About the Project
As solar PV installations continue to grow globally, a better understanding of the generation costs of this industry is important to assess its competitiveness versus conventional generation technologies. Using reported LOCE values for the solar industry, a normalization procedure which levels the playing field between reported values, was applied. The normalization procedure enables performing apples-to-apples comparisons between different projects. Accepting an LCOE figure without being aware of the underlying assumptions can result in erroneous conclusions. With the aid of the normalization exercise carried out in this paper, policymakers and investors are able to make more informed decisions: policymakers can look to formulate well-targeted budgets for renewable support, while investors can envisage a clearer picture of their expected revenues.
Key Points
Solar energy is expected to be an integral technology in the creation of a low-carbon future. Hence, as photovoltaics (PV) installations continue to grow at an exponential rate, a better understanding of the generation costs of this relatively young industry is necessary in order to assess its competitiveness versus conventional sources. Using an extensive dataset of generation costs for solar technology, this study finds:
Despite its inherent shortcomings, the levelized cost of energy (LCOE) is still the de facto metric used by research centers, private sector and government institutions to quantify electricity generation costs.
The LCOE range for solar generation is significantly larger than that for conventional generation. This large spread for solar is mainly attributed to differences on how detailed the calculation of the LCOE is, the use of outdated or inaccurate assumptions, and/or not being explicit about the financial conditions including policy support
To compare different solar LCOEs equitably, we applied a ‘normalization’ procedure. The reported LCOE values were recalculated using numerical inputs stemming from global norms to fill gaps or deal with location-specific artefacts. Normalizing assumptions were applied to all the LCOE data points used in this paper. As expected, the spread decreases considerably
This normalization procedure, which leveled the playing field for reported LCOEs, suggests that the large variation in solar LCOE values that is generally accepted in literature is overstated. Furthermore, power purchase agreement prices for recent competitive bids should not be confused with LCOE and care is needed when comparing projects to ensure that a ‘new record’ was in fact achieved.