Solar set to overtake other energy sources by 2027
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A little more than a decade ago, solar power was an also-ran in the global energy race. At less than 1 per cent, it had the smallest share of generation capacity of any major power source.
But all that has changed. Next year, solar photovoltaic capacity will leapfrog that of hydropower, according to the International Energy Agency. In three years, it will overtake gas-fired generation. And, in four years, it will push past coal — to boast the largest share of generation capacity of any power source.
A buildout of solar installations — from Arizona in the US to Anhui, China — has been at the forefront of a renewable energy charge that has muscled-in on the old energy order.
Now, as Russia’s invasion of Ukraine pushes energy security concerns centre stage, the development of solar is set to pick up speed — with record breaking numbers of installations forecast in each of the next five years.
“There is a boom, there is exponential growth, there is acceleration,” says Heymi Bahar, senior analyst for renewable energy markets and policy at the IEA. “Solar accounts for almost 60 per cent of every power installation that will be built in the coming five years.”
While its intermittent nature means solar will not immediately produce more electricity than coal or gas — which can be turned on and off as required and will churn out electrons whatever the weather — the scale of the installation boom underlines the seismic shift in electricity generation.
Fast falling costs have been the primary driver of the solar buildout in recent years. The average unsubsidised lifetime cost to build and operate utility-scale solar was just $36 per megawatt hour in 2021, according to financial advisers Lazard — down about 90 per cent since 2009. That compares with $108/MWh for coal, $60/MWh for combined cycle gas, and $38/MWh for wind.
Costs picked up last year as the price of component parts, most notably polysilicon, soared. But utility-scale solar was still the cheapest option for new electricity generation in most parts of the world. The rate of installations grew by more than half last year, says the consultancy S&P Global Commodity Insights.
Aggressive climate targets and accompanying policies, with generous subsidies in jurisdictions across the world, have helped.
Vladimir Putin’s weaponisation of gas exports, to hit allies of Ukraine, has further encouraged the setting of tough targets in the EU, as the bloc tries to wean itself off its reliance on Russian fossil fuels by 2027. Russia supplied the continent with 155bn cubic metres of gas in 2021, or 40 per cent of its consumption, primarily in power and heating.
Under its RePower EU plan, released last May, the bloc now wants to generate 45 per cent of its power from renewables by 2030, with a focus on more than doubling solar installations to 320GW by 2025 and 600GW by 2030. That alone will cut gas consumption by 9 bcm by 2027, Brussels estimates.
Solar, with its low costs and ability to be built at any scale — from a single panel on a rooftop to a sprawling multi-gigawatt array — will account for the bulk of the EU power additions in the coming years, according to S&P.
“In the past, the big driver for renewables was decarbonisation,” says Edurne Zoco, S&P executive director for clean energy technology. “What has changed since 2022 is that energy security has also become a big driver of policy for renewables — especially solar.”
Energy security is not just driving solar installations in Europe. In its 14th five-year plan, released last April, China also made it a central priority.
“Even though China is able to import crude from Russia at a pretty severe discount to Brent, their goal is to transition primarily to a renewables and coal based energy economy, which they have local access to,” says Graham Price, senior equity research associate for renewables at investment bankers Raymond James.
And Chinese domination of clean energy supply chains, and in particular solar, has prompted huge government support in other parts of the world for the development of local solar manufacturing industries.
In the US, president Joe Biden’s landmark climate law, the Inflation Reduction Act, will pump $369bn into clean energy subsidies over the coming decade. Solar developers will, for the first time, have 10 years of certainty over generous production and investment tax credits, allowing them to plan for long-term, large scale construction.
However, even as growth accelerates, solar faces a growing list of challenges. Obtaining permits is becoming an increasing problem for developers worldwide, creating bottlenecks and driving up costs. Skilled labour struggles to keep pace — inflating wages and creating additional expenses that risk offsetting some of the capital expenditure reductions.
As a result, some listed companies, such as US-based SunPower, have found profitability on installations squeezed in a competitive market.
Trade conflict puts growth at risk, too, say developers. A US ban on imports from China’s Xinjiang region, in response to reports of forced labour, has led to mass impoundments by US customs and lengthy delays for some projects. In addition, a ruling that Chinese importers were skirting tariffs by finalising assembly of some parts in south-east Asia risks a sharp rise in import costs before the US has scaled up its own solar industry.
Nonetheless, analysts remain optimistic. “Our expectation is that solar is going to continue growing — big time,” says Zoco.
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