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This study was initiated and performed within the MIT Energy Initiative (MITEI) and guided by an independent Advisory Committee. It is part of the MIT Energy Initiative’s “Future of” series, which aims to shed light on a range of complex and important issues involving energy and the environment.
Solar electricity generation is one of the very few low-carbon energy technologies with the potential to grow to very large scale. As discussed at several points in this study, the use of solar energy to generate electricity at very large scale is likely to be an essential component of any serious strategy to mitigate global climate change.
Recent years have seen rapid growth in installed solar generating capacity, great improvements in technology, price and performance, and the development of creative business models that have spurred investment in residential solar systems. Nonetheless, further advances are needed to enable a dramatic increase in the solar contribution at socially acceptable costs.
Solar costs have fallen substantially and installed capacity has grown very rapidly. Even so, solar energy today accounts for only about 1% of U.S. and global electricity generation.
In the face of the global warming challenge, the authors of the study consider that solar energy holds massive potential for meeting humanity’s energy needs over the long term while cutting greenhouse gas emissions. The dominant objective should be to create the foundation for large-scale, long-term growth in solar electricity generation as a way to achieve dramatic reductions in future CO2 emissions while meeting growing global energy demand, with the most effective use of public budgets and private resources.
This study assesses solar energy’s current and potential competitive position, and identifies what are the changes in U.S. government policies, which could more efficiently and effectively support the industry’s robust, long-term growth.
It focuses on three challenges for solar generation:
It considers in particular: reducing the cost of installed solar capacity, ensuring the availability of technologies that can support expansion to very large scale at low cost, and easing the integration of solar generation into existing electric systems.
Photovoltaic (PV) wafer-based crystalline silicon solar panel installationsaccount for about 90% of installed PV capacity in the U.S with the capacity expanding from less than 1,000 MW to more than 18,000 MW over the last few years, something that was aided by the 50%–70% drop in reported PV prices, in particular for modules and inverters.
The PV technology is mature and is supported by a fast-growing, global industry with the capability and incentive to seek further improvements in cost and performance. If the industry can substantially reduce its reliance on silver for electrical contacts, material inputs for crystalline silicon (c-Si) PV generation are available in sufficient quantity to support expansion to terawatt scale.
However, current c-Si technologies have inherent technical limitations — most importantly, their high processing complexity and low intrinsic light absorption, which requires a thick silicon wafer. The resulting rigidity and weight of glass-enclosed c-Si modules contribute to Balance-Of-System (BOS) cost. In addition, costs of all components of a photovoltaic system other than the photovoltaic panels BOS, account for some 65% of the price of utility-scale PV installations. Federal R&D support should thus focus on novel technologies reducing both module and BOS costs rather than — as has been the trend in recent years — on near-term reductions in the cost of crystalline silicon.
As today’s commercial thin-film technologies face severe scale-up constraints because they rely on scarce elements, research to overcome current limitations in terms of efficiency, stability, and manufacturability, low weight and flexibility of environmentally benign thin-film technologies using Earth-abundant materials could yield lower module and BOS costs. Currently, the primarily used technologies are cadmium telluride (CdTe) and copper indium gallium diselenide (CIGS), but the abundance of tellurium in Earth’s crust, for example, is estimated to be only one-quarter that of gold.
The other major solar generation technology is Concentrated Solar Power (CSP) or solar thermal generation, but while PV can use all incident solar radiation, CSP uses only direct irradiance and is therefore more sensitive to the scattering effects of clouds, haze, and dust and is only suitable for certain regions. CSP is currently more costly and less mature than PV, mainly because of the large risks involved in commercial-scale projects. However, CSP systems could be deployed on a large scale without encountering bottlenecks in materials supply. Also, the ability to include thermal energy storage in these systems means that concentrated solar power can be a source of dispatchable electricity.
The best prospects for improving CSP economics are likely found in higher operating temperatures and more efficient solar energy collection. Nevertheless, utility-scale photovoltaic generation is around 25% cheaper than CSP generation, even in a region like southern California that has strong direct insolation. Utility-scale PV is about 50% cheaper than CSP in a cloudy or hazy region like Massachusetts, which means that even with 100% effective federal subsidies, CSP is not competitive with natural gas combined cycle (NGCC) generation today.
Federal CSP R&D efforts should thus focus on new materials and system designs, and should establish a program to test in pilot-scale facilities.
