Question

In spite of inflation increasing most prices, the price of solar power declining. Also in contrast to fossil fuels, the cost of generating electricity from solar energy is driven by the infrastructure costs instead of the cost of the natural resource. Therefore the costs and prices are more stable, particularly for large-scale electricity generation.

Historically, solar technologies have had high upfront infrastructure costs but low operating costs. The SunShot program launched in 2011 by the U.S. Department of Energy (DOE) seeks to make solar energy economically competitive by 2020. To achieve this goal, the cost of solar power will have to be reduced by roughly 75% relative to 2010 prices. The U.S. DOE has reported that cumulative adoption of solar technologies has increased over tenfold since 2008. It is expected that achieving the price reduction set by the SunShot initiative could lead to solar representing 14% of the electricity demand in the U.S. by 2030 and 27% by 2050.

According to a study by the National Renewable Energy Laboratory and the Lawrence Berkeley National Laboratory, reported prices of both residential and commercial photovoltaic systems decreased on average from 6% to 12% annually between 1998 and 2014. At the end of 2014, photovoltaic prices ranged from $4.27/W for residential systems with a median installed capacity of 6kW to $2.08/W for utility-scale systems. Costs for utility scale systems are projected to fall $1.00/W to $1.75/W by 2020. It is expected that within the next two decades, the cost of solar technologies will be lower than the costs of conventional fossil fuel electricity technologies. These lower electricity prices can decrease inflation and contribute to increased economic activity and growth.

Interestingly, the deployment of solar technologies continues to increase despite the 2015 plunge in oil prices. Solar was the third most added electricity-generation capacity in 2015, after wind and natural gas. However, the share of solar compared to the total U.S. electricity capacity in 2015 was 2%, while its generation share was only 0.9%. So it remains to be seen if the goal of the SunShot initiative will be met.

1. Deflation decreases the general prices of goods and services and increases purchasing power. How does this differ from the declining price of solar technologies?
2. Currently, most electricity generation in the U.S. is from fossil fuels, including petroleum, coal, and natural gas. In what ways has the 2015 decline in oil prices affected the adoption of solar technologies?
3. Use Internet resources to compare the changes in the prices of renewable energy technologies including wind, solar, and geothermal over the last 5 years. Which of these three technologies has achieved the greatest cost decline during that period?
4. In addition to cost, what are other barriers to the adoption of photovoltaic systems?

Answer 1

A. The difference between deflation driven decrease in prices and the decrease in prices of solar technologies is that the decrease in solar tech prices are supply side driven. As supply increases, the price goes down. And supply can increase due to many factors- improving technology (which is true in case of solar), economies of scale (also true in case of solar), lower cost of capital or labor, government subsidies to production etc.

B. The decline in oil prices affects solar adoption negatively. Solar tech is directly competing with oil generated electricity. And price is a main factor in competition. The higher the price of oil, the better it is for solar adoption as it becomes cheaper compared to oil then. ANy decrease in oil prices will affect solar tech adoption negatively as it will appear costlier as compared to oil.

C. The price movement for all have been shown below-

As can be seen, the cost of Wind has dropped the most across these 3.

D. There are a few other barriers to the adoption of photovoltic (solar) energy. These are-

• Infrastructure- A whole new set of infrastructure needs to be put in place for solar. For example, transport of electricity requires laying of wires. storage of energy requires batteries, they require land where they can be installed etc.
• Expertise- They also require knowledge and expertise in installation. If they need repair, specific technicians are needed who can repair them. As of now there are not many solar electricity experts and technicians.
• Sunlight- Not all areas receive equal sunlight. Areas closer to equator and away from seashores usually get more sunlight. If there is not enough sunlight, the energy production through solar would be low. So their installation is also dependent on the sunlight the area gets.

These are a few barriers other than cost for solar energy.

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