Just as shale extraction reconfigured oil and gas, no other technology is closer to transforming power markets than distributed and utility scale solar.
Since the late 2000s, a widespread collapse in the price of solar modules has altered the economics of solar energy, putting it in a strong position to compete with other forms of power in the United States.
With module costs at historic lows, increased efficiency has become the next frontier. Consequently, while higher efficiency solar technology may command a greater module price, capacity gains per square meter can make them more economic on a $/W basis.
With that said, savings will also be driven by changes outside of manufacturing. Non-module costs will increasingly depend on heightened downstream competition, market structuring and regulatory redesign.
As a result, large scale solar economics have already reached grid parity (exluding integration costs) – the point at which the levelised cost of solar is less than a gas combined cycle or combustion turbine - across multiple regions in the US.
This trend is set to go on as solar costs continue to come down while combined cycle costs rise. By 2020, we expect 19 states to be at grid parity, increasing to 38 by 2030.
While distributed solar economics (typically less than 1-2 MW) are more uncertain, grid parity has arguably already been reached in many states where they are driven by incentives and financial innovation.
During our analysis, we identified many evolutionary parallels to shale and believe that solar has the potential to make the same scale of impact across markets.
Our base case forecast assumes 26 GW of distributed solar and 45 GW of large scale solar by 2035, totalling above 71 GW.
However, current wholesale market structures are not designed to accommodate large amounts of solar penetration. Should solar market saturation rapidly increase, other forms of capacity will still be necessary to meet needs while today's energy and capacity market design and compensation mechanisms will need to evolve to maintain reliability.
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