“For nearly two decades, solar energy has been viewed as promising, but a fringe player in the world market for energy. In 2012, photovoltaics supplied a scant one-half of one percent of the world’s energy needs. Two years later, solar supplied one percent of what the globe needed. Now in 2016, it’s providing a mere two percent of global electricity.
But hold on. That kind of growth is not linear. By doubling every two years, solar capacity is beginning to show the exponential growth pattern that other critical technologies – computing speed, mobile phones, data storage – have followed before it. With only six more “doublings” over the next dozen years or so, solar could meet all of today’s energy needs, futurist Ray Kurzweil has pointed out.
Of course, our needs constantly increase, so how soon solar might serve up all the electricity we use is a moving target. Nonetheless, some in the industry think we’ll get there in less than 20 years.
Which begs the question: What would the world look like with an abundant supply of free or dirt-cheap electricity? First, let’s take a look at how likely that is to happen.
Last month in Abu Dhabi, a new record low bid of 2.42 cents per kilowatt hour of solar electricity smashed the previous record of 2.91 cents set in Chile just five weeks before. The Chilean world record, in turn, had shattered the previous record of 3.5 cents set in Mexico just four months before that.
These aren’t just record low – unsubsidized — prices for utility-scale solar energy. That Abu Dhabi price is the cheapest electricity contract ever signed anywhere using any technology. Ever.
Government incentives and mandates to build out solar capacity are becoming less important to the industry’s growth. A new report by GTM Research, The Next Wave of U.S. Utility Solar, predicts that in 2016 only about half of the utility-scale solar PV coming online will be driven by state mandates.
When the US SunShot Initiative launched in February 2011, it set a goal of six cents per kilowatt hour by 2020. In just five years, it’s more than 70 percent of the way to achieving that, with average U.S. solar prices (accounting for a combination of residential, commercial and utility-scale power) dropping from 21 cents at the program’s start to below 11 cents today.
A bit of context can be helpful here: Electricity generated at a new natural gas power plant in the U.S. costs about 5.6 cents per kilowatt hour – and that’s with historically low U.S. natural gas prices. At today’s Abu Dhabi price, solar costs less than half what gas power generation does.
How is this possible?
The Beautiful Math of Solar Power – Every time the world’s solar power doubles, the cost of panels fall 26%
PV module prices, 1976-2015 (2015 $/W)
PV Module Experience Curve | Source: Bloomberg New Energy Finance
Reduced costs for PV modules, which may drop as much as 50 percent by March 2018 as a global surplus builds up, are only the start. In addition, utility-scale solar systems have become less costly to deploy, solar generation capacity and efficiency have continued to rise, overall operating costs are declining, and there is aggressive competition globally to win new bids in the industry.
It may seem that these prices can’t sustain profitable systems, but bidders continue to anticipate around 7 percent return on their investment, particularly as new projects scale ever larger.
In Abu Dhabi, low financing costs are expected to continue driving prices down. The cost of solar in the United Arab Emirates is less than one-third the cost of natural gas generation, motivating that country to add solar fast so that it can export more of its precious natural gas to other parts of the world.
Chile generated so much solar power in areas with insufficient transmission lines that spot electricity prices dropped to zero on 113 of the first 120 days this year. Bloomberg reported at the time that the country had entirely separate central and northern grids. Most solar production was concentrated in the north, where copper mines had been expected to need it. But falling copper prices over the last few years have slowed production, leaving excess electricity with nowhere to go.
Think about that – free energy was available in Chile for all but a week in the first four months of 2016. What if electricity was free all the time everywhere? It’s an intriguing mental exercise.
With transportation and manufacturing costs dropping to near zero, the cost of physical goods would plummet. Those physical goods would include solar panels, creating a cycle of downward pressure on the cost of energy. In a digital world, too, free energy equals infinitely available communication and connectivity. Soon, we would find high-energy ways to convert common resources into rare resources, for example by desalinating abundant ocean water to add to the world’s dwindling fresh water supply.
With energy representing up to 45 percent of the cost of everything we eat, agriculture costs would drop. Growing, transporting, processing, packaging and retailing costs all would plummet. With fresh water readily available through desalination and other high-energy filtering technologies, food could be grown nearly anywhere indoors or outdoors.
Transportation costs would dive: If consumer interest in electric vehicles continues to grow as prices keep dropping, we could see 12 million EVs on the road by 2025 – even without cheap or free energy. If it suddenly cost next-to-nothing to operate them – and much less to manufacture them because cheaper energy means cheaper materials overall – community-owned cars could roam the streets 24/7, picking up and dropping off passengers as needed. Mag-lev trains – notorious energy hogs – could whisk passengers cheaply to their distant destinations.
In their 2012 book “Abundance, XPrize Foundation chairman Peter Diamandis and his science journalist co-author Steven Kotler describe how exponential growth of advanced technologies will let us close the scarcity gap between the world’s “haves” and “have-nots.”
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