The prices of energy produced from solar power plants have been significantly greater than that off their non-renewable counterparts in the past. This means that solar energy could only compete with fossil fuels if it was subsidized or supported by other financial incentives. In Europe and the US, considered more developed markets in terms of adoption of solar power, power sales prices averaged around a 120 – 140 €/MWh in 2011. Yet in recent years solar PV projects have not only shown that they can be price competitive with their non-solar counterparts but in some cases have proven that it can be significantly cheaper.
Power purchase agreement (PPA) auctions globally have been receiving lower and lower price bids from developers and energy companies. Typically the prices have dropped more than 60% since 2011. Currently, the lowest ever energy price can be found in large scale projects in United Arab Emirates and in Chile. According to the Fraunhofer institute of Solar Energy Systems, solar power plants have become one of the most effective sources of energy production.
Naturally, the prices vary greatly based on the solar irradiation levels of the plant location. The higher the solar irradiance level in a country, the more efficiently a solar power plant can produce electricity, which eventually leads to lower energy prices. All countries and regions that have reported record-low auction prices have outstanding solar attributes and irradiation figures. Technology, such as the employment of 1-or 2-axis tracker systems, and careful maintenance are other factors that drive cash-flow on plant level.
Another key factor that plays a decisive role in determining the energy price of solar projects, is the availability of subsidies or governmental incentives. The comparison of solar energy prices around the world should be done in a very cautious manner as comparing solar energy prices with and without subsidies can provide a very biased picture of the current solar energy price status.
For example, the EU-area is among the countries with the most price competitive solar energy projects, many existing European projects are still heavily subsidized. The most prominent European subsidy, is naturally the short depreciation period, which can provide attractive tax benefits for the first years of the solar plant. However, the EU-area is not the only one promoting renewable energy sources through subsidies and other financial incentives. Less developed countries may also make use of subsidies including low cost financing or guarantees from development banks and/or sovereign wealth funds, or U.S. dollars based energy sales agreements to mitigate currency risk.
The size of solar power plant projects also play a key role in getting the lowest energy prices. However, it does not directly follow that the bigger the project scale is, the cheaper it can produce energy. In general, large utility scale for solar projects have proven to reduce energy prices. However, smaller scale power plant projects (2 – 20 MWp range) can be just as price competitive as big ones. This is one of the reason, that mid-market project owners can receive higher returns per invested capital than large project owners, since typically small-projects can enjoy a market landscape without the auction process. Thus, they combine the benefits of cheap energy production while having higher energy sales prices than bigger projects.
The cost of energy produced by solar resources seems to continue to decline and at this rate solar energy will soon overtake their competing energy technologies in being the most cost-efficient way to produce energy. In some countries, where the conditions for high solar energy production are met, they have already shown their superiority to fossil fuels. Countries with high solar radiation levels may already experience parity between solar and any other energy sources.