Solar Energy: A New Era 


The age of solar energy has arrived. It came faster than anyone predicted and is ushering in a global shift in energy ownership. People are only just beginning to recognise the consequences of this change. Solar photovoltaic (PV) power is already the most widely owned electricity source in the world in terms of number of installations, and its uptake is accelerating. In only five years, global installed capacity has grown from 40 gigawatts (GW) to 227 GW. By comparison, the entire generation capacity of Africa is 175 GW.

Solar PV accounted for 20% of all new power generation capacity in 2015, according to statistics gathered by the International Renewable Energy Agency (IRENA). This amounted to 47 GW in a single year, equivalent to the total power generation capacity of Poland.

We are seeing the emergence of solar power everywhere: from large-scale utilities to micro-grids; from billion-dollar corporate HQs to rural rooftops; and from megacities to small islands and isolated communities. We see solar next to our airports, along our roads, in our fields and on top of our car parks.

This shift is taking place not only in advanced economies but also in the developing world. Solar PV deployment promises to improve the well-being of billions of people previously cut off from reliable electricity.

An electricity system once dominated by monolithic state agencies and a few large corporations is giving way to a vast range of owners and producers. Power generation is diversifying from the hands of the few to the enterprises and homes of the many.


The primary driver for the solar revolution is dramatic cost reduction.

Solar PV was, until recently, considered an expensive luxury affordable only to rich countries. But in recent years, support polices have accelerated deployment, spurred technological innovations and created a virtuous circle of falling costs.

Utility-scale PV power from plants commissioned in the past year typically costs between six and ten US cents (USD 0.06-0.10) per kilowatt-hour (kWh) in Europe, China, India, South Africa and the United States. In 2015, record low prices were set in the United Arab Emirates (USD 0.0584/kWh), Peru (USD 0.048/kWh) and Mexico (USD 0.045/kWh median price). In May 2016, an auction of 800 megawatts (MW) of solar PV in Dubai attracted a bid of USD 0.0299/kWh or just under three cents (with the winning bidder still to be announced). While these record lows will not be repeated everywhere, they indicate a continued strong trend and significant potential for further cost reduction.

On a global level, weighted average levelized cost of electricity (LCOE) for utility-scale solar PV was USD 0.13/kWh in 2015. In comparison, electricity production from coal- and gas-fired power stations was in the range of USD 0.05-0.10/kWh. By 2025, the global weighted average LCOE of solar PV could fall by 59% with the right enabling policies (IRENA, 2016a). That would make solar the cheapest form of power generation in an increasing number of cases. Rooftop solar is more expensive than utility-scale PV, but this is balanced by grid savings.

The upfront costs of building a solar PV plant – often cited as a major barrier – are now close to or even lower than those of conventional power generation. For utility-scale projects, the global average total installed cost of solar PV systems could fall from USD 1.8 per watt (W) in 2015 to USD 0.79/W in 2025. This represents a 57% reduction in ten years (IRENA, 2016a). Coal-fired power generation plants, by comparison, cost about USD 3/W, and natural gas plants cost USD 1-1.3/W.

Furthermore, the energy payback (the time needed for a solar PV panel to produce the energy used in its production) has fallen due to improvements in resource use, manufacturing processes and efficiency and is now two years or less, depending on key factors like location (Bhadari et al., 2015).

Consequently, in both developed and developing countries, utility-scale solar PV systems can sometimes be cheaper than new gas- or coal-fired power stations. In many countries, rooftop solar PV systems provide power at a lower cost than the grid. Solar lights and solar home systems are bringing cheap electricity to previously un-electrified regions across Africa and Asia.

Solar PV now represents more than half of all investment in the renewable energy sector. Investment in rooftop solar PV reached USD 67 billion worldwide in 2015. For utility-scale systems, it reached USD 92 billion. Investment in off-grid applications is 15 times higher and now amounts to USD 267 million, according to figures from Lighting Global and Bloomberg New Energy Finance (BNEF) in 2016. 

The benefits go far beyond bottom-line costs. The solar PV value chain today employs 2.8 million people in manufacturing, installation and maintenance (IRENA, 2016b).

