Solar energy emerging as cheapest power source in many parts of the world

In a few years, solar energy plants will deliver the most inexpensive power available in many parts of the world, according to a new report by the Fraunhofer Institute for Solar Energy Systems commissioned by German think tank Agora Energiewende.

By 2025, the cost of producing power in central and southern Europe will have declined to between €0.04 and €0.06 per kilowatt hour, and by 2050 to as low as €0.02 to €0.04, researchers predict in the study, Current and Future Cost of Photovoltaics.

The organization points out that solar power is already cost-effective: In Dubai, a long-term power purchase contract was signed recently for €0.05 per kilowatt hour, while projects under construction in Brazil, Uruguay and other countries are reported to produce at costs below €0.07 per kilowatt hour; in Germany large solar plants deliver power for less than €0.09 cents. By comparison, electricity from new coal and gas-fired plants costs between €0.05 and €0.10 per kilowatt hour and from nuclear plants as much as €0.11.

These solar power generation costs confirm that the cost of building and operating a large scale solar photovoltaic power plant is comparable around the world once market barriers are removed, the report adds.

“The study shows that solar energy has become cheaper much more quickly than most experts had predicted and will continue to do so,” says Agora Director Patrick Graichen. “Plans for future power supply systems should therefore be revised worldwide. Until now, most of them only anticipate a small share of solar power in the mix. In view of the extremely favorable costs, solar power will, on the contrary, play a prominent role, together with wind energy – also, and most importantly, as a cheap way of contributing to international climate protection.”

The study also reveals that electricity generation costs for solar power are highly dependent on financial and regulatory frameworks due to the high capital intensity of photovoltaic installations. Poor regulation and high risk-premiums reflected in interest rates can raise the cost of solar plants by up to 50%.

This effect is so great, that it can even outweigh the advantage offered by greater amounts of sunshine. “Favorable financing conditions and stable legal frameworks are therefore vital conditions for cheap, clean solar electricity,” Graichen adds. “It is up to policy makers to create and maintain these conditions.”

Agora said its study “uses only conservative assumptions about technological developments expected for solar energy. Technological breakthroughs could make electricity even cheaper, but these potential developments were not taken into consideration.”

Established by the Mercator Foundation and the European Climate Foundation (ECF) to support Germany’s energy transition, Agora is dedicated to research on the future of the electrical power system.