A transformation is happening in global energy markets that’s worth noting as 2016 comes to an end: Solar power, for the first time, is becoming the cheapest form of new electricity.
This has happened in isolated projects in the past: an especially competitive auction in the Middle East, for example, resulting in record-cheap solar costs. But now unsubsidized solar is beginning to outcompete coal and natural gas on a larger scale, and notably, new solar projects in emerging markets are costing less to build than wind projects, according to fresh data from Bloomberg New Energy Finance.
The chart below shows the average cost of new wind and solar from 58 emerging-market economies, including China, India, and Brazil. While solar was bound to fall below wind eventually, given its steeper price declines, few predicted it would happen this soon.
“Solar investment has gone from nothing—literally nothing—like five years ago to quite a lot,” said Ethan Zindler, head of U.S. policy analysis at BNEF. “A huge part of this story is China, which has been rapidly deploying solar” and helping other countries finance their own projects.
This year has seen a remarkable run for solar power. Auctions, where private companies compete for massive contracts to provide electricity, established record after record for cheap solar power. It started with a contract in January to produce electricity for $64 per megawatt-hour in India; then a deal in August pegging $29.10 per megawatt hour in Chile. That’s record-cheap electricity—roughly half the price of competing coal power.
“Renewables are robustly entering the era of undercutting” fossil fuel prices, BNEF chairman Michael Liebreich said in a note to clients this week.
It is entirely logical that technology will continue to lower the cost of solar power, until it is the cheapest source of energy by far. After all, it neither has to be discovered and then extracted, nor does it need refining. It is free energy, arriving every day from the largest nuclear reactor within our solar system - by far. The means of capturing solar energy are multiplying at a rapid rate, particularly within urban areas where it is most needed. Storage of solar energy is limited but this too will change, now that it is a priority.
I am frequently asked how we should invest in solar power. This is a difficult problem, in line with so many other new industries. You can see the problem by going to the Chart Library, clicking on Eoin’s Favourites, and then clicking on Solar at the bottom of the left-hand column. Only one of those shares has really performed this year – Advanced Energy Industries (AEIS US), but it is now very overextended. Most of the others soared like Icarus shortly after their float, before getting too close to the sun and falling back to Earth.
Solar shares can only be traded when they begin to show relative strength, in my opinion, because that shows when they have become temporarily fashionable. It is still a highly speculative game. Developed economies which have the most competitive energy costs, such as the USA, are likely to outperform.
(See also: Musk Says Tesla’s Solar Shingles Will Cost Less Than a Dumb Roof, from Bloomberg)Back to top