Solar photovoltaic (PV) is now the lowest-cost source of electricity in most places around the world. But cheap solar threatens to become too much of a good thing.
According to Too Much Sun? Heavy Focus on Solar Might Create Volatile US Electricity Markets, allowing solar to become the dominant source of energy without adequate storage capacity might fuel greater volatility in US electricity wholesale markets—and potentially even negative prices during daytime hours.
“Cheap solar power will be key to meeting renewable energy goals, but the intermittent nature of the technology poses serious challenges,” saidAlex Heil, Senior Economist at The Conference Board. “Ensuring the US grid is not overwhelmed by a glut of energy in the daytime—followed by shortages when the sun isn’t shining—will require extensive foresight from policymakers and industry alike. Crucially, concomitant investment in baseload power sources, grid upgrades, and energy storage solutions must keep up with the solar buildout.”
Among the report’s key insights:
Solar energy sources are now the lowest-cost providers.
- The installation cost of solar electricity—which constituted 4.8% of all electricity generated in the US in 2022—has fallen dramatically over the last decade. By contrast, installation costs for wind and natural gas have held nearly constant since 2013.
- On a levelized basis—the all-in cost for an energy source—utility-level solar now costs between $29 and $96 per megawatt-hour (MWh), compared to $39–101 per MWh for natural gas.
- PV panel manufacturing costs have fallen from $5 per watt in 2000 to less than $0.25 in 2023. Despite China’s dominance in this low-margin industry, tariffs and legislation like the US Inflation Reduction Act of 2022 (IRA) have created incentives to on-shore PV production and further subsidize solar installation.
Too much solar will create a glut of renewable energy during the day and greater market volatility.
- By its very nature, solar energy is highly variable throughout the day. In most grid segments, peak demand now coincides with early evening hours, just as the sun sets—and people turn on lights, continue to run AC in hot climates, recharge their devices, and operate other equipment.
- As a result, in markets like California, wholesale electricity prices are routinely negative during daytime hours in cooler months. Only the massive afternoon peak at sunset creates the need for additional energy producers to dispatch electricity to the grid.
- Despite the variability of solar energy and resulting low or negative wholesale electricity prices, tax credits and incentives continue to encourage solar installation in California and elsewhere.
- The low wholesale prices during daytime can reduce the financial desirability of other investments that can balance demand, including both fossil-fuel and wind-energy power plants.
Volatile market conditions can be avoided by emphasizing baseload power and energy storage.
- Volatile market conditions and price fluctuations can be partially avoided by having sufficient utility-level storage capacity available.
- The grid can be further stabilized by nuclear power—which offers capacity utilization of more than 90%.
- With batteries and grid storage still extremely costly, utilities can incentivize commercial and residential customers to use electricity in the middle of the day when output from solar sites is the greatest and exceeds demand.
About The Conference Board
The Conference Board is the member-driven think tank that delivers Trusted Insights for What’s Ahead®. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c)(3) tax-exempt status in the United States. ConferenceBoard.org
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