• 4 minutes Who Really Benefits From The "Iran Attacked Saudi Arabia" Narrative?
  • 7 minutes Trump Will Win In 2020
  • 12 minutes Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 15 minutes Experts review Saudi damage photos. Say Said is need to do a lot of explaining.
  • 6 mins Millennials: A boil on the butt of the work ethic
  • 8 hours Hong Kong protesters appeal to Trump for support.
  • 7 hours A little something for all you Offshore swabbies
  • 20 hours Iran Vows Major War Even If US Conducts "Limited Strikes"
  • 18 hours Europe: The Cracks Are Beginning To Show
  • 15 hours Ban Fracking? What in the World Are Democrats Thinking?
  • 6 hours Memorize date 05/15/2018 cause Huawei ban is the most important single event in world history after 9/11/2001.
  • 3 hours When Trying To Be Objective About Ethanol, Don't Include Big Oil Lies To Balance The Argument
  • 3 hours LA Times: Vote Trump out in 2020 to Prevent Climate Apocalypse
  • 5 hours Saudi State-of-Art Defense System looking the wrong way. MBS must fire Defense Minister. Oh, MBS is Defense Minister. Forget about it.
  • 5 mins US and China are already in a full economic war and this battle for global hegemony is a little bit frightening
  • 6 hours Shale profitability
  • 2 hours Pompeo: Aramco Attacks Are An "Act Of War" By Iran
  • 15 hours Let's shut down dissent like The Conversation in Australia
Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

More Info

Premium Content

Solar Could Be A Cheaper Power Source Than Coal Within A Decade

Coal already faces tremendous competition in the U.S. from low cost natural gas, and pressure from environmentalists concerned about its pollution. The last thing the coal industry needs are more problems. But when it rains it pours… or in this case when it’s sunny the solar industry looks to rain on coal.

Coal cost an average of roughly $0.06 per kWh globally which makes it the cheapest power source on average around the world. (Natural gas is much more expensive outside the U.S.) Solar is looking to usurp the title of cheapest power source though.

In 2016, countries from Chile to the United Arab Emirates broke records with deals to generate electricity from sunshine for less than 3 cents a kilowatt-hour, half the average global cost of coal power. This year Saudi Arabia, Jordan, and Mexico are poised to hold auctions and tenders which could see solar generation prices fall even further.

The solar industry is operating more and more efficiently each year with solar prices down an average of 62 percent since 2009, and every part of the solar supply chain becoming more efficient and lowering costs. Economies of scale, increasing manufacturing expertise, and new technology like diamond wire cutting tools have all helped make solar’s progress the envy of the energy complex.

(Click to enlarge)

Coal producers are not taking the threat to their price advantage lying down though. The coal industry correctly points out that it has a consistency unavailable with solar (even in Saudi Arabia the sun still sets at night). Solar’s pricing advantage doses not take into account the cost of maintaining backup energy supply (either through battery storage or through alternative generation means).

The industry has a point of course, but it’s getting harder and harder to lean on that argument as solar keeps getting cheaper, and new technologies like perovskite emerge on the horizon.

The cheap solar power is benefiting utilities like Italy’s Enel SpA. The solar industry itself faces very tight margins, but solar users are benefiting. Part of the magic for solar has come from the old backbone of capitalism – competition. Sunbelt countries like Chile and Saudi Arabia are making heavy use of auctions for projects where the lowest price solar provider wins. That’s pushing prices lower compared to the negotiated project costs that often prevail in other sectors of the energy complex such as coal. Related: Saudi Arabia To Spend $50 Billion On Massive Solar Push

An August solar auction in Chile yielded a low bid of 2.91 cents per kWh, while an auction in September for the UAE led to a bid of 2.42 cents per kWh. In bidding on such contracts, solar developers are betting in part on solar prices continuing to fall in the future. The view is that even if a project is marginally profitable with current technology and prices, deflation across the supply chain will fix that problem going forward.

Coal faces enormous cost pressures as well and the industry is doing what it can to cut prices, but the reality is that the industry is not structured in such a way that it can significantly lower costs. There is very little R&D being done in the coal industry on new technology to cut costs in comparison to the solar industry. Coal has tremendous legacy costs including labor heavy high cost work forces that are unionized in some cases. Coal has also been around for so long that all of the low hanging fruit in cost savings has likely already been realized. By comparison, solar is just hitting its stride.

All of this is good news for consumers and particularly utilities that benefit from lower wholesale power prices. It’s not great news for those hoping for a miraculous comeback in the coal industry.

By Michael McDonald of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment
  • Rodney7777 on January 24 2017 said:
    Hello all

    Using the 10 year window offered in this article, I want to quote Ray Kurzweil, the chief engineer for Google. "Solar power output worldwide is now and has been for a long time doubling every 2 years". When I first came across this, world output of solar was at .50 %. That was 4 years ago. Today world solar output is at 2%, so that prediction is right on track. Now back to the 10 year window which would mean 5 more doublings bringing world solar output to 64% by 2027.

    So solar combined with water cooled air compressors (invented by a young woman about 25 years old) that would be filled using solar during the day and used to run generators at night, along with some batteries, could mean the end of coal and nuclear power plants. Dr. Helen Cauldicut says we should dismantle all of out high pressure nuclear power plants while we still know how to do it.
    Nuclear should be dismantled first and then let the coal plants age their way out of service or closed when they can no longer compete.
  • JG4 on January 26 2017 said:
    The coal plants could be refitted to burn hydrogen, which is a complementary storage mechanism for solar energy. The thermal efficiency loss is easily covered by the capital savings of repurposing existing infrastructure.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play