During upcoming years costs associated with manufacturing and installing solar panels will drop. This can be concluded from an investigation by McKinsey & Company. This decrease in costs will be high enough that, by 2020, in most cases it will be advantageous to generate solar energy compared to conventional energy sources. The consequence: market disruption in the world of energy.
Past years, on the surface, the market for solar energy has become less attractive. Following this, because of the economic crisis, governmental subsidies have dropped, investors had less money to spend and gas became cheaper. Also the solar energy market had overcapacity because of Chinese organizations exporting cheap solar panels. According to McKinsey such development slowed down the market, but in the long-run, the potency of solar energy is unstoppable.
In the investigation ‘The disruptive potential of solar power’ the American strategy firm took a close look at the potential of solar energy. Following this analysis, solar energy is facing a bright future. Mainly because it can compete better and better with conventional energy like gas and coal energy. For example, in the United States, the price per Watt peak* (Wp) has dropped from $7Wp in 2008 to $4Wp currently. Primarily this can be ascribed to the fact that upstream costs (research and production costs) decreased. But, it is expected that by cutting downstream costs (man hours, transport costs etc.), the price per Watt peak will decrease further to $1,60 in 2020.
This graph shows that many countries and United States reached ‘grid parity’ at the moment – which means that production costs without subsidies or governmental support will remain the same or drop below the price of the purchasing power of the electricity grid, also known as levelized cost (lcoE)**. In short, in large markets in the U.S., China and France, but also in smaller countries like Denmark and South-Africa solar energy already competes with other energy sources.
If McKinsey’s expectations regarding production costs come true, the impact of solar energy will become a real ‘market disruptor’. Yet the costs of production and installing solar systems drop, adoption ratios will increase. This totally upsets the world of energy, according to Mckinsey & Company.
* Watt per peak is unit of measurement to determine the power of a sonar panel, measured under normal conditions. In this way different panels by different manufacturers can measured under the same conditions.
** The graph is based on the energy offer in the private market, even though McKinsey expects this same upcoming trend in the industrial- and wholesale markets, be it with a slight delay as a consequence of different market mechanisms.