The costs associated with generating solar energy have dropped quite dramatically over the past decade. The average cost of solar cells has dropped from a whopping $76.67/watt in 1977 to as low as $0.26/watt in 2016. In places like Dubai that enjoy fine sunshine throughout the year, the cost of solar energy from a new 1.2 GW Sweihan solar project has been estimated at $0.023/kWh. Improved technology and increase in solar panel production have largely driven this drop in prices.
However, the falling prices of solar panels only tell one part of the story. The cost of solar energy (as in the case of the Sweihan solar project in Dubai) is measured, not on the basis of the present cost of solar panels, but based on the winning bid. In essence, even if it were to cost a company like Marubeni or Masdar a lot more than $0.023 to actually produce 1 kWh of solar energy, they are expected to sell their energy at that cost.
This can be a risky bet. The record low bids for solar energy projects are primarily based on a hunch that the cost of solar energy generation is likely to fall much further in future. This is true to some extent. Scaling up production and installation of solar energy is likely to contribute to a 40% drop in prices over the next two years. But it also needs to be pointed out that the current low cost of solar panels are partly because of government subsidies. These are the subsidies that contributed to a dramatic scale up in volumes in the first place. A chunk of these subsidies are now in the process of being scaled back. In short, it is difficult to know what the actual cost of solar energy would be in future mainly because a lot of it is riding on government policy decisions.
That is not all. There are several other factors that can jeopardize the projected drop in solar energy production in future. The efficiency of solar panels depend on how frequently they are cleaned and maintained. Residential solar power panels come with self-cleaning properties. Also, these panels can get cleaned after rains.
But for commercial solar energy production, the ideal location is one where there is sunshine all through the year; a place with very little rainfall. This raises the maintenance cost of such plants. Also, in places like Dubai, desert sands frequently soil and damage PV modules and this increases the likelihood of equipment damage and breakdown. Equipment damage is frequently one of the many risks that solar plant operators cover with insurance (others being disasters, injuries and even data loss). So this, in turn, raises the costs of insuring the production of solar energy.
All these various factors like government policy changes and maintenance costs can potentially escalate and bankrupt the operators before long. This can have a cascading effect on future solar projects since banks and other funding agencies would no longer be ready to offer incentives to the generation of solar energy. This could all come together and raise the cost of solar energy making it unviable over the long-term.
Renewable energy is the future and solar energy needs to play a critical part in our migration away from fossil fuels. But for this to happen, solar power generation needs to continue to be a viable, cost-effective power source. Counter-intuitive as it may sound then, this is only possible if the current solar projects are priced relatively higher and turn a profit today.