Current Solar Cost Paradigm
Panels make up a decreasing share of costs.
Balance of System and Soft Costs
Solar panels have seen massive price drops. The cost per watt has fallen ~90% since 2010. The cost of digging trenches or building steel racks tends to be more stable. Solar panels make up a steadily decreasing share of the total cost of utility-scale solar.
Source: Wood Mackenzie's US Solar PV Pricing H2 2020
Increasing the output of each panel has been the focus of most cost reduction efforts. Fewer panels onsite mean reduced grading, racking, and trenching. Panel output can't be infinite, so soft costs still impose a practical limit on CAPEX reduction. Decreasing the Levelized Cost of Electricity (LCOE) below $15/MWh is challenging under this paradigm.
Fixed Operating Costs
Operating costs play a significant part in setting the lower bound of solar costs. Jenny Chase cast doubt on ultra-low solar cost estimates (<$10/MWh) in her book "Solar Power Finance Without the Jargon" because of stubborn OPEX. Lazard estimates current OPEX at around $5/MWh.
Typical line items are mowing, cleaning dust off panels, and repairing broken parts. Solutions are tough. Goats eat things other than vegetation, robots struggle with angled panels, and it takes a long time to improve equipment failure rates.
Panel Supply Chains are Flexible
Solar panel prices have temporarily increased from supply chain issues. The problems are likely to be temporary. Most of the manufacturing steps are flexible. Construction time for new wafer, cell, and module (the completed panel) fabs ranges from 9-18 months.
The main holdup is polysilicon production. These plants take longer to build, and prices often go through boom and bust cycles. Manufacturers keep making solar cells thinner to use less silicon, moderating this problem.
The increasing share of hard-to-reduce costs is a problem, but the flexible solar supply chain and continued improvement in panels provide opportunity.
Rethinking Solar Farm Design
"Can we just lay these panels on the ground?"
The Erthos Idea
Most utility-scale solar farms have panels on racks and trackers. Designers highly engineer the steel racking to use as little material as possible. Developers prefer single-axis trackers that increase panel output with fewer moving parts and cost less than dual-axis models. Panels are spread out in lines to prevent shading.
Erthos puts panels directly on the ground with no space between solar panels. Their idea is that racks and trackers worked best for expensive panels, but cheaper panels make them suboptimal. Each solar panel produces less power lying on the ground, but it costs less to install.
A typical solar farm. Source: Rachel McDevitt/StateImpact Pennsylvania
Panels laid on the ground. Source: Erthos
The CAPEX Benefits of Ditching Racking and Trackers
Putting panels on the ground reduces CAPEX by 20%, according to Erthos. Some of the savings that offset higher solar panel spending:
- Tighter spacing reduces land usage by 2/3.
- The simple layout reduces site preparation, planning, and design expenses.
- 70% less trenching and wiring.
- No racks or trackers.
- Construction time declines 50%.
- Farms can use modules with glass on both sides without the expense of beefier racking. Double-glass panels are more reliable and have longer lifetimes.
The future for this competing paradigm looks much sunnier. It still benefits from panel efficiency and output improvements. Traditional solar farm configurations require racking and tracker redesigns to accommodate larger panels (to reduce wiring). An on-ground system can increase solar panel size with less trouble.
Soft costs decrease as a share of CAPEX, allowing on-ground designs to benefit more from future panel cost decreases.
The Impact on OPEX
Solar on the ground has positive effects on OPEX, too.
- Panels with zero gaps mean no vegetation growing within the farm, lowering mowing costs.
- Flat panels are simple for a Roomba-like robot to clean.
- Eliminating trackers (moving parts) and using double-glass panels reduces maintenance costs.
Lower operating expenses open the possibility of ultra-low solar costs.
Long Term Implications
The Idea is More Powerful Than the Company
Erthos has a good start with several gigawatts under contract. The idea of ground-mount solar seems likely to spread far past them.
Some developers still have questions about how easy maintenance will be, if the flood-rated panels will hold up, or if the design really contains vegetation. The company is avoiding areas with high snow loads for now.
The logic of deleting many subsystems drives savings that make it worth working through a few kinks. Concentrating complexity within mega-factories while simplifying deployment gives solar an advantage in scaling rapidly.
