The cost of to install a utility-scale photovoltaic (PV) system will reach a key milestone set by the Department of Energy (DOE) by 2020 and fall to below $1 per watt, GTM Research says in a new forecast.
A summary of findings posted by the MIT Technology Review said that crossing the $1-per-watt barrier was an important step because it represents the point at which solar electricity becomes competitive, without subsidies, with the cost of power generated in plants that burn fossil fuels.
Residential PV prices now average about $3 a watt, and commercial prices have dipped to less than $2 per watt. Report author Ben Gallagher said future price declines would be “largely driven by reductions in soft costs” — design, labor, permitting, and overhead — not by reductions in the cost of PV modules themselves. Soft costs account for about 64% of the total, according to the DOE, but GTM thinks they will still make up 60% of total system costs by 2020.
“Soft costs present both the biggest opportunity but also the largest hurdle for future cost reductions, particularly in the residential and commercial market segments where prices are much higher than in the utility-scale segments,” GTM reports. (The bulk of the GTM report is behind a pay wall.)
DOE announced its SunShot Initiative in 2011. Since then, the cost of installing a PV system has dropped by as much as 65% and the number of solar installations in the U.S. has climbed to about 1 million.
But, the MIT report says, there are challenges ahead.
True costs are higher. A price of $1 per watt is how much a utility or developer would pay a construction firm to install a PV array and the necessary inverters. But it doesn’t include a variety of other costs, such as transmission lines to move the power around, energy storage, and software to manage the grid. Andrew Mills of the Lawrence Berkeley National Laboratory says that depending on a variety of factors, a $1-per-watt facility will produce electricity at a cost of about 6 cents per kilowatt-hour. While that’s about the same as a natural gas plant, the need for backup power to supplement the intermittent nature of solar adds about 20% in costs.
Solar is still small. Even after crossing the 1 million mark for installations, solar power accounts for just over 1% of the total electricity production in the U.S. and will “barely” reach double digits by 2020 even with robust growth rates in utility-scale projects. The U.S. Energy Information Administration (EIA) says that all forms of renewable generation will total 15.6% of the U.S. total by 2020, with coal and natural gas making up 65% of the total — even with solar at $1 per watt. (However, the EIA’s track record on renewable energy predictions has been criticized in the past.)
The pace of growth will slow down. Frank O’Sullivan, director of research and analysis for the MIT Energy Initiative, says that strong growth in solar will drive down the price of electricity from all sources, which will in turn dampen growth. “Beyond a certain point, new solar installations start driving down the price of power not only from solar plants, but also from the always-on fossil-fuel plants that supplement intermittent solar power,” the MIT report says. “That’s a good thing if you’re a customer buying cheap power. It’s not so good if you’re a power plant operator and need a return on your investment. If big solar power additions make it harder for owners of power plants to recoup their costs, that means that growth in the solar market is to some extent self-limiting.”
Too much can be a problem. Finally, MIT Technology Review says, it’s possible to have too much solar on the grid, as has been the case at times in Germany, California, and Texas. Spot prices for electricity can dip below zero, meaning that utilities have been forced to pay grid operators to take electricity off their hands. Cost-effective energy storage and better ways of balancing supply and demand across the grid will be needed.