Solar is a core element of policies to address climate change. Solar PV generation has already reduced carbon dioxide (CO2) emissions by 200 million-300 million tonnes per year, equivalent to total greenhouse gas emissions in France. Depending on the growth of actual solar PV deployment, this CO2 emissions reduction could range between one and three gigatonnes per year in 2030 (IRENA, 2016c). Solar and other renewables provide major health benefits compared to fossil fuels and have the potential to reduce particulate matter emissions by a third.

Yet while the spread of solar PV offers enormous opportunities, it also poses major challenges to regulators and planners. Solar PV provides less than 2% of global electricity today. The experience of countries pioneering solar power, such as Germany, Italy and island states like Samoa, shows that 10-20% solar PV can be integrated into an electricity system without problems. But integrating higher levels will require a host of new activities. These include the introduction of more interconnectors, demand-side management, electrification of the transport and building sectors and ultimately electricity storage.

The question facing policy makers today is not whether the shift to solar PV will happen – it has already begun - but how best to manage it. This paper highlights some of the most important changes in store. 

“Between 2030 and 2050, we will see 10-30% of global energy demand covered by solar PV. Right now we are in an embryonic state compared to where we are going in a few decades.” — Eicke Weber, Director Fraunhofer ISE 


World electricity demand is expected to grow by more than 50% between 2015 and 2030. Of that growth, 95% will be located in developing and emerging economies. In many of those countries, solar PV is likely to become a key source of electricity.

A recent report identified Brazil, Chile, Israel, Jordan, Mexico, the Philippines, the Russian Federation, Saudi Arabia, South Africa and Turkey as the most attractive markets for solar PV up to 2020 (IHS, 2015). IRENA estimates that solar PV capacity could reach between 1,760 GW and 2,500 GW in 2030, producing between 8% and 13% of global power generation. By comparison, Germany, Greece and Italy are the only three large electricity-consuming countries that exceeded 7% in 2015 (IEA-PVPS, 2016). Fulfilling the overall capacity potential of solar power means a seven- to eightfold increase, requiring average annual capacity additions to more than double, from 47 GW in 2015 to over 100 GW for the next 14 years. (IRENA, 2016a).

This growth is heralded by a continued rise in PV module capacity. The market for modules has changed from a situation of oversupply in 2013 to a supply/demand balance at around 65 GW, well above the 47 GW installed in 2015. Moreover, further capacity additions are planned for the coming years. New technologies will offer better performance and be available at a lower cost. The range of applications will expand, with PV increasingly integrated into buildings and installed on lakes and in lagoons.


In most countries, historically, the electricity system has consisted of a few large power stations connected via transmission lines to local networks. These networks supplied electricity to industrial and residential consumers.

The market structure evolved as the grids grew. Until the early 1990s, local or government-owned electric utilities operated as monopolies, which owned the generation, transmission and distribution networks. This meant utilities with centralised power stations and large grid infrastructures were considered a long-term but reliable investment opportunity with steady rates of return. Operational expenditures had to be kept under control, but fluctuations in fossil fuel prices could be passed on to the consumer.

In a growing number of countries ownership has been liberalised. Vertically integrated utilities have been broken down into separate companies. Different entities are now responsible for generation, managing and operating transmission and distribution networks, and selling electricity to consumers. Electricity is sold through a set of long-term contracts and day-ahead or spot markets Only a small number of generation companies are incentivised to invest in either: a) baseload power, producing a stable flow of electricity 24 hours per day; or b) load-following or peaker plants, which provide electricity when demand spikes. 

With cost-competitive utility-scale solar PV power plants starting to replace fossil-fuel plants as the technology of choice, this existing paradigm is being challenged in a number of ways. Grid topology, market structure and power system operation all need adjustment. In the longer term, the spread of solar PV may even drive the relocation of economic activities to areas rich in solar resources.


These challenges become even greater in the next phase of solar power’s evolution, in which large scale generation grows in tandem with an expanding, and increasingly distributed, network of small scale solar PV installations. 

Falling costs at utility scale have been matched by similarly dramatic decreases at the household and community level. 

