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Solar, Wind Hit Trillion-Watt Milestone as Prices Continue to Fall

Solar and wind energy hit a powerful milestone during the first half of this year, with a total of one trillion watts of generating capacity installed around the world. And while it took 40 years for the technologies to hit their first terawatt (TW), Bloomberg New Energy Finance says the next trillion could be in place in the next five years.

“Wind and solar are winning the battle for cost supremacy, so this milestone will be just the first of many,” said BNEF Head of Global Analysis Albert Cheung.

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“As we get into the second and third terawatts, energy storage is going to become much more important,” he added. “That’s where we see a lot of investment and innovation right now.”

With 6.2 TW of installed generating capacity around the world, including a terawatt of coal-fired power stations in China, “the terawatt of installed capacity for renewables marks substantial growth for an industry that barely existed at the start of the century,” Bloomberg News notes, in a post republished by the Cleveland-based Institute for Energy Economics and Financial Analysis (IEEFA). “More than 90% of all that capacity was installed in the past 10 years, reflecting incentives that Germany pioneered in the early 2000s that made payouts for green power transparent for investors and bankers alike.”

Over that same time span, “Asian nations absorbed 44% of the new wind and 58% of solar developments to date, with China accounting for about a third of all those installations.”

While the terawatt installed is “almost as much generation capacity as the entire U.S. power fleet,” Bloomberg notes, “each power plant works at a different ‘capacity factor,’ a measure capturing both the efficiency of the facility in generating electricity and how often it works. On average, wind farms have a capacity factor of about 34% worldwide, meaning they work about a third of the time,” while solar ranges from 10 to 24%, depending on location. The analysis placed the capacity factor of coal plants at 40%.

And as renewable energy uptake grows, technology costs continue to fall, with policy changes in China driving down solar panel prices and GTM Research projecting wholesale prices as low as US$14.70 per megawatt-hour—a stunning 1.47¢ per kilowatt-hour—by 2022, given the right financing and technology costs. Greentech also places the initial cost of electricity from the 800-MW Vineyard Wind project off Massachusetts at a record-low $74 per MWh.

“Is there still room for [solar] prices to fall? The answer is yes,” GTM analyst Ben Attia told Greentech Media. “It’s not to say that we expect to see a $14 [Power Purchase Agreement, or 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?”

By 2022, GTM Research predicts, “awarded prices as low as $14 per megawatt-hour will be old news.”

That projection comes after several years in which “predictable and transparent tender programs have pushed unsubsidized solar auction prices lower and lower, with prices dropping an average of 74% since 2009 and seven record-breaking bid prices coming in the last two years,” Greentech notes.

The report placed solar bids in “global average power purchase agreements” at $40 by 2022, down from $60 today. “These bid prices are going to keep marching lower, but probably at a slower pace,” Attia said. “There’s only so much in terms of margins that can be squeezed.”

In China, the rapid price drops have produced hard times for manufacturers that employed 1.4 million people in 2017, accounted for 37% of global solar installations, and had been “earmarked as a shining example of China’s move up the value chain in technology that would help underpin Beijing’s commitment under the Paris climate accord,” FinanceAsia reports. After China scrapped its solar feed-in tariffs and capped new solar installations at 10 gigawatts—far below the 19 GW installed last year—“most major stocks in the solar industry experienced double-digit drops on June 4, with the largest solar player by global shipments, Jinko Solar, falling by around 34%,” the regional news outlet notes. Then on July 30, India introduced a 25% tariff on imported Chinese solar modules, in a bid to protect its domestic industry.

The resulting low margins will hurt Chinese manufacturers, but boost the uptake of solar energy systems to meet rising electricity demand across Asia. “The name of the game for them is to stay afloat,” an industry insider told FinanceAsia. “That’s why we’ll see (Chinese) panel manufacturers continue to do what it takes to keep their foothold in the all-important Indian market.”