Solar Price Convergence is Foreseeable But Unpredictable
The price of solar panels and solar generation capacity seems to be inexorably declining. This is called Swanson’s Law, and is quantifiable as a 20% reduction in price for every doubling in capacity. Now-former Energy Secretary Steven Chu says that solar will become price-competitive with fossil fuels at a cost of around $.50 per watt. In 2013 it fell to $0.74 per watt, a 60% decline since 2008.
The price of fossil fuels follows no such predictable trajectory, and the price of fossil fuel generation capacity isn’t improving. For regulatory reasons, it’s often increasing. However, since 2008 global demand has been fairly restrained by the giant economic crisis, and oil has never regained its peak from the summer of 2008, the last time that the global economy was fairly healthy. But the world is bigger than it was back then, and it seems reasonable to assume that with the return to strong global growth in the next few years the price of oil will shoot through the roof. Will other fossil fuels follow the same trajectory? Honestly, beats me – I don’t know much about the market.
Price parity for solar could end up coming a lot sooner than we think – solar is on a predictable trajectory and the price of commodities could easily jump up to surpass it. It’s impossible to predict when, because if I could accurately forecast energy prices I would be making a fortune in options instead of, well, doing anything else. An important corollary: Americans (the ones not in the business of building solar panels) should be thrilled about all the money China is pumping into the solar sphere. It’s mostly waste for them, but it accelerates the speed with which solar is reaching price party. The business of selling solar panels seems pretty rough…but on the other hand, the business of using them is starting to seem more and more realistic every day. Bettors among us should consider getting positioned appropriately.