Why photovoltaics is becoming unbeatably inexpensive
It is not so much mass production as nanoscientific innovations that are making photovoltaics cheaper and cheaper, like computer chips. PV is becoming the dominant source of energy
Translation from the German original.
Should Europe invest billions and set up its own photovoltaic industry? Since its invention at the same time as the transistor, photovoltaics has been underestimated. Now it is about to become the cheapest and most important source of electricity. With increasing electrification, it will become the most important energy source of all. Why is photovoltaics getting cheaper and cheaper? Why does China dominate the global PV market? Does Europe need to rethink?
Photovoltaics has been underestimated or fought against for more than forty years:
In 1982, when oil became cheap again, US President Reagan and the oil companies stopped all photovoltaic programmes. Prior to this, the fossil fuel companies, alarmed by the oil crisis, had invested considerable sums in the new technology, which until then had only been used in space travel. In 1981, President Carter's ministerial staff still enthused about "electricity from our roof in ten years".
In 2000, the red-green federal government in Germany laid the foundations for private PV investments with a feed-in guarantee for solar systems financed by a levy on electricity customers. Underestimated as a gimmick by the electricity companies, this regulation created the world's largest PV market within a few years.
In 2008, the International Energy Agency (IEA), founded in 1974 to stabilise the oil supply, made explicit predictions for photovoltaics for the first time and estimated that its contribution to global electricity generation would be well below one per cent in 2030. At that time, China decided to enter PV production on a large scale and increasingly competed with the dominant European manufacturers.
In 2010, 74% of the world's PV power generation capacity was installed in Europe. It was foreseeablethat self-sustaining growth in photovoltaics would soon set in. However, conservative governments in Europe then stifled growth at the urging of conventional electricity producers: between 2011 and 2014, 110,000 jobs were lost in the German solar industry.
As recently as 2013, IEA forecasts for PV's contribution to global electricity generation were between just 1.7 and 4.3% for 2035.
Today, ten years later, the IEA is forced to realise that 4.4% has already been achieved by 2022 and that 15% is expected for 2030 and 32% for 2050 based on adopted policies alone. In its most ambitious scenario, it expects 41% by 2050 - with electricity consumption two and a half times higher than today.
This article is part of my SPOTLIGHT section. A more detailed presentation of the history of energy technology can be found in my section THE BROADER PICTURE
China currently accounts for 70 to over 90 per cent of global production of solar modules at all stages of production — half of which is installed in the country itself. This year, China is expected to install twice as much photovoltaics as last year. Last year, it installed four and a half times as much as the USA. By the end of 2026, the installed capacity is expected to double to 1000 GW — in sun-rich China, this corresponds to the electricity production of 145 of the largest nuclear power plants recently built there (1200 MW).
Sustained cost degression for decades
On a global average, photovoltaics has not only been able to reduce its costs faster than all other energy sources; it has now actually managed to become cheaper per kilowatt hour generated than all others. This is said not only by long-standing supporters of solar energy but also by the leading international financial institutions. The most widely used LCOE comparison by the investment bank Lazard even states that electricity from decommissioned nuclear power plants is 30% more expensive than electricity from large PV power plants.
Photovoltaics has had an impressive cost curve for fifty years: With every doubling of production volume, the price has fallen by around twenty per cent. This means that it beats all other energy sources.
There can be several reasons for cost reductions in conventional products. In the case of conventional products, these are primarily mass production and better machines, design changes and cheaper primary products. With mature products, these possibilities are exhausted after a while.
In my last Spotlight, I outlined how four fundamental innovations are driving the energy transition based on the strange laws of the world of atoms and molecules. It was only after physics opened the way to understanding these nanoworlds a hundred years ago with quantum theory that one area of technology after another has been able to penetrate these worlds since the Second World War. Most familiar to us, but still uncanny, is the world of computers, which only became possible thanks to semiconductor physics and has cost developments that were previously unimaginable. Photovoltaics is the first of these four innovations that are crucial to the energy transition. Its physical and economic properties are also inconceivable without the nanosciences. I would like to explain this in more detail here.
