- March 9, 2021 Energy
Cheap Solar (Part 3): Making Solar Pervasive in the Next Decade
This piece is part of a series. Click to read Part 1 and Part 2.
Solar photovoltaics (PV) are expected to become the main source of electricity globally by mid–century. Even in its most conservative scenario, the International Energy Agency expects solar PV installed capacity to reach 2,000 GW by 2030, surpassing that of coal-fired installations.
This is in no small part due to the decline in the cost of solar PV installations, which is the result of decades of industry improvements, policy support, and production scaling in China. Affordable solar has now arrived, but more challenges lie ahead for it to meet its full potential.
With solar continuing to gain market share over the next decade, two key questions stand out: 1) what will happen to production? 2) what challenges does solar deployment face now that costs have fallen so much?
In this final installment of the series, I offer some tentative answers to these questions. Future work and analysis will continue to grapple with the solar industry’s evolution and prospects.
Solar Panels Made in China or Elsewhere?
Supply chains for solar PV panels are likely to remain concentrated in Asia, particularly China, for the foreseeable future. For example, in 2019 just three Asian countries accounted for 90% of global production of PV cells, a major subcomponent in solar panels (see Figure 1). Although solar panel assembly will be somewhat more geographically distributed, China remains nodal.
Figure 1. Geographic Distribution of PV Cells Production in 2019
Source: IEA; RTS Corporation; Statista.
From a purely economic perspective, this concentration won’t matter to most customers. Panels and inverters are commodity goods, largely standardized in terms of quality across major manufacturers. Regardless of where the hardware is produced, expanding solar PV installations should boost domestic employment, reduce energy imports, and help lower carbon emissions.
From a political standpoint, however, supply chains are increasingly a national security priority. As a consequence, China’s dominance in the solar value chain may prove problematic, especially for economies like the United States, India, and the European Union that want to spur domestic clean energy manufacturing.
Chinese and other firms are already producing in third countries, largely to evade tariffs and access new markets. The main beneficiary so far has been Malaysia, which is the second-largest producer of solar cells and the third-largest for panels. This trend might accelerate if the high carbon footprint of production in Western China and labor conditions in Xinjiang were to become liabilities for China-based production.
Regardless of where the physical production will take place, it seems all but certain that Chinese firms will largely dominate the sector in the foreseeable future. Although the picture on production seems clearer, demand largely depends on the mobilization of investment and political commitment, even in an environment of cheaper solar panels. The growth and sustainability of the industry now increasingly depend on the pace and scale of deployment.
If You Make Them, Will They Install Them?
The cost of panels used to be a stumbling block for solar PV adoption. Today, panels and inverters represent less than half of the overall installation costs in utility-scale projects in most countries (see Figure 2).
Figure 2. Breakdown of Utility-Scale Solar PV Total Installed Costs in 2019 (USD/kW)
Note: Balance of System Hardware refers to costs related to racking, grid connections, cabling, safety and security, and monitoring and control.
Source: IRENA Renewable Cost Database.
So, even though panel costs will probably fall further, in part because continued applied research should lead to efficiency improvements and different applications, other costs and barriers can slow wider adoption. These costs, many of them considered “soft costs,” are almost all localized and vary in different markets, ranging from access to capital, reliable grid connections, and permitting.
Sophisticated technology may also matter less in many cases than decisions made by developers on the location and the maintenance of installations. That’s because panel performance can be significantly affected by factors like air pollution and debris.
An even more daunting challenge is building reliable infrastructure to deliver solar energy to customers. Sunny and scarcely populated areas like deserts may be great locations for large-scale plants, but they will require ultra–high voltage power lines and massive storage capacity to bring that supply to demand centers along the coasts. This is already the case in China, and may increasingly be the case for the United States as well.
In addition, existing grids will need to become more resilient to handle the significant rise in electrification that renewable energy adoption requires. Developing this type of infrastructure will require large-scale planning and investment, significant political commitment, and effective institutions that can oversee rapid grid decarbonization.
Solar PV technology has matured, and its economics have reached a point that enable scale. Now, the path to wider adoption lies in overcoming challenges to deployment that is less about the cost or technology, but more about sustained political and policy support. These challenges will invariably differ across global markets, but a common goal underlies it all: recalibrating financial incentives and shifting infrastructure from supporting fossil fuels to advancing renewables like solar.
Ilaria Mazzocco is a Senior Research Associate at MacroPolo. You can find her work on energy and climate here.
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