The International Energy Agency (IEA) released a report stating that generating electricity through solar photovoltaic (PV) systems can be more cost-effective. This finding was published in the World Energy Outlook 2020.
According to the IEA scenario, solar power generation is projected to increase by approximately 43% by 2040. One of the main reasons is that the cost of solar power has become around 20–50% cheaper than previously estimated by researchers.
Based on the IEA's findings, solar energy has the potential to become one of the major energy sources of the future. Lower installation costs are among the key factors driving growing interest in solar PV systems. Statistically, the cost of electricity generated from solar PV can be significantly lower than electricity generated from coal-based power sources.
In this article, Batari Energy will explain why electricity generated using solar PV systems can be more affordable.
Why Is Electricity from Solar PV Cheaper?
Solar PV systems can help reduce electricity costs through several mechanisms, including solar energy export, reduced electricity demand, and self-consumption. Economically, these activities can help reduce your annual electricity expenses.
Electricity generated by solar PV systems can be used to operate household appliances or business equipment. When the electricity is not immediately needed, excess solar energy may be exported back to the electricity grid, depending on applicable regulations.
Solar electricity can also be used for other purposes, such as charging electric vehicle batteries.
a. Self-Consumption
Self-consumption refers to the practice of using electricity generated by your own solar PV system to meet the electricity needs of your home or business.
For every kilowatt-hour (kWh) of solar electricity consumed directly by your household or business, you reduce the amount of electricity that needs to be purchased from the national electricity grid.
The financial savings from each kWh of self-consumed solar electricity depend largely on the electricity tariff charged by the electricity provider and the applicable billing arrangement.
b. Exporting Excess Energy to the Grid
When solar panels generate more electricity than you are currently using, the excess electricity may be exported to the electricity grid, such as the PLN network in Indonesia.
Depending on the applicable regulations and electricity provider policies, exported electricity may provide benefits such as electricity bill credits or other forms of compensation.
However, electricity distribution network operators may impose limits on how much solar electricity can be exported to the grid. Therefore, excess solar generation may be restricted according to the regulations currently in force.
Reducing Peak Electricity Demand
Some electricity tariffs, particularly for commercial and industrial customers, include demand charges. These charges are calculated based on the highest level of electricity demand drawn from the grid during a specific period.
If a solar PV system produces electricity during peak demand periods, it can reduce the amount of electricity that must be drawn from the grid.
As a result, solar PV systems can potentially reduce peak demand charges and lower overall electricity expenses.
Why Is Solar PV Electricity Becoming Cheaper?
It is widely recognized that the cost of electricity generated from solar PV systems has declined significantly, as demonstrated by various reports and scientific studies.
However, this decline did not happen automatically. Several factors have contributed to making solar electricity increasingly affordable.
a. Technological Development and Innovation
One of the main reasons behind the decreasing cost of solar electricity is the rapid advancement of solar panel technology.
Over the years, solar panels have become increasingly efficient, meaning that a higher percentage of sunlight can be converted into usable electricity. This improvement allows modern solar panels to generate more electricity compared to earlier generations of solar technology.
Technological developments include improvements in panel design, thinner and more efficient materials, higher durability, and better manufacturing processes.
Advances in manufacturing technology have also enabled solar panels to be produced more quickly, efficiently, and with fewer defects.
Data from Our World in Data shows that the cost of electricity generated from solar PV declined significantly between 2009 and 2019.
In 2009, the cost of electricity from solar photovoltaic systems was approximately USD 359 per MWh, while by 2019, the cost had fallen to approximately USD 40 per MWh.
b. Increasing Solar Panel Production
As global demand for solar panels has increased, manufacturers have expanded their production capacity to make solar technology more widely available to the general public, including residential users.
Large-scale production helps reduce manufacturing, labor, logistics, and other costs associated with solar panel production.
As demand continues to increase, manufacturers are also investing in larger factories, automated production systems, and more efficient manufacturing technologies.
These developments increase production capacity while reducing the cost of producing each solar panel, allowing manufacturers to offer solar technology at more competitive prices.
c. The Availability of Leasing and Power Purchase Agreements
The adoption of solar energy has also become easier through leasing arrangements and Power Purchase Agreements (PPAs).
These financing options can allow customers to install solar energy systems with little or no upfront investment, depending on the applicable agreement.
Instead of purchasing the entire solar system directly, customers may pay for the electricity generated by the solar system at an agreed rate, which can potentially be lower than conventional electricity tariffs.
A Power Purchase Agreement (PPA) is a contractual agreement between an energy buyer and an energy seller.
Under a PPA, an energy producer or project developer generates electricity and sells it to the buyer under predetermined terms, prices, and contractual periods.
The main purpose of a PPA is to facilitate electricity purchasing transactions, support the installation of renewable energy systems, and provide a mechanism for businesses or other consumers to purchase solar-generated electricity.
d. Government Policies and Incentives
Government policies, subsidies, and incentives also play an important role in expanding the adoption of renewable energy.
In many countries, government subsidies, tax incentives, and renewable energy programs have encouraged the adoption of solar power while creating a more stable environment for investment in solar PV systems.
Some governments have also introduced regulations requiring utilities or energy companies to increase the proportion of electricity generated from renewable energy sources.
These policies indirectly increase demand for solar panel installation and renewable energy projects.
Government support has contributed significantly to the rapid growth of solar energy.
The IEA has described solar energy as one of the most competitive sources of electricity in history. This trend is expected to continue in the coming years as technological improvements, increasing production capacity, and economies of scale continue to reduce the cost of solar energy.
Solar PV Installation with Batari Energy
Solar PV systems are not only environmentally friendly sources of renewable energy. From an economic perspective, solar power can also provide financial benefits by helping reduce electricity expenses.
The importance of managing electricity costs became particularly noticeable during the COVID-19 pandemic, when electricity consumption increased for many households due to Work From Home policies.
As more activities were carried out at home, household electricity consumption increased significantly, which in many cases resulted in higher electricity bills.
One solution for reducing dependence on electricity supplied entirely by the national grid is to install an additional renewable energy source for your home or business.
Solar panels can generate electricity directly from sunlight and provide an alternative source of energy to support your daily electricity consumption.
By installing a properly designed solar PV system, households and businesses can reduce their dependence on grid electricity, optimize their electricity consumption, and potentially achieve long-term savings on electricity costs.
Batari Energy provides solar PV solutions designed to help residential, commercial, and industrial users adopt cleaner and more efficient energy systems while reducing their dependence on conventional electricity sources.