The main reason for the cost reduction is progress in nanoscience - as in the case of microchips
It is commonly claimed that the cost reductions in photovoltaics are due to the mass production of solar panels, which first the USA, then Japan, then Germany and finally China have driven forward with considerable effort. Also, the unusually steep cost curve, which has been falling steadily for five decades, is claimed to be simply the learning curve of industrial mass production, which will flatten out significantly over time. If you take a closer look, this is less than half the truth.
Of course, the fact that ever larger quantities could be built in ever larger factories with ever better machines and ever more experienced workforces has made a big difference. It is generally assumed that industrial economies of scale are particularly strong above 3000 units — i.e. far beyond the series sizes of coal-fired power plants, nuclear power plants and, to date, wind power plants. However, it is doubtful whether the latest factories in China, which have annual production capacities of up to 20 GWp, are actually more efficient than smaller factories. Gunter Erfurt, CEO of Meyer Burger — the only serious manufacturer of cells and modules in Europe and, until a few years ago, the global market leader for PV production systems — disagrees: "It is a romantic notion that factory size in particular is correlated with cost reduction". A mass manufacturer of cells and modules, according to him, is already scaled out with 2 GWp per year (approx. 300 million cells or 5 million solar panels).
In the case of PV, something else was more important: it was above all the nanoscientific innovations that accelerated the cost reduction - very similar to what happened in microelectronics.
You can do the maths. For example, for the development from 2010 onwards, since Chinese companies have massively entered production with ever larger quantities: From 2010 to 2021, the cost of photovoltaic modules in relation to their output fell by 90%, and the cost of solar-generated electricity (in ground-mounted power plants) by 88%. In the same period, the efficiency — which indicates the proportion of solar radiation converted into electricity — for good commercial modules rose from around 15% to about 22%. In addition, the reduction in performance at higher module temperatures was reduced (due to the solar radiation, the operating temperature is far above the standard temperature for measuring efficiency, depending on the climate). Together, this results in a module cost reduction of 35% - simply because the required module area for a given output is smaller. In addition, nanosciences have contributed significantly to the fact that considerably less high-purity silicon (polysilicon) is needed for a given output (- 68%) and the price per kilo of this material, which is obtained in complex processes, has also been drastically reduced (- 82%). Considering the cost share of silicon in the module (2021: 28%), this results in an overall contribution of the nanosciences to reducing module costs by significantly more than half.
If you want to estimate the effect of nanoscience on the price of electricity, you have to differentiate between countries - and not just because of the temperature effect. In many places, PV power plant costs are still unnecessarily high, mainly for political reasons. For example, a solar power plant of the same capacity costs 2.9 times as much in Japan as in India, while in Germany it only costs 1.2 times this amount.
As the area of the solar modules decreases, so do the costs for the mounting racks, land, installation, cabling, etc., for solar power plants. In Germany, a total of three-quarters of the costs are directly dependent on the module area required for a certain output. In addition, inverters (cost share 7.5%) have also become considerably cheaper (-56%) between 2010 and 2021 thanks to advances in power electronics. This means that a good half of the cost reduction in electricity generation costs can also be attributed to nanoscientific progress.
In photovoltaics, the actual power plant is a harmless, micrometre-thin layer that converts sunlight into usable energy twenty times better than a tree. Everything else is just connection and packaging.
What initially looks like petty enthusiasm for the importance of nanosciences is of fundamental importance for assessing the development potential of energy technologies. This finding has several consequences:
1. the cost reduction continues, because new nanoscientific findings promise further strong increases in efficiency.
2. Photovoltaics is expected to become the dominant energy source, beating all other energy sources, which contain far greater proportions of conventional technologies that are not becoming cheaper.
