Why Solar Power Could Hit a Ceiling

There could be a limit on how much solar power can grow. That’s because the more solar power we add to the grid, the less valuable it becomes. It’s a simple supply-and-demand story: solar reaches peak generation during sunny afternoons, but there’s a limited demand for such additional power during those times. As a result, solar begins to compete with itself, driving down the price that utilities are willing to pay generators.

Solar power accounts for less than 1 percent of the world’s electricity generation today, but as more is added to the energy mix, the economics become increasingly unfavorable. Shayle Kann, head of GTM Research, and Varun Sivaram, a fellow at the Council on Foreign Relations, cite recent studies of the grids in Texas and Germany that suggest the value of solar will be cut in half by the time it makes up 15 percent of the energy mix. A study of California’s grid concluded that if solar power were to reach 50 percent of the grid, it would be only a quarter as valuable as it was before any solar had been added. Kann and Sivaram combined the data from those studies to make the comparison below.

The industry is well on its way to hitting the U.S. Department of Energy’s four-year-old goal for solar to cost $1 per watt of installed capacity by 2020. But to keep solar competitive long-term, Kann and Sivaram argue, government and industry should pursue a new target of $0.25 per installed watt by 2050, which may require the adoption of new solar technologies. Meanwhile, the widespread deployment of energy storage technology, novel demand-management schemes, or new climate policies could change the situation by increasing solar power’s underlying value.