Why The Energy Sector Is Being Disrupted
Solar and wind energy has become so cheap that it is now competitive with coal and natural gas even without subsidies. In the US wind and solar has actually become so cheap with the 30% ITC subsidy that it accounted for the majority of new capacity additions in 2015. Even this year in spite of natural gas being exceptionally cheap wind+solar makes up 63% of expected capacity additions.
In India recent bids for solar projects have gone as low as 4.34 rupees (6.5 cents) per kWh, around the same cost as coal. In light of solar energy plummeting in price India has made an ambitious goal of 100GW of solar capacity by 2022, twenty times their current capacity.
Since 2010 the cost of silicon PV cells have dropped from $2/W to $.3/W; a whopping 85%. Solar module prices average around $.55/W and make up around 50% of total system cost for utility scale. Prices have stabilized somewhat lately; modules dropped around 10% in ASP during 2015, and the largest producer of modules Trina Solar expects cost reductions of 5-8% in 2016.
The cost reductions have significantly lowered the risk of investing in renewable energy companies as they are now a lot less dependent on government subsidies, and if the LCOE trend continues it won’t be long before the risk factor of political policy disappears completely.
A decade of exceptional growth
In this article I am primarily focusing on solar energy which I believe holds a larger potential than wind. Solar is growing much faster due to the LCOE dropping much quicker. In 2005 the global PV solar capacity was a mere 5.1GW, since then solar has grown at an annual rate of 47% to and accumulated capacity of 235GW in 2015. Just last year 57GW of PV solar capacity was added growing 30% YoY. Almost catching up to wind that saw 64 GW of additions in 2015 despite wind capacity being 59GW in 2005, more than 10 times larger than solar.
I believe solar will continue to gain market share as it is still cutting cost faster than wind, and has more flexibility too. You can make huge utility scale plants as well as smaller community sized plants. Solar panels can be placed on rooftops of stores or factories for commercial and industrial purposes without any additional land requirements, or of course on residential rooftops which has vast potential in the underdeveloped world where the electrical grid doesn’t reach everyone.
An often cited obstacle to renewables ever gaining a substantial share of energy production is energy storage; we also need energy when the sun isn’t shining. This was a legitimate problem not many years ago, but like renewable energy the price of battery storage has seen huge price reductions in the recent years. Take for example the Tesla Powerpack which has a price tag of $250/kWh. The product comes with a warranty for 10 years and is meant for daily cycling, which puts the cost per kWh of stored energy at less than $.07/kWh, and that is assuming the battery stops working the moment the warranty expires.
$.07/kWh admittedly is still a lot when you think about the average retail electricity cost in the US is around $.14/kWh, but keep in mind that only some of the energy needs to be stored for later use. Furthermore batteries meant for large scale energy storage is still a young industry with a large potential for both technological advancements and cost reductions from economies of scale, energy storage will only get cheaper from here.