3. Europe has the opportunity to get back into photovoltaic production, as European institutes and companies are still among the technological leaders.
4. the global economic balance is shifting — I will only go into this in a later spotlight.
Photovoltaics is becoming the dominant energy source
In almost all technologies that are largely based on nanosciences, we can see that the learning curves are many times steeper than those of conventional macro-technologies and that we are generally only at the very beginning. In photovoltaics, the next steps are already foreseeable: New materials (especially perovskites) and new cell designs (especially multijunction, i.e. several sensitive layers on top of each other) will further increase efficiency and reduce material costs in the coming years. In addition, savings are also in sight for conventional components if the micrometre-thin power-generating layer is integrated directly into structural elements of buildings (roof cladding, windows, facades) or vehicles instead of being packaged in its own glass housing.
All other non-fossil energy sources under discussion today are at a disadvantage in comparison:
In the case of wind energy – the second great hope for sustainable electricity generation – the nanotechnological part mainly consists of the power electronics: it enables increasing efficiency through variable speeds and largely loss-free feeding into the grids. A reduction in the weight of the generators thanks to stronger permanent magnets can also be counted in this category. Beyond this, however, cost reductions were made possible above all by ever higher towers and larger turbines. This not only resulted in significantly lower cost reductions than with PV, but also harbours additional cost risks: Wind power plants require one and a half times as much steel and five times as much cement as ground-mounted PV power plants (rooftop PV systems require much less). Both materials are CO2-intensive and will become significantly more expensive in the foreseeable future. Offshore power plants are even more material-intensive. The current massive problems in the offshore wind industry are — besides increasing interest costs — due to rising material costs and mechanical issues caused by a forced increase in blade length. Some observers suspect that wind energy will no longer become cheaper.
Generating energy from biomass utilises solar radiation twenty times less efficiently than photovoltaics. For a meaningful comparison, you have to consider systems for specific purposes: If you compare a wood chip boiler for generating heat with a solar-powered heat pump, then in addition to the better utilisation of solar radiation with PV, there is also the gain in environmental heat from the heat pump. For this reason, only residual and waste wood is now permitted for woodchips. If — in the field of transport — you compare a biofuel-powered combustion engine car with a solar-powered electric car, the poor efficiency of the engine is added to the efficiency disadvantage of biofuels. The figures are frightening: the area of land currently used to grow maize and rapeseed in Germany for a small proportion of the mandatory biofuel blend for petrol and diesel could be used to generate all of Germany's current electricity requirements using photovoltaics.
Nuclear power plants were the first hope for an energy-related application of the new discoveries in physics. But the actual process of generating energy from the fission of rare heavy atoms requires such complex additional equipment that it became very expensive. Firstly, unlike solar radiation, the fissionable uranium has to be extracted in landscape-destroying mining operations producing low-radiation overburden and must be enriched in complex processes that have to be strongly supervised in order to prevent the production of nuclear-weapon-grade material. Highly dangerous radioactive materials are then produced in the reactor, which must be secured and shielded with huge and expensive lead, steel and concrete structures in the reactor and eventually for thousands of years in the storage of the resulting waste. Thirdly, we are dealing with a potentially explosive chain reaction which, given the hazardous nature of the materials, must be kept under control with multiple safety precautions. And fourthly, the whole effort only serves to generate hot steam, which is converted into electricity in a conventional turbine, a technically mature technology that is not getting any cheaper, with an efficiency of less than 50%.
Two examples show that new energy sources can also emerge: Geothermal energy can tap into the nearly limitless heat resources of the earth at relatively low cost using new exploration and drilling techniques made possible by nanoscience. However, its use is geographically limited. Further exciting developments are emerging from the new possibilities offered by power electronics in new ways of making use of wave energy.
