Solar Energy: Cost of Construction and Efficiency

The main reason for the development of alternative energy sources is the reduction in unit capital costs for project implementation and increased efficiency of their use as a result of lowering the weighted average normalized cost of electricity (LCOE). Based on the database of the International Renewable Energy Agency (IRENA), which includes:

• The IREA Renewable Cost Database - includes data on costs and performance for about 21,000 projects with a total capacity of around 2,100 GW;
• The IRENA Auction and Power Purchase Agreement (PPA) Database - database on auctions and power purchase agreements (PPAs), which contains data for about 13,500 projects in the field of renewable energy.

Data were obtained on the cost of alternative energy sources, their efficiency, and electricity costs.

Note: In this material, average weighted values are given, which may differ for different countries and projects depending on individual features of each project.

Cost of Construction

The installed capacity of photovoltaic power plants worldwide was about 850 GW by the end of 2021. The development of solar energy is one of the fastest-growing markets in the world, and as of the end of 2021, the capacity of solar stations exceeded that of wind turbines for the first time globally. The dynamics of new capacities introduced into solar energy are shown below.

Source: IRENA

The scaling and development of the solar energy market have significantly reduced unit costs for building photovoltaic power plants. As of 2021, average construction costs are $857/kW, which is 5.6 times less than in 2010. The dynamics of changes in unit costs are shown below.

Source: IRENA

The reduction in unit capital costs for building photovoltaic power plants is due to several factors. One of the main factors contributing to cost reduction is the decrease in prices for photovoltaic modules. From 2009 to 2021, the average price of a silicon panel decreased by 88%-95% on the European market. During 2020, there was an increase in module prices due to increased global demand for silicon observed during the COVID-19 pandemic. The dynamics of module prices for different categories are shown below.

Source: IRENA

Another factor affecting the reduction in construction costs is the decrease in equipment costs for the electrical part of the station (in English-language literature referred to as BoS - Solar PV Balance-of-System). This includes cables with constant/alternating current, inverter installations, monitoring systems. A trend towards reduced project implementation costs is observed worldwide. However, there is a significant difference between unit costs for different regions. For example, unit costs in India are $590/kW, while in Russia they reach $1695/kW. The average construction costs of photovoltaic power plants by region are shown below.

Source: IRENA

Efficiency

From 2010 to 2022, the efficiency of photovoltaic power plants increased from 13.8% to 17.2%, see the chart below.

Source: IRENA

If we consider the chart, it can be roughly divided into two parts. The first part covers the period from 2010 to 2018 inclusive. During this period, there is a constant increase in the capacity factor of photovoltaic power stations. The main reasons for growth are the increased efficiency of photovoltaic modules and the installation of stations in areas with high insolation. From 2019 onwards, a decrease in the efficiency of using photovoltaic panels is observed. The main factor contributing to this reduction is the decrease in construction costs of solar power plants. Since low capital expenditures have made it possible to implement projects on sites with lower solar radiation input that were previously considered unprofitable. The second reason is the increase in the market for bifacial panels, as when increasing capacity by twofold using bifacial modules does not result in a doubling of output.

In 2021, an increase in the utilization factor of installed power was observed. This is associated with the development of technology for bifacial photovoltaic panels and an increased share of stations using tracking systems to follow the sun's position.

Levelized Cost of Electricity

The global levelized cost of solar power plants from 2010 to 2021 decreased by 88% and amounted to $0.048/kWh.

Source: IRENA

The reduction in the cost of electricity from solar power plants is a key factor for market development worldwide. The main reasons for the cost reduction are:

• economies of scale. Continuous market development has significantly improved supply chain logistics for equipment delivery. A large market creates high competition, forcing all participants to reduce their costs and improve technological and operational processes at all stages of project implementation;
• reduction in panel costs. The improvement of methods for growing silicon crystals has significantly reduced the cost of modules, which led to a reduction in capital expenditures;
• reduction in station electrical equipment costs. Primarily this concerns the reduction in the cost of inverters;
• increase in panel efficiency. The improvement of production technologies has significantly increased the efficiency of modules over the last decade.