The Economics Of Solar Power: The Present and The Future
The economics of the power industry will change forever by 2050 due to climate change and the inability of humanity to rely on non-renewable energy sources. Among the energy sources that would dominate the market by the mid-century, solar power is one of the most prominent.
Solar power comes with many benefits for an average user, even though the industry is still in its infancy. As of 2021, solar panels offer a return on investment between seven and ten years. Moreover, if solar panels are installed on your property, their value is significantly increased. Despite the existing stereotypes, solar panels are cost-effective because the utility rates cannot be increased as rapidly as traditional electricity bills. In this blog, we examine the current state of the energy market, the role that solar power currently occupies, the incentives available for the citizens of the United States, and the challenges that arise with solar becoming a more prominent source of energy worldwide.
The Era of Fossil Fuels
Currently, fossil fuels, including coal, gas, and oil, dominate the world's energy consumption at a staggering 84 percent of the market. The reason for this is that they are affordable and secure. However, fossil fuels are non-renewable energy sources that are expected to be depleted between the middle and the end of the 21st century, leaving humanity without the traditional ways to get energy, with oil disappearing first by the mid-2050s. Moreover, fossil fuels have the most significant negative impact on the environment and climate change.
For these reasons, the energy market will have to be entirely rebuilt by the 2050s, with humanity relying on alternative energy and nuclear energy. Among the potential power sources, solar power is the most probable power source to dominate the energy market because it is readily available, cheap, safe, and abundant. However, many energy field players do not implement much-needed changes for the safe transition to solar energy.
The Current State Of Solar Power Market
Depending on the country, solar power constitutes between 2 and 3 percent of global energy consumption at the moment. At the same time, solar power remains the most popular alternative energy source, making up for around 12 percent of renewable energy consumption.
The adoption of solar power has been made available by the declining cost of photovoltaic cells. Twenty years ago, solar power was not available due to the staggering costs of over $10 per kilowatt-hour. The current price is approximately $0.06 per kWh for utility-based photovoltaic cells, making solar a viable option for households.
The increase in solar consumption is fueled by governments and big businesses across the world. Despite all of the successes, solar continues to be an emerging market that faces many challenges typical for rapidly growing beginners. One of the most immediate goals of the industry is to cheapen the costs of solar photovoltaic cells while continuing to improve their efficiency.
Grid Parity
As of 2020, one of the main challenges lies in achieving grid parity, the state where the alternative source of energy generates the amount of power at the cost that is equal to buying power from the grid. Grid parity is essential because it makes alternative energy sources viable enough from the economic perspective to replace fossil fuels. So far, only a few countries have reached grid parity, including Japan, Mexico, Brazil, Argentina, Australia, Turkey, Spain, and Italy. In the United States, states that achieved grid parity include California, Nevada, Hawaii, Louisiana, Massachusetts, South Carolina, and several others. As of 2021, a total of 20 US states has achieved grid parity. Incentives and favorable costs of photovoltaic cells in some problematic states, like North Dakota and Alaska, will help the country to achieve grid parity in every state. Grid parity was predicted to be achieved in 2020, but many US states that were runner-ups failed to reach the goal.
What Government Incentives Are Available?
For an average American, installing solar power is economically viable because of the returns on investment brought by solar energy and the government incentives that reduce the financial burden upon the installation. The most common available incentives are federal investment tax credit, state tax credits, immediate rebates, and performance-based incentives. Depending on the municipality, more incentives may be available.
- Investment tax credits return 26 percent on what has been paid for solar in taxes by offsetting what you should have paid. A federal initiative, it is available for every owner of solar panels in the United States. State credits work similarly, but they provide an offset on state taxes instead of the federal ones. Starting from 2023, the investment credit will be reduced to 22 percent as per the federal schedule. In 2024, the federal government plans to eliminate the investment tax credits, so it makes sense to invest in solar power as soon as possible.
- Immediate rebates are available in 20 US states, including California, Colorado, Massachusetts, Florida, Texas, and New York. Most of the states that offer the rebates have previously achieved grid parity. The state returns you between 10 and 20 percent of the installation price upfront. Repayments are usually limited in time and prone to change.
- Performance-based incentives are a mechanism that pays you based on the performance of your panels, the amount that is paid is calculated based on kilowatt-hours.
What Lies Ahead For Solar Energy?
Solar is estimated to occupy at least 16 percent of electricity consumption in 2050, and some estimate that it will take up to 75 percent of the global power supply. Due to the fossil fuel deficit, solar will be one of the cheapest and most efficient energy sources. Interestingly, the more recent the estimates are, the higher are the predicted numbers. Naturally, this means that the capacity of solar energy power has to be increased to a point between three to fifteen times, and the manufacturers are largely not ready for this as of now.
Things That Need To Be Done
Several steps need to be implemented to secure a smooth transition from fossil fuels to solar power.
- Technological findings that would ensure more efficient use of solar panels and cheapen their prices are expected. Given the rapid interest in the industry, they will indeed happen sooner or later, but accelerating the process is better for everyone involved.
- Utility companies all over the world should receive training on how to implement solar power for utility purposes. Due to underfinancing and the issues with human resources, utility workers in some third-world countries might not receive this training in time for the takeover of solar power. The knowledge of utility companies in countries like the United States should also be improved much sooner than is happening currently.
- Achieving grid parity should be a priority for governments worldwide because it makes the use of solar power viable from the perspective of both the environment and the economy. This cannot be done by businesses alone and will require government intervention. Bad local laws, such as superficially reduced solar power prices, may stall the organic reduction of costs that would eventually happen one way or another.
- The global capacity of photovoltaic cell manufacturing should be increased faster, especially when it comes to the manufacturing of polysilicon.
- Higher than usual costs of solar panels may be linked to the fact that they are produced in Western countries with a high labor cost. Moving the production to China, India, or Eastern Europe may help to achieve the desired price sooner.
- The goals of global and local policies regarding solar power should be clearly outlined before implementing the policies, and more global cooperation is needed.
