Solar technology will be cost-competitive with coal by 2020

Consultancy firm McKinsley has published a wide-ranging report on solar photovoltaic technology which reveals that solar PV will reach grid-parity with coal and nuclear as soon as 2020.

The report, titled, Solar Power: Darkest before the Dawn, forecasts that solar PV costs will fall by an average of 10 percent per year through to 2020, despite a dramatic fall in global subsidy levels, severe manufacturing overcapacity and a number of major industry bankruptcies.

The paper predicts that solar can continue its aggressive cost-reduction over the coming years through classic industrialisation levellers, such as greater economies of scale, streamlined manufacturing processes and better panel efficiencies, without being reliant on major technological advancements.

McKinsley forecasts that global solar capacity will grow to twice its current size over the next three to five years. As a result, the firm predicts that by 2020, costs associated with PV could be as low as USD$1/Wp for a fully installed residential system. McKinsley warns that even if costs do not fall as dramatically as predicted and only reach USD$2/Wp, the industry can expect to see an additional 400-600GW of solar capacity installed over the next eight years.

Industry will welcome the report’s prediction that a fully-installed solar system in 2020 will cost $1/Wp. However, as the report is published by one of the most prestigious consultancy firms in the world, the report will really help industry stakeholders sit up and take notice of the importance and the potential of the solar PV market over the coming years. It should be noted that cost reductions extrapolated into the future are often hard to predict for solar PV due to the volatile pricing and availability of polysilicon.

The report acknowledges the challenges facing the global solar market over the coming years and recognises that there will be more casualties yet. However, McKinsey believes that current market troubles are “natural growing pains, not death throes.”

The paper suggests that the industry is entering a period of maturation that will set the conditions for “more stable and expansive growth after 2015.” The paper recommends that companies adopt “approaches widely used in more mature industries to optimise areas such as procurement, supply-chain management, and manufacturing to reduce their costs dramatically.”

The global consultancy firm’s acknowledgement of solar photovoltaic technology’s vital role to play in future energy generation echoes research published by Bloomberg New Energy last year which predicted solar would reach grid-parity before the end of the decade as well.

The paper also highlights solar’s key role in helping provide peak electricity capacity for emerging markets such as India, China and Brazil. McKinsey believes that solar capacity in the sector could rise to 150-170GW by 2020, playing a vital role in the development of electrical infrastructure in non-OECD countries by bringing “electricity to millions of poor people living in rural areas, greatly improving their standard of living.”

Krister Aanesen, one of the report’s authors concludes that: “Those who believe the potential of the solar industry has dimmed may be surprised. Companies that take the right steps now can position themselves for a bright future in the coming years.”