Solar reaches tipping point as cheapest form of electricity

Cost competitiveness in the solar market today takes credit for record 2016 growth, and reports indicate strong demand for utility projects in 2017.


Microsoft’s co-founder Bill Gates is grouping fellow investors behind a more than $1 billion fund with the primary focus of investing in clean energy innovation. The end game is to fight climate change by fostering research and development on technologies that reduce greenhouse-gas emissions in areas including electricity generation and storage, amongst others.

“Anything that leads to cheap, clean, reliable energy we’re open-minded to,” says Gates, who is serving as chairman of Breakthrough Energy Ventures Fund. He also noted this in his conversation with Trump during a recent phone call.

“The key point I was pushing there was the opportunity for innovation in not only energy but also medicine and education and encouraging the idea that that’s a great deal and a great thing for American leadership,” Gates said.

Asked if the call, and Trump’s recent appointments, made him optimistic, Gates said, “Well, we’ll see. Innovations could be bipartisan. We should all do our best.”

This is the most critical time in our energy history where a focus on generating power using solar energy technology, is not only vital for our climate but necessary for energy stability.

The good news

Solar power, for the first time, is becoming the cheapest form of new electricity. Bloomberg New Energy Finance (BNEF) released recent data indicating that the cost of solar in 58 lower-income countries that include China, Brazil, and India, had fallen to about a third of levels in 2010 and was now slightly cheaper than wind energy.

2016 has seen remarkable falls in the price of electricity from solar sources. A few stunning record cost per megawatt hour contracts have been concluded in India at $64 per megawatt-hour in early 2016 and another $29.10 per megawatt-hour deal struck in Chile in August—about 50% the price of electricity produced from coal.

“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 projects.

The latest optimistic U.S solar industry report indicates that the industry is experiencing its best growth in years as a record-breaking 4,143 megawatts capacity was added in just one quarter. This uplifting report couldn’t have come at a better time than this—as uncertainty of the future of the industry looms with a new coal loving U.S administration preparing to take office in 2017.

Cost competitiveness in the solar market today takes credit for these record levels, and experts recommend investors invest in solar stocks as the demand for utility projects in 2017 is growing.

Caution to the industry

Although Gates is investing heavily in energy, he acknowledges that it would not be as simple as investing in information technology. Stating that “People think you can just put $50 million in and wait two years and then you know what you got. In this energy space, that’s not true at all.”

While industry enthusiasts, myself included are jubilant, we should note that this boom will only continue if no changes are made to the US federal tax credit for solar. This trend, although driven by market forces and individual state policies; is hugely supported by the federal tax credit.

While soft costs for solar are on a binge rate of decrease, balance of system costs are also declining due to improvements in solar technology and market competition.

We should remember that the solar industry went through a similar boom-bust cycle after capacity grew faster than demand, triggering a two-year slump starting in late 2011. The result was a wave of consolidation as prices plunged and panel makers’ losses piled up. Cheap panels also helped spur demand for more solar power, eventually prompting the survivors to expand production.

“Oversupply appears to be business as usual in the solar industry,” said Jenny Chase, New Energy Finance’s lead solar analyst.

The manufacturers such as SolarCity, are locked in a race to build bigger and more advanced factories to crank out panels faster and cheaper. Just as they start rolling off the lines, demand is expected to slow.

“These companies are all fighting for market share, and their tendency is to build more and more capacity,” Pavel Molchanov, an analyst at Raymond James Financial Inc., said in an interview with Bloomberg. “Ultimately that drives down prices and margins for everyone.”

Bloomberg cautions that while prices are slumping, suppliers will expect margins to slip as well. It’s a pattern we’ve seen before, after a global oversupply five years ago drove dozens of companies out of business.

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