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Economic viability of solar energy

The global consumption of electricity is expected to grow 48% by 2040, as per the EIA. In order to meet this demand and simultaneously address the global challenges of clean energy, climate change and sustainable growth, there is an urgent need for economically effective renewable energy technologies.

The cost-competitiveness of renewable power has increased and this was witnessed through the levelized cost of energy (LCOE) on various power generation technologies. Hydropower, geothermal, wind and biomass presently provide electricity at competitive prices as compared to traditional fossil fuel-fired power generation. However, the decline in LCOE of solar PV was noteworthy. In 2015, solar projects delivered electricity for a mere USD 0.126 per kilowatt-hour (kWh) in contrast to USD 0.285/kWh in 2014. This is within the range of USD 0.045-0.15/kWh at which electricity is delivered by fossil fuel power sources.

The LCOE of solar power has reached competitive levels due to the major drop in solar PV module prices, which were around 75% lower in 2014 than 2009. This unexpected fall in price of PV modules was a driving force in the rapidly increasing global installed capacity of solar power from 23.2 GW (2009) to 223 GW (2015). Further, out of the total installed capacity, 98% were solar PV capacity and remaining was concentrating solar power (CSP).

      

The sharp decline in module prices was because of a decrease in the prices of polysilicon, the major raw material which formed a significant part of the total cost. From 2008 to 2011, the polysilicon prices dropped by 94% from around $400/kg to $25/kg due to the overcapacity and sustained since the above stated period. The module price fell at a rapid rate during the same period.

     

The lower cost of production has led to increase solar PV module capacity and production by the manufacturers, especially in China, which has established its predominance in module production due to the economies of scale. The prices of module stabilised by the end of 2012 but the production was high and modules were being sold at lower prices to recover the investment.  Moreover, the modules which cost around $1/watt were being sold as low as $0.7/watt. A lot of companies could not sustain such prices in the market, which was at a very nascent stage and led to a number of insolvencies. There was a period of market consolidation where in less efficient companies were forced into the acquisition or bankruptcy. In the year 2013-2014, there has been a slight fall in PV costs that can be attributed to the technological improvements and scaling up of production capacities.

Solar energy not only provides electricity at a cost comparable to the fossil fuels, but also generate ample employment opportunities. As per the estimate by IRENA in 2015, renewable energy provided employment to 8.1 million people around the globe, this was a 5% increase from the numbers reported in 2014. Solar PV was the largest renewable energy employer and offered 2.8 million jobs globally, this was an increase of 11% over 2014.

     

The trend in the gross profit margin of major companies reveals how these are affected by lowering of selling price per watt of the module. The module selling prices were higher from 2006 to 2008, but the consumption and demand for solar power were low. As stated above, the period from 2008 to 2011 saw a huge drop in polysilicon prices, this indirectly affected the selling prices and margins of companies in the sector. In 2012, there was a drop in gross margins of the company due to lot of inefficient companies which were unable to sustain with lower prices. This led to the restructuring in the market. However, over the past 3 years, the margins are moving towards stabilisation and this was due to the positive impact of increasing demand, policy alterations, increasing deployment of solar power, which is countering the drop-in prices as solar power becomes mainstream.

The IEA expects solar power to contribute 16% of the total world power generation in 2050. The prices are expected to drop further. Although the decline in cost to $0.70 per watt from 2010-2012 were due to the cutthroat pricing which led to eroding margins. The cost reduction in 2013 to 2015 were mainly due to the technical advancement and policy initiatives. Additionally, in future, the main cost reducing drivers will be better supply chain management, such as shifting to in-house manufacturing of wafers and cells, adoption of advanced technological reforms enabled by research and development and increased automation of manufacturing processes.

Thus, it can be stated that economic viability was a reason for the growth of solar energy. Televisory is of the view that solar as a sole energy generation source may not be in a position to fully substitute coal and natural gas. This is because sunlight is variable, although solar energy can contribute more towards the common goal in the power generation sector. The use of solar power can lead to stabilisation of the cost of electricity because they are not subject to price volatility as in the case of fossil fuels. The technology has no GHG emissions or other pollutants and requires little or no water for its operation.

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