ENERGY FINANCE

Utility solar prices will continue to drop all over the world even without subsidies

Hardware costs, cost of labour, favourable cost of capital, low taxes and low, but positive, profit margins all contributed to lowering the price of utility solar power in the Middle East. These prices and policies can be replicated elsewhere without direct subsidies and prices will continue to reduce in the future.

Messages for policy

  • Electricity from photovoltaics is cheaper than electricity from fossil fuels in sunny regions, when the right financial conditions are met.

  • Reducing the cost of financing is the key to the widespread implementation of low-cost, large-scale solar energy projects.

  • When financial costs are low, well-designed solar energy projects will pay for themselves: the revenues from selling electricity at market price are enough to pay off the initial investment.

  • Governments can support renewable energy development without subsidies, through direct investments, risk mitigation or low-interest loans to solar energy projects.

  • Local authorities should identify ways to reduce soft costs for project developers, and allow construction of solar projects close to existing access roads and electrical transmission infrastructure.

BASED ON H. Apostoleris et al. Nature Energy https://doi.org/10.1038/s41560-018-0256-3 (2018).

The policy problem

Many countries have adopted incentive policies to encourage solar energy development. Examples include solar feed-in tariffs common in Europe and the 30% income tax credit for solar installations in the US. In recent years, however, Middle Eastern countries with no official solar incentive programmes have become world leaders in developing low-priced photovoltaic power plants. For example, the United Arab Emirates became the first country to realize unsubsidized solar electricity for less than 3¢ kWh–1. The sudden appearance of ultra-cheap solar energy in these countries led to speculation whether these prices are real, resulting from sustainable market developments, or the result of hidden subsidies or a speculative bubble. Resolving this speculation is critical for developing future utility solar power policy.

The findings

We performed a detailed cost breakdown of large-scale solar energy projects in the United Arab Emirates. Many factors contributed to the low price, but two stand out as having the most impact: the plummeting cost of solar panels and the reduced costs of financing. Solar panel prices have fallen by a factor of 6 since the beginning of this decade. The cost of building a solar power plant is now similar to the cost of other technologies. The cost of solar panels represents only one-third of the total construction costs. We found that solar power projects were financed by large loans covering 70–80% of the project costs, with low interest rates. The project developers were often large, state-connected companies, meaning that the projects were implicitly underwritten by the national government. It seems that these companies may have been willing to accept a somewhat lower return on their investment than purely private developers. However, we showed that these projects are still profitable when all of the costs are accounted for. It is important to note that our work attempts to reconstruct these projects based on publicly available information, and does not utilize proprietary information from the project developers themselves; the study should not be considered the authoritative opinion on exactly how any particular project achieved its results, but rather a general and transparent analysis on how a project could achieve a particular electricity price, given a set of local conditions that are more or less known.

The study

We developed a model to break down the levelized cost of electricity (that is, the total cost to the plant operator of producing one kilowatt-hour of electricity) into many different contributions related to hardware costs, installation labour, financing, site preparation and maintenance. This allowed us to estimate costs from the bottom up and evaluate the impact of different assumptions about cost components. We considered specific trends independently, such as recent reductions in the price of solar panels, or regional variations in labour costs and debt interest rates. We compiled data from various public sources, including annual analyses by the US National Renewable Energy Laboratory and other national laboratories, industry reports, local studies of installation, operation and maintenance costs and practices in the region, and press releases describing the financial packages offered to several low-priced photovoltaic projects in the United Arab Emirates and Saudi Arabia.

References

Further Reading

  1. Bolinger, M., Weaver, S. & Zuboy, J. Is $50/mwh solar for real? Falling project prices and rising capacity factors drive utility‐scale PV toward economic competitiveness. Prog. Photovolt. 23, 1847–1856 (2015). An overview of advances in photovoltaic technology and plant design, published shortly before the announcement of US$30 MWh –1 solar electricity in Dubai.

  2. Bolinger, M., Seel, J. & LaCommare, K. H. Utility-Scale Solar 2018: An Empirical Analysis of Project Cost, Performance, and Pricing Trends in the United States (Lawrence Berkeley National Lab, 2018). An empirical study of utility-scale solar photovoltaics plants in the US, in terms of cost and performance.

  3. Fu, R., Feldman, D. J. & Margolis, R. M. US Solar Photovoltaic System Cost Benchmark: Q1 2018 (National Renewable Energy Lab, 2018). https://www.osti.gov/biblio/1483475 Published annually, a bottom-up breakdown of photovoltaic system costs and a key reference for tracking the evolution of photovoltaic system cost components.

  4. Green, M. A. How did solar cells get so cheap? Joule 3, 631–633 (2019). An overview of the technical, economic, political and personal circumstances that led to today’s low prices of solar panels.

  5. Apostoleris, H. & Chiesa, M. The role of financing in achieving ultra-low solar electricity prices in the Middle East. In Proc. 46th IEEE Photovoltaic Specialists Conference (2019). A companion paper to this work, focusing on the financial aspects of the UAE’s large-scale solar projects.

  6. Utility-Scale Solar Photovoltaic Power Plants: A Project Developer’s Guide (International Finance Corporation, 2015). An overview from the developer’s perspective on how to finance large-scale solar projects.

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Matteo Chiesa.

Ethics declarations

Competing interests

The authors declare no competing interests.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Apostoleris, H., Sgouridis, S., Stefancich, M. et al. Utility solar prices will continue to drop all over the world even without subsidies. Nat Energy 4, 833–834 (2019). https://doi.org/10.1038/s41560-019-0481-4

Download citation

Further reading

Search

Nature Briefing

Sign up for the Nature Briefing newsletter — what matters in science, free to your inbox daily.

Get the most important science stories of the day, free in your inbox. Sign up for Nature Briefing