The levelized costs of renewables are falling dramatically, with solar photovoltaics (PVs) leading this positive decline. According to IRENA, the global cost of solar PVs fell over 80% between 2010 to 2019. Concentrating solar-thermal power (CSP) also saw a drop of nearly 50%, while onshore and offshore wind recorded cost reductions of 40% and 29% respectively.
Figure 1: Global weighted-average utility-scale LCOE by technology between 2010-2020
Source: IRENA
- The levelized cost of electricity (LCOE) of residential PVs fell by between 49% and 89% in Australia, Germany, Italy, Japan, and the US between 2010 and 2020.
- In the US, solar power capacity from both PVs and CSPs has increased from a paltry 0.34GW in 2008 to 97.2GW today. The impact of this growth has made solar power more accessible and above all affordable in the US.
- The same scenario is seen in the UK, with BEIS admitting in a report that solar is about 50% cheaper than was earlier assumed.
Did subsidies play a significant role in the development of solar PVs?
Subsidies have played an important part in the development of solar power across many countries on the globe. According to the International Energy Agency (IEA), policies in favour of renewable energy growth have made solar power the cheapest source of electricity in history in some parts of the world. Some of these policies were in the form of government subsidies.
Subsidies that supported the development of renewable energy technologies reached a total of $140 billion in 2016, again according to the IEA. Meanwhile, in the same year, fossil fuels received subsidies worth $260 billion.
- In Germany, the feed-in-tariff (FIT) support mechanism, established in 1990, has played a significant role in supporting the development of solar PVs. This is a government programme with the sole aim of promoting renewable and low-carbon electricity generation technologies. By 2000, this scheme was replaced by the Renewable Energy Sources Act. The combined effect of these policy instruments saw a growth of 17GW of installed solar PV capacity from 2000 to 2010.
- Spain also deployed solar projects with the help of FIT. In Spain, this was established in 1994 and was further enhanced by the Electric Power Act of 1997 and the Royal Decree of 1998. The results of these instruments saw a total of 3.9GW of solar PV installations from 2000 to 2010.
- In the United Kingdom, a renewables obligation was introduced in 2002 followed by the FIT in 2010.Currently in place is the Contracts for Difference (CfD) mechanism, with four allocation rounds held since its inception.
- In China, solar PV subsidies started with the support of solar manufacturers in 2002. These subsidies increased after the 2008 financial crisis with support primarily for the heavily export-reliant solar PV industry. In 2011, China adopted the FIT at the national level.
Figure 2 shows the cumulative installed solar PV capacity for some countries
Source: earth-policy.org
The sharp growth for Germany and China can be attributed to the use of subsidies.
What accounts for these lowered costs of solar PV?
According to the National Renewable Energy Laboratory’s (NREL’s) Senior Financial Analyst David Feldman, the lowered costs of solar PV over the past decade are largely due to the huge cost decline in the module price. While the module alone would cost $2.5 per watt a decade ago, today, an entire utility-scale PV system costs around $1 per watt.
Another important factor was the economies of scale in the production of these modules which became more prevalent after 2001. A study conducted by researchers from the Massachusetts Institute of Technology (MIT) between 1980 to 2012 concluded that the decline in solar PV costs are due to economies of scale, given the increased size of solar module and solar cell manufacturing plants.
Is there a need for further subsidies?
The use of subsidies has played an important and crucial role in the development of solar PV technology, as pointed out above. From the regional to the global level, subsidies have been used massively to develop this technology — in areas of R&D and solar module production to project development and utility operations.
Now that subsidies have played their role to lower the cost of solar PV, should this technology continue to benefit from state support?
Has solar PV reached grid parity?
To assess whether subsidies should be continued, we need to introduce the term “grid parity”. Grid parity is said to have been reached when the cost of renewable electricity generation is equal to or less than the cost of electricity from traditional energy sources (mainly fossil fuels). Typically, when the costs of solar PV fall below the costs of these traditional energy sources, subsidies are deemed not to be required .
According to Bloomberg New Energy Finance (BNEF), solar PV has already reached grid parity in some EU countries and China. As a result, China has stopped providing subsidies for new solar projects since 2021.
Ultimately, the push to eliminate subsidies to solar PV development projects should be based on the attainment of grid parity within a particular region or country. The need for subsidy withdrawal can only make sense when these solar PV costs are comparable with retail electricity prices.
Key Takeaways
- The levelized cost of solar PV has fallen dramatically over the last decade.
- Subsidies have played an important role in lowering the cost of solar PV developments.
- Grid parity should be considered before subsidies are withdrawn from solar PV developments.
- China has already reached grid parity and has stopped providing subsidies for new solar projects.
Sources
Bridle, R. and Beaton, C., 2012. Assessing the Cost-Effectiveness of Renewable Energy Deployment Subsidies: Solar PV in Germany and Spain. International Institute for Sustainable Development, pp.1-29. https://www.iisd.org/gsi/sites/default/files/rens_cba_solar_germany_spain.pdf
China Focus. 2022. China Focus | Solar Energy in China: The Past, Present, and Future. [online] https://chinafocus.ucsd.edu/2021/02/16/solar-energy-in-china-the-past-present-and-future/
Energy.gov. 2022. Solar Energy in the United States. [online] https://www.energy.gov/eere/solar/solar-energy-united-states
Grantham Research Institute on climate change and the environment. 2022. Do renewable energy technologies need government subsidies? – Grantham Research Institute on climate change and the environment. [online] https://www.lse.ac.uk/granthaminstitute/explainers/do-renewable-energy-technologies-need-government-subsidies/
International Renewable Energy Agency, 2021. Renewable Power Generation Costs in 2020. Abu Dhabi: International Renewable Energy Agency, pp.66-82. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2021/Jun/IRENA_Power_Generation_Costs_2020.pdf
KPMG, 2015. UK solar beyond subsidy: the transition. KPMG, pp.1-48. https://www.r-e-a.net/wp-content/uploads/2019/10/UK_Solar_Beyond_Subsidy_-_The_Transition-3-1.pdf
Nrel.gov. 2022. Documenting a Decade of Cost Declines for PV Systems. [online] https://www.nrel.gov/news/program/2021/documenting-a-decade-of-cost-declines-for-pv-systems.html
Ofgem. 2022. Feed-in Tariffs (FIT) – Feed-In Tariff (FIT) rates. [online] https://www.ofgem.gov.uk/environmental-and-social-schemes/feed-tariffs-fit/feed-tariff-fit-rates
reuters.com. 2022. China to stop subsidies for new solar power stations, onshore wind projects in 2021. [online] https://www.reuters.com/business/energy/china-stop-subsidise-new-solar-power-stations-onshore-wind-projects-2021-2021-06-11/
Solar Power Portal. 2022. Solar PV costs fall 82% over the last decade, says IRENA. [online] https://www.solarpowerportal.co.uk/news/solar_pv_costs_fall_82_over_the_last_decade_says_irena
Xiao, M., Junne, T., Haas, J. and Klein, M., 2021. Plummeting costs of renewables – Are energy scenarios lagging? Energy Strategy Reviews, 35, p.100636. https://www.sciencedirect.com/science/article/pii/S2211467X21000225