In Australia, Denmark, Germany, Italy, Spain, parts of the United States and many island states, smallscale solar PV systems already produce electricity more cheaply than buying it from the grid. In China and India, small-scale solar PV systems can be installed for around USD 1,500 per kilowatt (kW) (IRENA, 2016b). Residential-scale solar PV systems installed in Germany in 2015 averaged USD 1,600/kW. In Australia, the costs of residential solar PV rooftops declined from USD 7,157/kW in 2010 to USD 2,050/kW in 2015. 

“PV prices are going down, and solar is now competing with other energies.” — Marcel Silva, Chilean Ministry of Energy

As prices have dropped, solar PV generation uptake by households and local communities has increased dramatically. In 2015, around 30% of solar PV capacity installed worldwide involved systems of of less than 100 kW (IHS, 2015). This is gradually changing the face of power system ownership.

 In Germany, where around 1.5 million rooftop systems are installed, the majority of solar PV installations are now owned by individuals. Even if this is corrected for systems size, most German solar PV capacity is accounted for by rooftop systems (Figure 4). Similar trends are seen in other countries. 

In China, more than 1 million people gained access to electricity in 2013-2015 through the deployment of 670 solar PV mini-grids and 250,000 solar home systems. In the US, a local utility received more than 1,000 requests within a day of launching a new solar PV leasing programme for households. 

In Australia, 1.5 million households, or 16.5% of them, now have solar PV systems. The Victoria network operator Ausnet Services is taking one Melbourne community completely off the grid in trials for a combination of rooftop solar and battery storage. In the coming years the number of households that go off-grid is expected to rise rapidly, driven by falling feed-in tariffs, high grid electricity cost and falling battery storage cost. Even in the UK, rooftop solar PV systems continue to grow without any incentives from the government.

There are concerted efforts to broaden applications in cities from rooftops to facades and windows, creating not only additional opportunities for power generation but also reducing the cooling load. In rural communities, solar lighting and home systems are playing a critical role in providing electricity to the 1 billion people without access, and act as backup for unreliable power supply in cities across South Asia and Africa. Off-grid applications such as telecom towers, solar water pumps and solar street lighting are increasingly attractive compared to traditional diesel systems and costly grid connections. 

Globally, off-grid solar PV combined with storage systems provides more than 6 million households with 100% of their electricity consumption. Around 89 million people in developing countries have at least one solar lighting product in their home. In 2020, one-third of all off-grid households are expected have at least one solar PV product in their home (Lighting Global and BNEF, 2016). 

“Solar PV has a very big role to play in dealing with the energy access challenge in Africa.” — Linus Mofor, Senior Expert, African Climate Policy Centre, United Nations, Economic Commission for Africa


The increasingly localised production of solar PV is having a profound impact on energy companies, markets and regulators. What was essentially a command-and-control system is transforming into a vast, complex and rapidly evolving real-time marketplace, involving millions of individual players. Some welcome this as the democratisation of energy. Others fear it could usher in a period of uncertainty. 

As consumers become producers, distributors have to deal with electricity flowing both ways, both to and from their homes. In countries with limited electricity demand growth, such as the US and much of Europe, solar PV panels are creating an oversupply of power generation capacity at certain times. This reduces the peak prices that have traditionally supported utility power stations, while the kilowatt hours sold from their power stations also decline. Some regulators warn that this is creating growing waste and rising grid-management challenges. 

Power system operators are accustomed to dealing with variable power flows, and in general variability in demand is larger than variability in supply. But solar demands a rethink of many traditional concepts. 

Traditional models use a mix of baseload plants, which have low variable costs when running at full capacity, and ‘peaking power plants’. These have higher running costs but are able to ramp up and down quickly to match demand. Operational needs are predicted far in advance, on the basis of past trends. In between baseload and peak, flexible ‘load-following plants’ are employed to meet demand as it fluctuates during the day. Some reserve capacity is maintained above the peak demand level to deal with plant failures and extreme demand levels.

 Variable renewable energy (VRE) generators make baseload redundant. They also squeeze the operating hours for load-following power plants in the electricity markets. When there is a low VRE share, VRE facilities often compete with load-following and peaking plants such as flexible gas-fired power stations. As the share of VRE increases, it starts to squeeze out baseload power plants. At that point, the complementarity between VRE and flexible power plants becomes more important (IRENA, 2015a). 

