🔮 The exponential march of solar energy

May 14, 2020

Everyone,

Once in a while comes a brain whose optimism is matched by an equally tempered analytical eye. One such brain is Ramez Naam, who more than most helped me understand how renewables were on an inexorable path towards near-ubiquity.

Ramez recently mentioned that he had revised his thinking about the price trajectory for renewable energy. I leapt at the chance to bring you his thinking—his Exponential View—directly.

Please enjoy it. Have a read and take a moment to thank Ramez. For more in-depth reading visit his blog. His latest full analysis of the future of solar is here. I would also encourage you to listen to my discussion with Ramez.

A more extensive version of Ramez’s essay is now available here.

Best wishes

Azeem

Hi, I’m Ramez Naam, co-Chair for Energy and Environment at Singularity University, and sometimes a science fiction author. I’m here to talk about the insanely cheap future of solar power. A longer version of this post will go up at my blog in a day or so. You Exponential View readers are getting an exclusive sneak peek before anyone else.

I’ve spent the last decade writing and speaking about, and investing in clean energy and mobility. Over that time, I’ve made a series of forecasts about the future costs of clean energy technologies, including solar, wind, energy storage, and electric vehicles.

My first forecast, in 2011, was of the future cost of solar. It was quite a naive model, with errors I wince at today. It was also, at the time, more optimistic about the pace of solar cost declines than any other forecast I’d seen. My 2015 update was more sophisticated, correcting some important methodological errors of the 2011 forecast. It was also more optimistic about price declines than any other model I’d seen.

Both of those forecasts were wrong. Solar has plunged in price faster than anyone - including me - predicted. And modeling of that price decline leads me to forecast that solar will continue to drop in price faster than I’ve previously expected, and will ultimately reach prices lower than virtually anyone expects. Prices that are, by any stretch of the measure, insanely, world-changingly cheap.

Ten years of plunging solar prices

Here’s how cheap solar power has gotten. Over the last decade, the price of electricity from large, utility-scale solar projects has dropped by a factor of at least 5. That 80% price decline has made building new solar cost-competitive with building new coal or gas power plants across most of the world (with Northern Europe being one of the few exceptions).

The data in the chart above comes from multiple independent data sources and includes three global measures, two US measures, one from China, and one from India. And while these data sets differ in places, together they paint an overwhelmingly consistent picture: The price of electricity from utility-scale solar projects has dropped by a factor of somewhere between 5 and 8 from 2010 to 2020.

In addition, if we look at the gray shaded area of the chart above, showing the cost of electricity from new fossil fuel plants (primarily coal and natural gas plants) we can see that solar started to become competitive on raw cost in the middle of this past decade, and it’s increasingly looking cheaper to build solar power than to build new fossil power plants. (Though solar still suffers from intermittency, the economics of which I’ll come back to in a future post.)

Outshining the forecasts

This plunge in prices has far exceeded any credible forecast. Solar electricity in 2020 is roughly half the cost I projected in 2011, and one quarter the cost the International Energy Agency (the IEA) projected in 2010. Both the world’s foremost energy authority (the IEA) and possibly the world’s biggest optimist on solar (me) were wrong.

Another way to put this is that solar prices are literally decades ahead of where forecasters expected. Solar has reached prices in 2020 that I didn’t expect to see until 2035, that the IEA’s 2014 solar roadmap didn’t expect until after 2050, and that IEA’s 2010 forecast didn’t expect solar to ever reach.

Modeling the future of solar

We can use the last decade to predict the future prices of solar power. Not by looking at the cost of solar as a function of time, but by looking at the cost of solar as a function of cumulative scale of the solar industry. We can do this because solar power, like computing, is an exponential technology, which follows the rules of exponential price decline.

Technology prices drop through learning

To do this, we can use Wright’s Law or the “learning curve”. Wright’s Law states that, for most technologies, every doubling of cumulative scale of production will lead to a fixed percentage decline in cost of the technology. This happens through learning-by-doing, a mixture of innovation that improves the technology itself and innovation that reduces the amount of labor, time, energy, and raw materials needed to produce the technology.

Wright first observed that every doubling of scale led to a constant percentage reduction in cost in 1936, while studying the production costs of airplanes. Since Wright’s initial observation, the same power-law relationship between cumulative production and cost has been found in other areas. For example, every doubling of cumulative Ford Model T production led to a roughly 16% decline in cost per unit.

