By Konrad Putzier
Great upheavals tend to come in pairs, the second more radical than the first. France’s Revolution of 1789 and the Russian Revolution of February 1917 shook the world – but only their follow-ups in 1792 and October 1917 truly transformed it. In 2013, this history looks set to repeat itself in the global energy sector.
Much has been written and said about the shale-gas revolution that has sent gas prices on a tailspin and eroded the political clout of traditional producers like Russia— all at the expense of consumers. There is no denying the global impact of fracking, but it might soon be dwarfed by something bigger: the emergence of solar power as a cheap form of energy.
To be sure, solar power isn’t quite there yet. It still survives on subsidies in most places and only accounts for a fraction of global energy production. But this month’s announcement that utility giant RWE will close several gas- and coal-fuelled power plants in Germany shows how far renewable energies have come. RWE’s explanation, as quoted by The Wall Street Journal, reads: "due to the continuing boom in solar energy, many power stations throughout the sector and across Europe are no longer profitable to operate."
This fall, solar energy in Germany will become cheaper to produce than nuclear energy – for the first time in history. This has a lot to do with German energy prices being among the highest in the world, but solar energy is nevertheless becoming competitive on a global level.
Since 1977, the price of photovoltaic cells, needed to produce solar power, has fallen from $ 76.67 per watt of installed capacity to forecast $ .74 in 2013, according to Bloomberg. This follows the so-called Swanson’s Law, which states that the cost of producing such cells falls by 20 percent every time production capacity doubles, thanks to both technological advances and economies of scale. With no signs for a slow-down in global demand for solar power, this trend looks likely to continue. Recently the Chinese government raised its target solar-power capacity for 2015 to 35 gigawatts, up from 21.
Solar energy is already able to compete with nuclear and coal power plants in sunny areas such as California and Spain. And unlike wind turbines, solar panels can be installed almost anywhere with minimal impact on the environment.
Power storage is still a costly obstacle– the panels produce electricity only when the sun shines, but not at night, when demand is high. This makes it unlikely that solar power will become the world’s primary energy source in the near future. Nevertheless, it is bound to grow dramatically. Taken together with the boom in wind power, there is little ground to argue with The Economist’s claim from late 2012 that soon “alternative energy will no longer be alternative.”
Beyond the obvious impact on businesses and national energy policies, this development is also likely to change the global geopolitical landscape. Sunny countries close to major economic centers may suddenly become important energy exporters. Already, the EU has plans in place to import energy from solar power plants in North Africa’s Sahara Desert.
More importantly, the emergence of solar power as a cheap source of energy can finally kick start the global battle against climate change. International talks over a successor to the Kyoto Treaty have so far been largely unsuccessful because cutting emissions is seen as an economic burden. Much like Game Theory’s classic prisoner’s dilemma, everyone knows that joint inaction may well lead to disaster, but doing nothing while someone else cuts emissions remains the most desirable solution. Since everyone thinks that way, nothing happens.
But what if cutting emissions will no longer be costly? Take China, a country that has long refused to commit to substantial emission cuts out of fear that doing so would hurt its growth, but is now investing in solar energy on its own accord. Beijing’s main motivation may be to support the country’s struggling solar-panel export industry. Nevertheless, if investing in solar power makes economic sense for China, it can make economic sense for others as well. As photovoltaic-cell prices shrink, so do the obstacles to meaningful action against climate change.
For solar power to have the largest possible effect, governments need to embrace it – if need be through expanded subsidies. Lower prices have put many producers of photovoltaic cells in serious financial difficulties and caused several bankruptcies. Such circumstances normally lead to consolidation in the industry through mergers and further bankruptcies, a temporary decline in competition and a rise in prices, until companies are once again profitable.
This dynamic likely wouldn’t stop the rise of solar power in the long run, but it would most certainly delay it, which is something we can’t afford. Preventing climate change is a matter of great urgency, and keeping the price of solar power down now is key. Artificially increasing demand for solar power not only reduces carbon dioxide emissions, it also creates economies of scale that allow producers to be profitable while still lowering prices – the essence of Swanson’s Law.
Like almost all forms of government intervention, subsidies for solar power are inevitably inefficient and create some bad incentives for businesses. But they are still our best bet if we want to curb global warming.
Konrad Putzier is an editorial assistant at World Policy Journal.
[Photo courtesy of Wikimedia Commons]