“Baseload is no longer a significant concept when the lowest marginal cost is achieved by solar and wind technologies with no fuel needs.” — Tomas Kåberger, Chair of Executive Board, Renewable Energy Institute, Tokyo

In countries with solar PV penetration levels of 5-10%, the market is already changing. The appearance of VRE, including solar PV, has resulted in new intra-day markets, some operating at less than an hour ahead of time. New capacity and ancillary grid services have emerged. While opinions differ about critical market design elements, there is general agreement that an adjustment is needed as the proportion of variable renewable power rises significantly. 

The price of wholesale electricity has tended to fall as the VRE share has grown. Solar PV, in particular, reduces daytime electricity prices. In Germany, for example, the spread between peak and off-peak spot prices has declined because solar PV systems are producing electricity when demand is high. 

In recent years, this has reduced the arbitrage potential for energy storage facilities like pumped storage hydropower plants to a point that new plant investment is unprofitable (FfE, 2014). As the share of solar PV rises, the trend could change again, with pumped-storage hydroelectricity becoming an attractive option to help balance the variability of solar PV.


As solar advances, new forms of financing and business models are replacing traditional models. For utility-scale projects, markets have witnessed the rise of project bundling, yieldcos and green bonds. Some of these instruments bring new risks. (See SunEdison box). 

At the household level, we see the rise of new leasing models such as that introduced by SolarCity in 2006, which allow households to install rooftop solar PV without upfront costs. Instead, customers pay a monthly electricity fee to the solar PV leasing company, which is cheaper than buying electricity from the grid. Households then get the opportunity to buy the solar PV systems after a number of years. This new business model has kick-started the solar PV market in the US. However, leasing seems to be losing ground to long-term loans. 

In the US, five large companies as well as numerous local utilities are now offering solar leasing. In Europe, large utilities like E.ON and RWE have lost, respectively, 21% and 5% of their German customers as a result of solar leasing. They are now developing new companies to enter the solar leasing market.

“The way in which we use energy, in which we trade energy, in which we dispatch energy will all change. It’s already changing around us.” — Paddy Padmanathan, CEO, ACWA Power 

On top of this, smart grid technologies combined with electricity storage at a decentralised level are allowing the creation of virtual communities of solar PV owners who effectively share electricity through the existing grid. According to this model, consumers can buy and sell electricity from each other by trading the electricity contained in their batteries (Martin, Richard, 2015).


Despite these shifts, utility-scale solar and small-scale production will not be sufficient between them to meet demand for some time. While renewable energy has begun to dominate new electricity capacity, its contribution is still low compared to total installed capacity and power generation. Furthermore, solar PV systems cannot produce electricity every single hour of the year. The share of solar PV in most countries will remain well below 20% until 2030. 

Similarly, rooftop solar PV does not make grid infrastructure obsolete; on the contrary, the grid becomes even more important. Most households will be able to satisfy up to 40% of their annual electricity demand by installing solar PV systems, which means that 60% will still need to be supplied from elsewhere. Most households with rooftop PV produce at certain times more electricity than they consume, resulting in large flows to the grid.

Consequently, grid connections will be maintained but the remuneration will have to be adjusted. At the moment, grid costs are in most cases paid by the consumer through a kilowatt-hour consumption levy. If some users drop their consumption, the cost rises for the rest. Net metering allows power generation by consumers to increase dramatically; but new cost allocation models or self-consumption policies may be needed if the share of self-production rises significantly (IEA-PVPS, 2016). A significant fixed monthly fee plus a lower charge per kilowatt-hour is one alternative tariff model.

The higher share of rooftop solar PV also has important implications for industry, which accounts for up to half of electricity demand and needs reliable power 24 hours a day. Localised solar PV electricity production in distribution networks will not be sufficient, for example, to satisfy electricity-intensive industrial production processes like aluminium smelters. At the same time, the economics of heat and power cogeneration at conventional baseload plants deteriorate as VRE depresses wholesale electricity prices, so energy supply decision-making for industry becomes more complex.

Instead of replacing centralised electricity production altogether, it is expected that both centralised and distributed production will live side by side, which means they will need to be co-ordinated. A smart and strong grid infrastructure will be essential to ensure synergies. 

