The cost of large-scale solar farms have continued to plummet, making it easier for utilities to choose to build or buy power from giant solar projects. Now, at least one report theorizes that the cost of such projects may hit a floor as low as $14.7 per megawatt hour (MWh) as soon as 2022.
The new report, Making Sense of Ultra-Low Solar Bids: How Low Can Tendered Prices Go? by GTM Research’s Benjamin Attia anticipated that with optimal financing and technology costs, the price of utility-scale solar power will fall to that level. “Is there still room for prices to fall? The answer is yes. It’s not to say that we expect to see a $14 PPA signed in the near future for a project in 2022. This is an optimal view. But we’re trying to understand: Where’s the bottom?,” he said in a GTM piece about the report.
Over the past decade or so solar prices have declined significantly. Since 2009 prices have dropped an average of 74 percent, making solar power more cost-competitive with other forms of electric generation. To give it context in 2016 a 120 megawatt solar farm project in Chile had an announced cost of $29.10 per MWh. In December 2017, an Austin Energy solar project could have costs as low as $21 per MWh—although the final price of the project was not disclosed.
“These bid prices are going to keep marching lower, but probably at a slower pace,” Attia added. “There’s only so much in terms of margins that can be squeezed.” His report anticipated that the global average for solar projects will reach $40 per MWh in 2022, with some projects coming in at those much lower levels.
“The gap between where we are now and the floor where we could fall—it’s a big gap for developers, but it’s not a big value-add for offtakers,” Attia contended. “At the end of the day, the difference between $20 per megawatt-hour and $15 or $17 per megawatt-hour is not a significant value-add for an offtaker. You’re already talking about the cheapest power in the world without a direct subsidy.”
At those prices solar power is less expansive in the US than new natural gas plants. In December 2016 Lazard’s Annual Levelized Cost of Energy and Levelized Cost of Storage Analyses found that the levelized cost of energy (LCOE) for solar power farms were between $46 per MWh and $56 per MWh. Meanwhile the cost of natural gas power ranged from $48 per MWh and $78 per MWh.
The prices of solar projects have been reduced by predictable and transparent tender programs, according to GTM. Other factors pushing down the costs of solar projects are rich mitigation, preferred financing and long timelines.
The report also observed that the number of national markets with tendering or auction schemes have grown rapidly as well, with 61 nations now holding such auctions or tenders. That’s up from 32 nations in 2016.Tweet