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Can Hidden Costs Jeopardize The Future Of The Solar Energy Industry?

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The costs associated with generating solar energy have dropped quite dramatically over the past decade. The average cost of solar cells has dropped from a whopping $76.67/watt in 1977 to as low as $0.26/watt in 2016. In places like Dubai that enjoy fine sunshine throughout the year, the cost of solar energy from a new 1.2 GW Sweihan solar project has been estimated at $0.023/kWh. Improved technology and increase in solar panel production have largely driven this drop in prices.

However, the falling prices of solar panels only tell one part of the story. The cost of solar energy (as in the case of the Sweihan solar project in Dubai) is measured, not on the basis of the present cost of solar panels, but based on the winning bid. In essence, even if it were to cost a company like Marubeni or Masdar a lot more than $0.023 to actually produce 1 kWh of solar energy, they are expected to sell their energy at that cost.

This can be a risky bet. The record low bids for solar energy projects are primarily based on a hunch that the cost of solar energy generation is likely to fall much further in future. This is true to some extent. Scaling up production and installation of solar energy is likely to contribute to a 40% drop in prices over the next two years. But it also needs to be pointed out that the current low cost of solar panels are partly because of government subsidies. These are the subsidies that contributed to a dramatic scale up in volumes in the first place. A chunk of these subsidies are now in the process of being scaled back. In short, it is difficult to know what the actual cost of solar energy would be in future mainly because a lot of it is riding on government policy decisions.

That is not all. There are several other factors that can jeopardize the projected drop in solar energy production in future. The efficiency of solar panels depend on how frequently they are cleaned and maintained. Residential solar power panels come with self-cleaning properties. Also, these panels can get cleaned after rains.

But for commercial solar energy production, the ideal location is one where there is sunshine all through the year; a place with very little rainfall. This raises the maintenance cost of such plants. Also, in places like Dubai, desert sands frequently soil and damage PV modules and this increases the likelihood of equipment damage and breakdown. Equipment damage is frequently one of the many risks that solar plant operators cover with insurance (others being disasters, injuries and even data loss). So this, in turn, raises the costs of insuring the production of solar energy.

All these various factors like government policy changes and maintenance costs can potentially escalate and bankrupt the operators before long. This can have a cascading effect on future solar projects since banks and other funding agencies would no longer be ready to offer incentives to the generation of solar energy. This could all come together and raise the cost of solar energy making it unviable over the long-term.

Renewable energy is the future and solar energy needs to play a critical part in our migration away from fossil fuels. But for this to happen, solar power generation needs to continue to be a viable, cost-effective power source. Counter-intuitive as it may sound then, this is only possible if the current solar projects are priced relatively higher and turn a profit today.

Anand Srinivasan's picture

Thank Anand for the Post!

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Thorkil Soee's picture
Thorkil Soee on November 9, 2016

Another hidden cost is the evening demand of reliable power after sunset.
Here it looks as the solar, together with wind, are acting as parasites.
They drink the (economic) blood of the stable energy – most nuclear.
And suddenly, when this necessary backup has given up, the so-called green energy will cry:
Where is the 24-7?
In all fairness, the polluter shall pay for the pollution. Not only pollution of the atmosphere, but also polluting the net.

Darius Bentvels's picture
Darius Bentvels on November 9, 2016

2.4cnt/KWh (US$) for the solar production is reasonable, only a little less than 2.5cnt/KWh expectations. So big chance the investors will make a good profit.
Also indicated by their offer to enlarge the plant if paid 2.3cnt/KWh for produced electricity.

Those lower cost levels will spread out to other places as production costs of PV-solar equipment continue to decline.
Just compare the cost & complexity of a standard TV-set with the cost of a 21% efficient PV-panel which is many times more simple to produce. So costs for panels & invertors per watt will decrease another factor 3 or so with increasing volumes of mass production.

Btw.
There is now fully automated equipment that cleans the panels with very little water.

Darius Bentvels's picture
Darius Bentvels on November 9, 2016

Offering cheaper electricity during the day is not pollution (sure not as then all airco’s consum). If it ends with a shortage in the evening & night, prices will increase and:
– other (more expensive) producers will deliver during those periods (e.g. wind, battery storage, P2G storage, etc)
– consumers will consume more during the day. *)

All in all a far better situation as the price reflects the real costs offering consumers the choice to consum cheap during the day or more expensive during the night.
____
*) Assume they will all have smart meters supporting TOU metering.
Even in NL we will all have those before ~2020 (roll-out ongoing).

Thorkil Soee's picture
Thorkil Soee on November 9, 2016

Sure: We need “smart meters”. This has been true for more than 40 years.
See http://wp.me/p1RKWc-Dy
But it will have very little use before everybody is included:
Also: Energy from sun and wind.
It is high time that the true costs come forward in the open.

Darius Bentvels's picture
Darius Bentvels on November 9, 2016

Incl. big users is already a great help, as shown in Germany.

Their aluminum smelters only operate when the whole sale price is very low. Thanks to that they compete alu smelters in other countries off the market.
Also because the periods of low whole sale prices are well predicted as those correlate with weather predictions (they have flexible arrangements with the production workforce).

Helmut Frik's picture
Helmut Frik on November 9, 2016

And where is the problem? So far demand received incentives to shift from day to night, it can also be shifted from night to day.
To cover evening peaks you could look for china, the new 3284km 12GW HVDC-Line for example extends solar power 3 hours into the evening for the big chinese cityies in the east. The same would happen if similar lines would run from china to india.
A similar sea cable from india to the arab peninusla would do the same for india.
A similar line could run from arab penisula towads morocco, doing the same for the arab peninsula. A similar line a subsea cable running towards brasil would do the same for Morocco and north africa.
All lines combined would provide brasil with solar power from china during the evening. And the lines would eliminate all variability of wind power production.
And this with costs of around 1,5-2ct/kWh or less.
The “hidden” costs are well known, and not high enough to cause real problems. NIMBY costs are significant higher for all of us.

Thorkil Soee's picture
Thorkil Soee on November 9, 2016

OK
But what will be the costs?
Anyhow, Brasil is really far from Moarocco

Helmut Frik's picture
Helmut Frik on November 9, 2016

Low enough that the chinese buld many lines of similar length. And the distance from brazil to the African coast is smaller then the length of the cable the chinese already build. The length of the cable would also allow connect Canada with Ireland for example. And ABB says they are still at the beginning of such systems, future systems will allow to transfer more power per system. “really far” is relative in todays world.

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