The so­lar price revo­lu­tion

Financial Mirror (Cyprus) - - FRONT PAGE -

A si­lent revo­lu­tion is un­der way. In Novem­ber, Dubai an­nounced the con­struc­tion of a so­lar en­ergy park that will pro­duce elec­tric­ity for less than $0.06 per kilo­watt-hour – un­der­cut­ting the cost of the al­ter­na­tive in­vest­ment op­tion, a gas or coal­fired power plant.

The plant – which is ex­pected to be op­er­a­tional in 2017 – is yet an­other harbinger of a fu­ture in which re­new­able en­ergy crowds out con­ven­tional fos­sil fu­els. In­deed, hardly a week seems to pass with­out news of a ma­jor deal to con­struct a so­lar power plant. In Fe­bru­ary alone, there were an­nounce­ments of new so­lar power projects in Nige­ria (1,000 megawatts), Australia (2,000 MW), and In­dia (10,000 MW).

There can be no doubt­ing that th­ese de­vel­op­ments are good for the fight against cli­mate change. But the ma­jor con­sid­er­a­tion driv­ing them is profit, not the en­vi­ron­ment, as in­creased ef­fi­ciency in en­ergy dis­tri­bu­tion and, where nec­es­sary, stor­age, re­duces the cost of pro­duc­ing re­new­able en­ergy.

As ef­forts to im­prove the man­age­ment of elec­tric­ity from fluc­tu­at­ing sources yield fur­ther ad­vances, the cost of so­lar power will con­tinue to fall. Within ten years, it will be pro­duced in many re­gions around the globe for 4-6 cents per kilo­watt-hour, ac­cord­ing to a re­cent study by the Fraun­hofer In­sti­tute for So­lar En­ergy Sys­tems (com­mis­sioned by the think tank Agora En­ergiewende). By 2050, pro­duc­tion costs will fall to 2-4 cents per kilo­watt-hour.

As Pa­trick Graichen, Agora’s ex­ec­u­tive direc­tor, points out, most fore­casts of the world’s fu­ture en­ergy sup­ply fail to take into ac­count so­lar power’s loom­ing victory over its fos­sil-fuel com­peti­tors. Updating them would paint a re­al­is­tic pic­ture of the costs and im­pact of our en­ergy pro­duc­tion and con­sump­tion on the world’s cli­mate, re­veal the i mpor­tance of re­new­able en­ergy to eco­nomic devel­op­ment, and en­able bet­ter plan­ning of en­ergy in­fra­struc­ture.

We should not un­der­es­ti­mate the tremen­dous po­ten­tial the sun and wind have for build­ing global wealth and fight­ing poverty. As so­lar power be­comes in­creas­ingly cost-ef­fec­tive, coun­tries lo­cated within the planet’s sun belt could de­velop en­tirely new busi­ness mod­els as cheap, clean en­ergy en­ables them to process their raw ma­te­ri­als lo­cally, adding value – and profit – prior to ex­port.

Un­like large-scale con­ven­tional power plants, so­lar in­stal­la­tions can be built in months; in ad­di­tion to be­ing cost-ef­fec­tive, they pro­vide a quick means of re­spond­ing to grow­ing global de­mand. And, be­cause so­lar plants can gen­er­ally be op­er­ated in­de­pen­dently of com­plex in­ter­re­gional elec­tric­ity grids, they pro­vide less de­vel­oped coun­tries a way to elec­trify their economies with­out build­ing ex­pen­sive new in­fra­struc­ture.

So­lar power plants thus could play the same role for en­ergy that mo­bile phones did for telecom­mu­ni­ca­tions: rapidly reach­ing large, un­der­served com­mu­ni­ties in sparsely pop­u­lated re­gions, with­out the need to in­vest in the ca­bles and ac­com­pa­ny­ing in­fra­struc­ture that once would have been nec­es­sary. In Africa, 66% of the pop­u­la­tion has gained ac­cess to elec­tronic com­mu­ni­ca­tions since 2000. There is no rea­son why so­lar power could not do like­wise for ac­cess to elec­tric­ity.

The time to in­vest in large-scale so­lar en­ergy pro­duc­tion is now. For starters, con­struc­tion costs for so­lar power plants are fi­nally low enough to pro­duce elec­tric­ity at a com­pet­i­tive, sta­ble price for more than 25 years. The price of oil may have plunged for now, but it will rise again. So­lar power plants pro­vide in­sur­ance against fos­sil fu­els’ in­her­ent price volatil­ity.

Even more im­por­tant, the cost of cap­i­tal cur­rently is very low in many coun­tries. This is a de­ci­sive fac­tor for the eco­nomic viability of so­lar power plants, be­cause they need very lit­tle main­te­nance but re­quire rel­a­tively high up­front in­vest­ment. The Fraun­hofer study shows that dif­fer­ences in cap­i­tal ex­pen­di­ture are as im­por­tant for costs per kilo­watt-hour as dif­fer­ences in sun­light. So­lar power is cur­rently cheaper in cloudy Ger­many than in sunny re­gions where the cost of bor­row­ing is higher.

The amount of sun­light that shines on a coun­try is im­pos­si­ble to change. But the cost of cap­i­tal is some­thing over which a coun­try can main­tain a cer­tain amount of con­trol. By cre­at­ing a sta­ble legal frame­work, pro­vid­ing credit guar­an­tees in the con­text of in­ter­na­tional agree­ments, and in­volv­ing cen­tral banks in large-scale in­vest­ments, gov­ern­ments can help to make so­lar power more ac­ces­si­ble.

Fac­tors like

th­ese

ex­plain

why in­ter­na­tional cli­mate poli­cies in­creas­ingly fo­cus not only on so­lar power, but on other forms of re­new­able en­ergy as well. Tech­no­log­i­cal break­throughs have boosted th­ese en­ergy sources’ com­pet­i­tive­ness rel­a­tive to fos­sil fu­els. As a re­sult, in­stru­ments that make their adop­tion more af­ford­able are be­com­ing some of the most im­por­tant weapons we have in the fight against cli­mate change.

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