Why Energy-Costs could drop to zero
Reports about the future of energy, “about peak oil” or the green transition are published daily. The common denominator is often that the price of energy will rise by 2030 and that we will develop into a “zero-emissions society” in 2050. In some of these reports, the price of energy rises sharply, but sometimes only “a little”. What if out thought process is completely wrong? What if energy prices and costs go down instead of going up? What if the production costs for energy reduce themselves to zero? Could all reports be so wrong? It is possible!
Let’s start with a small solar power plant of 10 MWp that is currently being built in a European country. With 1,400 hours of sunshine a year, the system produces enough electricity for 3,000 households. Using around 40,000 solar modules this corresponds to 12-15 soccer fields. The standard warranty for the solar modules is 20-25 years of service life and a maximum of 20 percent reduction in output. To simplify matters, the plant has a permanent contract of 20 years with a major customer.
How does such a system look like financially?
The financial profile of a solar park consists mainly of high investments in the system. First, construction in year 0, then depreciation over a period of 15-20 years with pay-off of loans and interest. Solar farms have no moving parts, which means maintenance often involves replacing wires and fuses, mowing grass, and washing panels.
Inverters have to be replaced after ten years and batteries for intermediate storage become weaker over time. In addition, there are administrative costs related to insurance, basic rents, securities, auditors and taxes. With a 100% investment today, the system will be payed-off sometime between 2035 and 2040. The system, which is therefore fully depreciated, has also provided the owners with a nice return on equity of five to twelve percent. What happens then? Empirical data shows that the effect on the solar cell has decreased by 10 percent and not by 20 percent – and this is the essence. What if the “investment” lives on for 40 years and not 20 years? A solar panel with shatterproof glass and quality on its back cover can theoretically produce energy for a long time, probably over 50 years. In addition, the input factor solar is a renewable and free resource. From 2035 to the “zero-emissions society” in 2050, our small-scale system will produce the cheapest kilowatt-hour in the world alongside the subsidized Norwegian hydropower plants. The only expenses are maintenance and administrative costs.
Quadrupling the annual installation since 2020
This small facility alone will not be able to influence the system price. It is only possible to reduce the cost of energy to zero and for total electricity production to become price-forming if solar energy is truly becoming large. The question is, can solar energy really get that big? Today solar energy makes up a little more than 2 percent of the world’s electricity. It is rather insignificant. Electricity from wind and sun is expected to increase from 8 percent in 2019 to 30 percent in 2030, more than half of which will be produced by solar energy. We expect major changes in the annual installation of solar power plants by 2030. According to the much-discussed IEA report (Net Zero by 2050), the global community should install 630 GWh annually by 2030. This equates to a quadrupling of the annual installation from 2020 and a slight change in the pace from 2010 to 2020 when the annual installations have tripled.