Now US says solar PV to be cheaper than fossil fuels by 2020

Giles Parkinson at REneweconomy has a report on the changing economics of solar power - Now US says solar PV to be cheaper than fossil fuels by 2020.

The sharp slump in solar PV prices has caused a dramatic re-evaluation of the technology cost and potential for solar by the world’s largest energy consumers – the US, China, and India – over the last three months.

The latest update came from US Energy secretary Stephen Chu, who suggested in a keynote speech late last week that the US government’s “sunshot” program launched in 2020 – with the goal of making solar cheaper than fossil fuels by the end of the decade – was no longer just aspirational, but a growing reality.

Chu began by making several observations about the US energy industry as it now stands. Onshore wind is already cheaper than new coal-fired energy, although gas is cheaper than both at around 5.5c/KWh, thanks to the boom in shale gas exploitation. Solar PV comes in at around 15c-24c/KWh. But Chu said the goal is to get solar down to 6.5c/KWh by the end of this decade (remember, Australia’s white energy paper absurdly predicts solar PV at 34c/KWh by 2035! Which is why you won’t hear a Chu-style speech from any current Australian energy minister).

Chu noted that utility-scale solar had already gone from $8 a watt in 2005 to $3.80 a watt in 2010, when the cost of the module was $1.70/watt. To get the cost of utility-scale solar down to $1/watt, it needs the cost of modules (which accounts for half of the total cost) to fall to 50c/watt. What makes him more optimistic than ever that the US will get there is the fact that in less than two years, it is already down to 93c/watt for silicon-based panels and below 80c/watt for cadmium telluride. “We’re more than half way there on module costs already, “ he told the ARPA-E conference. “Now we’ve got to do the same on the balance of system costs, and we are working hard on that.”

Once the total system cost gets to $1 a watt, utility-scale solar will have a long-term cost of energy of 6.5c/KWh. At that point, Chu says, it will be the same price as natural gas, without the need for any solar subsidies.

Chu’s predictions mean that the governments of the world’s three biggest energy users – China, the US and India – each believe that the cost of utility-scale solar will be cheaper than fossil fuels by 2020 at the latest. In India, because they have to import so much and have lousy transport infrastructure, that cost curve is expected to intersect with five years.

These three countries are predicted by the International Energy Agency to account for half of all energy demand in 2035. In the next biggest market, Europe, wind energy is already cheaper than fossil fuels in most countries. The Middle East, which will be the next biggest market, has already recognised that solar is cheaper than the oil-fired plants it currently uses.

So, what happens next? Most people can possibly guess, but for those who think it might not mean much, or that the transition will be slow, Chu used the example of the transport industry, and the introduction of the automobile, to illustrate just how quickly an industrial sector can be transformed. Up to the mid 1890s, the US transport industry was dominated by the horse and cart, he noted. By the early 1920s, it was almost all automobiles and trucks.

“It was,” says Chu, “one of the most rapid transformations in the history of industrialisation” – particularly if you considered the infrastructure that had to go with it, such as manufacturing and fuel distribution.

And, like solar and the energy industry, the transport industry was driven not just by better and cheaper technology, but by environmental factors too. “In New York in the 1890s, there were 160,000 horses dropping 3-4 million pounds of manure each day,” he noted. “It had reached its saturation point …. pollution hastened the transition,” he said.

And, of course, there were naysayers. The president of the Michigan Savings Bank told Henry Ford’s lawyer, Horace Rackham, that the “horse was here to stay and the automobile was just a fad.” Rackham ignored him and turned a $5,000 investment in the Ford Motor Co into a stake worth $15 million. In 1909, the magazine Scientific American said that the automobile had reached the “limit of its development”.

Little wonder that the vested interests, those with trillions of dollars invested in the current energy infrastructure and energy sources, and the prospect that their unearthed resources will continue to be exploited, are pushing back so fiercely. Any delay in funding programs for R&D and deployment is a win for the fossil fuel industry.