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The Rise of Solar Power

  • 10 March 2021 10 March 2021

For the fourth article in our “The Energy Transition – Post-COVID 19” series, we discuss the trends of solar as an energy source in the context of the soon-to-be post-pandemic world.

According to the International Energy Agency (IEA), renewable energy is expected to overtake coal as the primary means of electricity production by 2025, with solar energy expected to lead the surge. Currently, solar is already the cleanest and most abundant energy source, on top of being the cheapest in most countries.

Despite supply side disruptions to solar panels and assemblages due to COVID-19, according to the IEA, solar project construction activity slowed in March and April 2020 but regained momentum by May. The IEA expected global solar photovoltaic (PV) capacity additions to hit almost 107 gigawatts in 2020 – more than half of all renewable capacity additions for the year – indicating stable growth from 2019 numbers.

Drastically falling costs

Due to maturing technology and support mechanisms as well as the growth of a solar industry ecosystem that have cut financing costs for major solar PV projects, solar PV is now cheaper than new coal or gas fired power plants in most countries.

A recent study published in partnership with Oxford University on Our World in Data, an online science publication, shows an 89% decrease in the price of solar PV power from new power plants over the last ten years to about US$40 per megawatt hour. The same study showed that the price for coal power over the same period has only fallen 2% to US$109 per megawatt hour, with gas peaker plant prices falling 37% to US$175 per megawatt hour and that of combined cycle gas plants falling 32% to US$56 per megawatt hour.

Favourable government policies

Besides falling costs, one of the primary drivers for the growth of the solar energy market is the important part played by government initiatives and policies. In many countries like the US, China, Japan, and the EU, policies such as feed-in tariffs, investment tax credits, net metering, and capital subsidies have been strong drivers behind the adoption of solar energy.

As the largest market in the world for both solar PV and solar thermal energy since 2015, China has been accelerating growth of the industry largely due to subsidies such as feed-in tariff payments for large-scale projects. However, the Chinese government announced a transition from subsidy allocations to competitive auctions in 2018, with subsidies to be phased out completely by 2021. Despite the uncertainties over the new policy scheme, newly introduced provincial spot electricity and green certificate markets, implementation of the new renewable portfolio standards scheme, and continuously falling costs, are likely to support the growth of solar in China in the coming years.

One of the main drivers for annual solar capacity growth in the United States is their version of renewable portfolio standards that require retailers to procure a percentage of electricity from renewables. With almost half of the country’s planned solar projects situated in states that implement such standards, against a backdrop of falling costs and improving bankability, growth of utility-scale solar PV capacity appears increasingly sustainable.

Despite some uncertainties regarding the new support scheme in China, solar PV deployment is still expected to gain speed globally due to falling costs and ongoing policy support in other major markets like Europe, Japan and India.

Expansion in the form of distributed energy resources

As the business world comes to terms with the benefits of working-from-home, as accelerated by the COVID-19 pandemic, industry experts are observing a rise in demand for distributed energy resources (DERs) and “behind-the-meter” energy storage and delivery arrangements.

As opposed to the traditional power supply from central facilities provided by utilities, DERs consist of technologies that can provide power to clients outside of the traditional grid. DERs are usually behind-the-meter such as where clients are supplied power through a direct connection with the (most commonly solar) installation, so that electricity output can reach the client without power lines and meters owned by a local energy company.

Normally involving less paperwork, since such projects do not require infrastructure owned by local energy companies, demand for DERs is being driven by lowering costs due to technological advancements (especially relating to battery technology) and a stronger sense of empowerment among customers in being able to exercise greater control and independence over their own energy needs.

In the past year, economic uncertainty caused by the COVID-19 pandemic shifted the financial priorities of many individuals and small to medium enterprises – the main clients of DERs. Global distributed solar PV additions saw a decline in key markets like the US, Europe, India and Japan in 2020, according to the IEA. As the world economy recovers however, with strong support from policy incentives, especially in major markets such as China and Brazil, growth in demand for solar DERs seems to be another avenue for the expanding use of solar power.

The king of the renewables

The IEA, at its annual World Energy Outlook in October 2020, proclaimed solar energy as the “new king of the world's electricity markets”, and foresees that solar PV capacity will grow at an average of 12% a year from 2020 to 2030.

There are some headwinds in the form of policy uncertainties, regulatory challenges, as well as infrastructure and grid connection issues in major emerging markets like India, Latin America and ASEAN. However, as the global economic recovery brings about expansion in the DERs market, especially in developing countries in Asia and Africa, and continuous policy support and cost reductions accelerate global solar PV expansion, solar power looks to play a leading role among the renewables in the coming years.

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