Wright’s Law is similar in some ways to Moore’s Law: an exponential decline in the cost of computing overtime. Wright’s formulation is slightly different: an exponential decline in the cost of technologies as a function of cumulative scale of production. Remarkably, Wright’s Law predicts the cost of computing better than Moore’s Law.

And indeed, Wright’s Law has been found to apply at least 60 other technologies.

Solar prices drop through learning

Does Wright’s Law / the learning curve apply to the cost of solar? It’s well-established that it applies to the cost of solar modules. The price of solar modules per watt of power drops by somewhere around 25% for every doubling of cumulative manufacturing. But solar modules are only a fraction of the cost of overall solar systems. Solar systems contain other hardware, like DC-to-AC inverters, cabling, mounting systems, tracking systems that move the solar panels to keep them facing the sun, and so on.

To see if overall electricity costs from solar follow the same law (to verify that solar is indeed, an exponential technology) we can plot the cost of solar (on a log scale) vs the cumulative scale of the solar industry (also on a log scale). A straight line tells us that we have a technology that’s following Wright’s Law.

We also see that the slope of the line indicates that the cost of solar power drops by a stunning 30-40% for every doubling of the amount of solar we’ve installed over time.

The future cost of solar

So how cheap will solar get? And how soon? If we extend the learning rate we found above forward, and assume a fairly conservative growth rate of the solar industry of about 16% per year, we get this:

This incredible pace of solar cost decline, with average prices in sunny parts of the world down to a penny or two by 2030 or 2035, is just remarkable. Building new solar would routinely be cheaper than operating already built fossil fuel plants, even in the world of ultra-cheap natural gas we live in now. This is what I’ve called the third phase of clean energy, where building new clean energy is cheaper than continuing to operate existing fossil fuel plants. Even in places like Northern Europe, by the late 2030s, we’d see solar costs below the cost of operating fossil fuel power plants, providing cheap electricity in summer months with their very long days in the high altitudes. These prices would be disruptive to a large fraction of already operating fossil fuel power plants – particularly coal power plants, that are far less able to ramp their power flexibly to follow solar’s day-night cycle. Solar, if it keeps dropping at this pace, could well be the cheapest electricity over the vast majority of areas where people live. Nothing would ever be quite the same in the world of energy.

Solar is amazing. It isn’t a panacea

These solar costs above have massive implications. They give us hope for cleaning up our electricity system and providing clean power for the electric vehicles that will dominate ground mobility in the future. They give us hope for being able to use ultra-cheap clean electricity to decarbonize industry or produce energy carriers like hydrogen at a cost low enough to help us do so.

Solar isn’t, however, a panacea. First, projections are only projections. I believe the forecast above should be taken seriously. But we shouldn’t blindly assume that it will happen. There will be real obstacles – technical, economic, social, regulatory, and political – that will all need to be overcome to bring this to bear. And there may well be a physical floor price that solar reaches as prices drop to close to the cost of land and other resources that are resistant to cost decline.

Second, the sun doesn’t always shine. To power evenings and night times, we’ll need to continue progress on cheap energy storage. And even more challenging is that solar peaks in the summer and wanes in winter. In many regions (Europe in particular), electricity demand peaks in the winter. In Germany, for instance, solar power output in December is just 1/5 of the solar power production in June, even as electricity demand is higher in winter than summer. Solar will need to be combined with other technologies, like wind power, seasonal energy storage, hydropower, and perhaps even nuclear power, in order to have its greatest impact in decarbonizing less-sunny parts of the world.

Even so, the incredible pace of solar provides us an incredible tool for decarbonizing our electrical grid, while ultimately lowering costs for consumers, businesses, and industries. In coming posts in this series, I’ll analyze implications of ultra-cheap solar, along with future trends in wind power, grid-scale energy storage, electric vehicles, and emerging sectors like hydrogen. Watch my blog or follow me on Twitter for those.

And for, now have hope. Technology is giving us better and better tools to decarbonize society while reducing the cost of energy.

Here comes the sun.

Ramez

End note

We know that in most parts of the world, utility-scale solar is cheaper than new fossil fuels. The April 1.5GW bid from EDF and JinkoPower in Abu Dhabi weighed at 1.35c/kWh, fully 14% below the previous record set in January this year (an 800MW tender in Qatar.) It is genuinely an exciting time, unless you are long oil and plan on staying that way.

Please take a moment to thank Ramez for taking the time to shine a light on these issues.

Stay safe!