The solar age affects not just national and local electricity markets but the international system. The world faces a cascade of interrelated changes at all levels, from individual households and appliances all the way up to relationships between nations. 

Going up the chain, solar PV deployment at the consumer level (household/community/commercial users) is putting pressure on network operators and the way national electricity systems are traditionally managed and governed. This is brought about by new developments in electricity storage, electric vehicles and smart appliances. The growth of solar PV and other renewable energy sources will eventually change the generation mix and improve each country’s electricity security (IRENA and IEA, 2016). It will eventually shift the balance of power between nations. 

International political initiatives like the International Solar Alliance, China’s concept of a green silk route, and Desertec have gained prominence. In addition, international business alliances such as the Terawatt Initiative have formed as emerging solar powers seek to shape the energy landscape (see Box 3). Solar PV is also a major industrial activity, which creates jobs along the supply chain. 

Today, the vast majority of PV production is located in China. But this could change in future, and Chinese companies have already announced capacity expansion plans in India, Malaysia, the Philippines and Vietnam. As countries continue to position and align themselves with solar PV as their common denominator, new market designs and enabling frameworks will gain credibility and global recognition. This will boost the confidence of investors to continue investing in solar PV projects. 


The solar PV revolution has just begun, and the technology continues to advance quickly. 

National governments spent at least USD 924 million on solar PV research and development (R&D) programmes in 2014 led by the US, Japan, Germany and South Korea (McCormick et al, 2016). These efforts, combined with global competition between solar PV manufacturers, appear set to significantly increase the potential for solar PV.

Increases in the efficiency of conventional crystalline silicon (c-Si) solar PV panels, alongside developments in concentrated solar PV3 and the emergence of new types of modules continue to improve energy yields. This is important for environments with limited space such as residential rooftops and cities, and is likely to prompt a wealth of new applications. Thin-film cadmium telluride (CdTe) and copper indium gallium selenide (CIGS) are already commercially available. Many other materials are in development and are close to commercialisation. Most prominently, these include perovskites and multi-junction cells. 

PV efficiencies in the range of 40-50% will allow for radically different uses, such as integration into electric vehicles, making them more autonomous. Lower costs will allow solar to be integrated over large surface areas such as along motorways and in walls. New thin-film technologies and organic cells can further reduce the cost of cells and improve their weight or flexibility. Furthermore, PV yields could be much higher in situations when the sun is not at a favourable angle. 

This opens up fascinating new opportunities for solar PV deployment in urban environments and allows electricity to be harvested without the need to create new infrastructure. Zero-energy buildings will become the new standard in the EU after 2020. If adopted more widely, this could completely change the outlook for distributed networks serving residential loads. 

At the other end of the spectrum, solar PV systems are already moving from ground-mounted systems to deployment on lakes and oceans. In hydropower plant and reservoir dams in Brazil and Japan, freshwater reserves are already covered with floating solar PV panels. The next frontier is solar PV panel deployment in space, in order to feed electricity back to earth. 

Innovation will not only continue to shape solar PV technologies and their applications but will also be needed to strengthen the supply chain of solar PV systems from cradle to grave. This includes innovation in material sciences and recycling techniques to continue to improve the environmental and resource sustainability of the materials (IEA-PVPS, 2015a). Innovations in solar forecasting and software development for siting, operating and maintaining solar PV systems will ensure maximum benefit from the projects on the ground.

Different solar PV technologies are finding new ways to co-exist with other technologies. Hybrid power systems using solar PV, wind, biomass, geothermal, hydropower and ocean energy technologies will tend to be more robust and less costly than those entirely relying on solar PV and batteries.

“The power sector of the 2030s is going to look radically different. The solar industry needs to work with the incumbent electricity providers to help with that transition.” — John Smirnow, Secretary-General, Global Solar Council

“Solar PV will be cheaper; we are expecting that within a year or so it will be on par with conventional power price. If advanced technology comes up, costs may come down. If financial investment comes up, cost will come down. If strong policy and renewable purchase obligations are there, which will be made mandatory, these increase the confidence level of private sector developers and the cost will come down.” — DK Khare, scientist, Ministry of New and Renewable Energy, Government of India

Source- Letting in the light: How solar photovoltaics will revolutionise the electricity system

Copyright © IRENA 2016


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