The faster progress of photovoltaics is also due to the fact that innovation cycles are short: Production plants (except for the first stage for high-purity silicon) can be built in less than two years, while the technical planning and construction of PV power plants take even less time. This means that — with the proper political will — not only are high growth rates possible, but improvements can also be implemented faster than with any competing technology.
However, electricity from the sun is not equally cheap everywhere and, above all, is not evenly available around the clock. To compensate for this, the energy system needs to undergo a far-reaching change. Other fundamental innovations based on nanoscience can help here, such as power electronics, storage technology (batteries etc., including hydrogen technology) and the semiconductor-based conversion of electricity into radiation (LEDs, lasers etc.). In order for a new, flexible, efficient system to emerge quickly enough to prevent further global warming, it is urgently necessary to change the framework conditions that have developed over two hundred years, along with the old technologies.
Against the backdrop of these dynamics, there can be little doubt that photovoltaics will become the dominant energy source - for the entire energy supply worldwide. Depending on local conditions, it may be supplemented by wind, geothermal energy or biomass - but its local availability and the transportability of new energy sources will determine the new energy geography.
This presupposes, however, that a serious climate policy is pursued and rational decisions are made. This is not yet assured: The major oil companies have made huge profits in recent years, are investing only a tiny fraction of these in renewable energies and are planning to further expand fossil fuel production. At the same time, fossil fuels continue to be massively subsidised: According to the International Monetary Fund, they accounted for over seven per cent of the global gross national product in 2022.
Overwhelming dependence on China for photovoltaics is not an irreversible fate
If more than half of the cost reduction in PV can be attributed to nanotechnological innovations, then Europe has a serious chance of once again playing a significant role in the global market for photovoltaic systems and becoming more independent. After Europe, and Germany in particular, invested several hundred billion in the development of the photovoltaic markets after the turn of the millennium - mainly paid for by levies on small electricity customers - China has since boosted development with a number of hidden subsidies and built up a powerful photovoltaic industry. However, the most important innovations have so far come from Europe, where some of the major solar research institutes and machine manufacturers are still based. In technological terms, Europe is not yet lagging behind - even if Chinese manufacturers no longer buy their production machines in Europe, but largely manufacture them themselves.
Against this backdrop, it is understandable that European governments and the EU Commission are slowly waking up. If four-fifths of solar modules and even 98% of the wafers required for them come from China, then this is a dependency that can also prove politically dangerous.
What has been lacking so far, however, are large companies that can quickly ramp up large-scale production. After Bosch, a German multinational engineering and technology company, lost several billion between 2008 and 2013 with its failed entry into solar technology, no European company dared to seriously tackle the topic. I felt this painfully when I unsuccessfully coordinated the xGWp initiative of the largest European solar research institutes and the largest manufacturer of PV production systems for a big European solar factory from 2013 to 2015. This is about to change: the EU's — still too hesitant — financial support is leading to a series of projects. The three most important ones have their roots in the initiative of that time: the system manufacturer Meyer-Burger has become the largest European PV producer, the Italian multinational power company ENEL operates a growing cell and module production facility in Catania, and the newly founded company Holosolis, which is backed by competent European SMEs, wants to build a 5 GW factory in France - as personally announced by President Macron.
The current PV production capacities in Europe along the value chain are: 23 GW for highly purified silicon (polysilicon), 1.7 GW for ingots and wafers, 1.4 GW for cells, 9.4 GW for modules and 70 GW for inverters — in view of the expected 58 GW of new PV installations this year and the continued technological leadership, this is pathetic. Without billions invested by large companies and a greater commitment of public funds, it will hardly be possible to achieve the EU's 2030 target of 40% of products manufactured in Europe on the European solar market. China and now also the USA are devoting considerable public funds to promoting the sector. This is very welcome in view of the climate crisis. Without greater efforts, Europe will not only fall behind in its contribution to solving the most pressing problem facing humanity, but will also miss an industrial opportunity and — after the devastating consequences of dependence on Russian gas — the chance to strengthen its security of supply.