Massive Price Drop in PV Systems
The future will be solar if the price of photostatic (PV) systems drops. There is a new research result about the future of the PV price online, done by Fraunhofer ISE , that gives surprising insights. I will discuss the results in this blog post.
Learning from past experience
The first silicon PV cell date back to 1950s and since the 1980s there is a global market and production worth mentioning. Since then, the price of PV cells was constantly dropping. The interesting thing is, there is a mathematical law, that describes this drop. To keep it short, this law tells us, that every time, the production of PV doubled, the price fell about 20%.
The actual development is shown in the graphic:
|Development of PV module price since 1980 |
To understand this plot, be aware, the right axis is the accumulated produced capacity of PW measured in GW. It starts with 0.001 GW (=1 MW) and ends with 100.000 GW. To cover this very wide range, the scale is logarithmic. The first price tag dates back to 1980, where we had to pay more than 20 € per watt. The price is adjusted for inflation to the level of 2014, an exchange rate of one Euro gives 1.25 $ is in use. The last price tag is for 2014 and is in the range of 0.5 € to 0.7 € for large-scale PV power plants.
It is not surprising, that the actual price in different years is not always precise on the long-term trend curve, that shows a drop of 20,9% per year, due to market effects.
The big question is, how will this learning curve develop in the future? There are three scenarios, a very conservative one, that tells us, only 19% drop with another doubling of the installed PV base, a medium scenario with 20.9% drop and a progressive one with 23%. However, the result will always be a sharp drop of the PV panel price, if the installed base grows in the future.
Below a price of 0.2 €/W, there seems to be another limitation of the pure raw material cost. To me´, this limitation seems a little bit artificial, because of the price of this raw materials, like silicon or glass, could also drop if the production volume grows far beyond today's volume.
It should be mentioned, that a capacity of 100.000 GW PV installation is equivalent to a surface of one million square kilometers, this is the size of a country like Egypt or Texas and California combined!
How expensive is electricity in the future?
The price of a PV panel is not the only part of the cost drivers in solar power. To break the price down to a kWh of electricity at the grid feed in, we have to include other cost drivers.
|Price of different elements for real-world PV grid-scale sites. |
The first surprising thing is, that the PV-modules are no longer the main cost driver, as shown in the figure above. The cost of mounting, connecting and planning top already this cost. The paper from ISE does not cover "Red tape", this will hopefully drop in the future, but nobody knows.
Another significant part of the cost drivers are the inverter, they produce AC current from the DC current, generated by the PV cell. The price of this inverter follows a similar law of price drop by market volume as the PV panels.
Price per kWh
To calculate the price of a kWh of electricity itself, we have to take the solar radiation and the capital cost into account. There is a calculation method, the levelized cost of electricity (LCOE). It includes capital cost and maintenance of the PV power site. If you are a geek, you can do the math with the following formula:
|Calculation of the levelized cost of electricity (LCOE). |
The interesting result is, that one of the main factors for electricity from PV is not only the sun but the interest or discount rate. Today, we live in a world with very different interest rates. A strange effect is, if we look at the globe, the countries with high insolation have often very high-interest rates. For example, Germany has a low insolation but also a low-interest rate, Spain has a relative high insolation but a significantly higher interest rate. The result is, the price of PV energy is much more similar as we first guess.
|PV power price depends on the cost of capital. |
To look into the future beyond 2020 is very difficult, but the gathered information gives us some hints. The first thing is, PV electricity price will drop due to the learning effect resulting from the growing market. The market is growing because PV electricity gets cheaper and is competitive with all other electric power sources. The long-term price in the scenario of ISE is in the range of 2 ct/kWh.
The share of the market will be beyond 30% in 2050.
But there is an obstacle on the path to solar. The sun shines only at daytime and only if there are no clouds. This results in a strong request for energy storage. One solution is the new concept of Hydraulic Rock Storage (HRS) as developed by the Heindl Energy in Germany.
|Energy storage using the Hydraulic Rock Storage. |
Combining a cheap storage with a storage price of 3 ct/kWh and PV in the range of 2 ct/kWh gives a long-term price for electricity over the whole day, only a fraction is stored, for less than 5 ct/kWh in most regions of the world.
 Fraunhofer ISE (2015): Current and Future Cost of Photovoltaics. Long-term Scenarios for Market Development, System Prices and LCOE of Utility-Scale PV Systems. Study on behalf of Agora Energiewende. http://www.agora-energiewende.org/service/publications/
 Heindl Energy, Hydraulic Rock Storage, http://heindl-energy.com/