India’s energy minister Piyush Goyal made waves earlier this week when he said that he thought that “a new coal plant would give you costlier power than a solar plant.” Solar costs have fallen significantly in recent years, but Goyal might be leaning a bit too far forward on his skis according to new research that suggests the renewable energy source has a lot further to go if it really wants to compete without subsidies. Varun Sivaram and Shayle Kann write in Nature:
As solar penetration grows, its value to the electricity system decreases. One way to see this is by observing the wholesale market price of electricity when solar generation is highest. The more solar energy that feeds into the grid, the lower the wholesale price will be during periods of peak solar production, as more supply chases demand. […]
[I]n the long term, as solar becomes a mainstream power source, regulators and utilities around the world are likely to align solar compensation more closely with wholesale market pricing. As solar is non-dispatchable, project operators cannot strategically sell into the market at higher-priced times — solar is purely a price taker (unless paired with energy storage, as discussed below). If compensation tracks solar’s value as adoption grows, then solar owners will experience declining revenues.
Sivaram and Kann are describing a very intuitive process: lacking cost-effective commercial-scale energy storage options (these currently don’t exist), solar producers can only supply the grid when the sun is shining. This currently has a fairly large overlap with times of peak demand, so producers can fetch relatively strong prices for their efforts. But as more and more solar panels are installed, grids will see a daytime glut that will depress prices. The more inroads solar energy makes into power mixes, the more difficult it’s going to be to actually make a profit. These authors suggest that solar power therefore needs to get much, much cheaper than many seem to think.
For decades we’ve been promised that solar power’s day in the sun has been just around the corner. Lately there have been some serious inroads made, especially in the developing world, but we’re still waiting for the real breakthrough necessary for it to compete with fossil fuels on its own merit.