The estimated installed cost per peak watt for a residential PV system remains approximately 80% greater than that for a utility-scale plant, with costs for a typical commercial-scale installation falling somewhere in between while the estimated cost for a utility-scale PV installation closely matches the average reported price per peak watt, indicating active competition in the utility segment of the PV market. Without a price on CO2 emissions and without federal subsidies, current utility-scale photovoltaic electricity has a higher cost than natural gas combined cycle (NGCC) generation in most U.S. regions, including in relatively sunny southern California. Expanding output from solar power generation to the level appropriate to the climate challenge would likely not be possible at tolerable cost without significant changes in government policies. In this context, according to the report, the main goal of U.S. solar policy should be to build the foundation for a massive scale-up of solar generation over the next few decades.
PV costs have thus to keep declining for new PV investments to be economic and R&D aimed at developing low-cost, scalable energy storage technologies is a crucial part of a strategy to achieve economic PV deployment at large scale.
Challenges arise, however, as PV units bid in at their marginal cost of production, which is zero, and receive the marginal system price each hour. This displaces the conventional generators that have higher variable cost which has the effect of reducing variable generation costs and thus market prices and as the generation displaced is generally by fossil units, which also has the effect of reducing CO2 emissions.
This cost-reducing effect of increased PV generation, however, is partly counterbalanced by an increased need to cycle existing thermal plants as PV output varies, reducing their efficiency and increasing wear and tear. The cost impact of this secondary effect depends on the existing generation mix.
Net load peaks can be reduced — and corresponding cycling requirements on thermal generators can be limited — by coordinating solar generation with hydroelectric output, pumped storage, other available forms of energy storage, and techniques of demand management. Because of the potential importance of energy storage in facilitating high levels of solar penetration, large-scale storage technologies are an attractive focus for federal R&D spending.
Even if solar PV generation becomes cost-competitive at low levels of penetration, revenues per kW of installed capacity will decline as solar penetration increases until a breakeven point is reached, beyond which further investment in solar PV would be unprofitable. Thus significant cost reductions may be required to make PV competitive at the very substantial penetration levels envisioned in many low-CO2 scenarios.
When distributed PV grows up to account for a significant share of overall generation, its net effect is to increase distribution costs, and thus local rates. The owner of the residential PV installation pays the retail residential rate for electricity purchased from the local distribution utility and is compensated at this same rate for any surplus PV output fed back into the utility’s network.
The fact that owners of distributed PV generation shift some network costs to other network users raises issues of fairness and could engender resistance to PV expansion and this cost shifting has already produced political conflicts in some cities and states. Such conflicts can be expected to intensify as residential solar penetration increases.
The authors consider that pricing systems need to allocate distribution network costs to those that cause them and that are widely viewed as fair. A national or regional effort to establish common rules and procedures for permitting, interconnection, and inspection could help lower that part of the cost for installed systems, particularly in the residential sector and perhaps in commercial installations as well.
Current federal tax subsidies for solar generation represent a 30% investment tax credit (ITC) and include accelerated depreciation for solar assets under the Modified Accelerated Cost Recovery System (MACRS).
More intense competition in the residential PV market should direct more of the available subsidy to the residential customer by driving down both power purchase rates under third-party contracts and prices in direct sales.
An issue is that federal subsidies are slated to fall sharply after 2016 and drastic cuts in federal support for solar technology deployment would be unwise. On the other hand, while continuing support is warranted, the current array of federal, state, and local solar subsidies is wasteful.
Much of the investment tax credit, the main federal subsidy, is consumed by transaction costs. Policies to support solar deployment should be much more effective per taxpayer dollar spent if they reward generation, not investment; should not provide greater subsidies to residential generators than to utility-scale generators, and should avoid the use of tax credits. Reforming some of the many mandates and subsidies adopted by state and local governments could also yield greater results for the resources devoted to promoting solar energy. State renewable portfolio standard (RPS) programs should be replaced by a uniform national program. If this is not possible, states should remove restrictions on out-of-state siting of eligible solar generation.
This change would correct the inefficiency in the current federal program, under which a kWh generated by a residential PV system gets a much higher subsidy than a kWh generated by a nearby utility-scale plant and facilities receive higher subsidies per kWh, all else equal, the less insolation they receive. If Congress restores an investment subsidy, it should replace tax credits with direct grants, which are both more transparent and more effective.
Anyway, achieving its role for solar energy will ultimately require that solar technologies become cost-competitive with fossil generation, appropriately penalized for CO2 emissions, with — most likely — substantially reduced subsidies.
Therefore the authors recommend that the U.S. Department of Energy establish a program to support pilot-scale concentrated solar power systems in order to accelerate progress toward new CSP system designs and materials.
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