Solar Becomes Industrial
Many environmental groups have already begun to protest solar and wind farms. Ground-mount solar is the industrialization of the solar PV ecosystem.
Solar was OK when it was expensive because it would decrease energy usage. Technology that paves the ground and makes $10/MWh electricity attainable, driving demand up, is not what Greenpeace had in mind.
Solar can still dramatically decrease land use for energy. The US uses 50 million acres just for biofuels. Solar could theoretically meet all current electricity demand plus electrify transport using less than ten million acres. Innovations like ground-mount solar and increasing panel efficiency keep reducing that number.
If solar can meet its potential and deliver $10/MWh prices, we will likely see non-grid-tied solar powering a range of industrial processes. Demand will increase significantly.
Coal is an environmental improvement over cutting down trees. Solar is an improvement on coal but isn't impact-free. Developers will have to navigate scattered opposition like any other energy technology.
Competitors Fall Further Behind
Competing with declining solar costs is a tough job.
Geothermal plants have to:
- Drill the deepest holes in the world for dirt cheap.
- Find ways to utilize more rock volume without inducing seismicity.
- Invent new heat engines or convince retiring coal plants to donate their steam turbines (without those utilities passing on environmental liability from coal ash ponds).
Nuclear Plants have to:
- Change national regulations in almost every country.
- Convince nearby populations to tolerate new plants.
- Figure out how to use coolants like lead (poisonous), sodium (flammable), or helium (leaks) cost-effectively.
- Dramatically reduce heat engine costs.
- Or cost-effectively miniaturize nuclear generators.
Wind power must continue to increase turbine size to epic proportions to reduce costs and improve capacity factors. It is also lucky to have a low correlation with solar production.
Solar's big plan is to lay panels on the ground and keep making cells thinner. Efficiency will increase from incremental improvements to cell quality and eventually using multiple layers of cells.
Understanding Electricity Market Economics
The challenge is steeper than it seems for geothermal and nuclear. Most analysts calculate solar, wind, and gas power plant costs at low capacity factors. But they assume geothermal and nuclear power plants can sell power 24/7 to offset CAPEX and fixed operating costs.
Existing markets tell us that assumption is faulty. Nighttime wholesale prices are low in most markets because there is an excess of generation capacity. The US has a lot of wind, hydro, and existing nuclear generation that often exceeds nighttime demand. SPP (Great Plains) and ERCOT (Texas) see nighttime electricity prices go negative regularly.
Source: PJM Data Miner, 2020-2021
Solar panels may not produce 24/7, but consumers use most electricity during daylight hours. Batteries limit evening prices through arbitrage. Average prices matter for new geothermal and nuclear. Existing producers and new solar and batteries lower or cap average wholesale prices.
CAPEX-intensive nuclear and geothermal power plants can't survive low prices twenty hours a day. We already see this in markets like PJM (Mid-Atlantic), where paid-off nuclear power plants are closing because they are losing money. Meanwhile, the volume of applications for new solar farms is overwhelming the grid operator.
These electricity markets use capacity auctions to maintain reliability. There are many flavors, but the basics are as follows:
- Market operators figure the amount of generation they need to meet worst-case demand.
- Competing facility owners bid the fixed amount that they are willing to keep their plant available to the grid.
- Winners earn capacity payments whether they are selling electricity or not.
Wind and solar are mostly excluded from capacity markets, while batteries have to meet grid operator requirements. It may seem that capacity payments offer a lifeline for 24/7 inflexible producers, but they don't. Batteries and natural gas peakers can bid down capacity auctions to where the capacity payments have little effect on the economics of a facility running at a high capacity factor. And batteries and gas plants feast on the market dynamics of long periods of low prices with occasional spikes of very high prices that renewables bring.
If you take a GOSPLAN-style view of electricity supply, 24/7 generators are very appealing. But once you drill down into the data that markets provide, it is hard to see a place for additional CAPEX intensive, inflexible plants unless their cost matches solar and wind.
Solar won't provide 100% of our electricity, but it has a clear path to a dominant market share. Competitors seem to be falling further behind every year. Their roadmaps are more treacherous than what solar must traverse.
- ERCOT famously does not have a capacity market, but tweaks following the 2021 winter storm debacle move how their market operates closer to ones with capacity markets.