Which type of energy will be the cheapest source of power?

Solar energy plants will soon deliver the most inexpensive power available in many parts of the world within a decade, according to a new analysis of the levelized cost of electricity (LCOE).

By 2025, the cost of producing solar power in the UK will have declined to between 4.2 and 10.3 pence per kilowatt hour (p/kWh), and by 2050 to as low as 2.0 to 7.4 p/kWh, according to a study by the Fraunhofer Institute for Solar Energy Systems commissioned by Agora Energiewende.

Agora Energiewende is an independent German think tank dedicated to research on the future of the electrical power system. The study uses only conservative assumptions about technological developments expected for solar energy. Technological breakthroughs could make electricity even cheaper, but these potential developments were not taken into consideration.

Solar power is already cost-effective: in Germany large solar plants deliver power for less than 7 p/kWh. The solar resource in the UK is similar to the resource in much of Germany; for example, London has a similar solar resource to Berlin or Munich. By comparison, electricity from new gas-fired plants in the UK costs around 8 pence per kilowatt hour, and from new nuclear plants will cost between 8 and 11 pence.

The study reveals that electricity generation costs for solar power are highly dependent on financial and regulatory frameworks, due to the high capital intensity of photovoltaic installations. Poor regulation and high risk-premiums reflected in interest rates can raise the cost of solar plants by up to 50 percent. This effect is so great, that it can even outweigh the advantage offered by greater amounts of sunshine.

“The study shows that solar energy has become cheaper much more quickly than most experts had predicted and will continue to do so,” says Dr. Patrick Graichen, Director of the Agora Energiewende.

“Governments that want to deliver lower cost energy for consumers should therefore reconsider their plans. Until now, most of them only anticipate a small share of solar power in the mix. In view of the extremely favourable costs, solar power will on the contrary play a prominent role, together with wind energy – also, and most importantly, as a cheap way of contributing to international climate protection.”

Graichen added: “Favourable financing conditions and stable legal frameworks are vital conditions for cheap, clean solar electricity. It is up to policy makers to create and maintain these conditions.”

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