The sky is reflected in an array of circular solar panels in Phoenix, Arizona, USA

Large solar-power parks are being planned around the globe

Global solar capacity rose by 41 per cent in 2016 to a record 71.5GW, beating new wind installations for the first time. And solar power should stay ahead as its cost falls increasingly quickly.

With solar currently generating only about 3 per cent of global electricity, the question is not if, but how quickly, it grows as the leading renewable technology.

Thanks to falling prices for solar panel modules plus other components and installation, the average cost of solar energy has fallen to USD100/MWh – a feat that seemed overly ambitious only five years ago.

Solar power is now cheaper than coal in some parts of the world

And as solar power is now cheaper than coal in some parts of the world, it has the potential over the next decade to become the lowest-cost option almost everywhere.

Early solar installations in northern Europe were stimulated by generous purchase tariffs that made investment attractive even in countries where solar irradiation is relatively low. But as more solar capacity is allocated by competitive auction, growth is increasingly coming in naturally sunny areas.

So the lowest bids have been registered in very sunny areas. Last year a proposed 350MW project in the United Arab Emirates received a new low bid of USD24.2/MWh – 20 per cent below the previous record bid made just a month earlier at an auction in Chile.

Large solar-power parks are being planned around the globe with deals to generate electricity from sunshine for less half the average global cost of coal power. The main drivers of falling costs are economies of scale – every time total production of solar panels doubles, the cost drops by 20 per cent – and improvements in the panels’ efficiency.

Both factors should to continue to drive costs even lower, with disruptive technologies such as surface treatments and processing techniques allowing rapid leaps in cost reduction.

China is key to solar, both as a manufacturer and as a user. As the biggest market it consumes most of the world’s polysilicon, processing it into wafers, cells and modules. But official production capacity targets have been reduced from reaching 150GW by 2020 to just 110GW, partly acknowledging limitations in China’s distribution grid. Declining demand for solar installations could limit global growth to between 1 and 2 per cent in 2017.

And trade disputes could shape supply and demand in the Chinese market this year. The US has effectively been locked out of the Chinese polysilicon market since 2014 because American importers face 53 per cent to 57 per cent anti-dumping duties that makes them uncompetitive.

That favours China’s domestic producers and South Korean firms, whose import duties are just 2 per cent to 14 per cent. However, a review could raise duties to 34 per cent on Korean imports.

Meanwhile, the Japanese market, number two globally, seems to have peaked, and although the next largest market, the US, hit new records in 2016, its new president may shift policy support away from renewables and his proposed tax cuts could mean less finance for clean-energy projects.

This research was first published on 24 January 2017.

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