above), MESIA, all projects that bid down to $0.0242/kWh showed internal rates of returns above 7%.
Other locations have seen price falls just as significant. A Nevada USA 100MW solar project was recently approved delivering electricity at $0.04/kWh. Chile set temporary records at $0.0291/kWh. And now we see India’s ongoing, and upward ramping, solar power boom is being partially fueled by these same Chinese solar panel prices.
GreentechMedia made a now quaint seeming prediction that solar costs would fall “40% by 2020” in September of 2015 – little did they know it might happen 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 electricity users are being paid to use energy at those 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 though, 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.