How Solar and Wind Got So Cheap, So Fast

A funny change has happened this year: People have become tepidly optimistic about climate change.

That’s not because the UN climate negotiations currently underway in Paris look like they might succeed, or because the United States is finally getting serious about a clean-energy policy. And it’s not because humanity is any less likely to overshoot the 2-degree Celsius target that spells dangerous levels of global warming.

No, it’s because the two renewable-electricity-generating technologies that advocates hope will one day power much of human society—solar and wind—have both plunged in price in recent years. According to a recent report from Bloomberg New Energy Finance, on-shore wind is competitive with fossil-fuel-burning plants in many parts of the world. And if you factor in coal’s devastating public-health costs, it’s already much more expensive than solar or wind.

These plunging costs are key to many popular assessments of global warming. When Jonathan Chait, a writer for New York Magazine, declared 2015 the year that humanity “got serious about climate change,” he pegged much of his optimism to technological change. Some of the most optimistic forecasts for the cost of solar, he wrote—in 2011, one writer predicted solar would cost near 50 cents per watt in 2030—had already been met. (Solar now costs about 60 cents per watt.)

David Roberts, a seasoned climate journalist at Vox, said that Chait’s hope on the technological front was plausible. “The big picture on climate change remains overwhelming and fairly depressing,” he wrote. But he added, “for the first time in my lifetime, it looks like it might be a real fight.”

Everywhere I looked, it seemed, people cited the plunging cost of renewables as reason for optimism in the planetary struggle. So, I wondered, how did we get here?

The answer is, of course, complicated. Both Chait and Roberts cite the considerable public investment in green energy that came from the U.S., Germany, and China during the Great Recession, in addition to recent American and European regulations that have de-incentivized coal power plants. But there were other factors at work. When I talked to energy-industry experts, they said that competition among manufacturers, and compounding technological know-how also contributed to the recent plunge in prices.

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According to Amy Grace, the head of wind insights at Bloomberg New Energy Finance, wind and solar markets work quite differently.* The wind market is analogous to a car market, she said, where companies building power plants must care about the reliability and quality of turbines over the long term. Solar, on the other hand, has become more of a commodity industry.

Let’s start with wind. Two main forces have driven the price of wind in the past five years, Grace said. First, she said, it’s cheaper to produce wind turbines than ever before. Second, wind turbines are much more efficient than they used to be.

Those cost reductions are largely due to competition. Grace traced some broad eras in the history of wind’s price. There was a large plunge between 1980 and 1996, as manufacturers figured out how to better build the technology. Then, from 2000 to 2008, “there was actually a plateau period. From 2004 to 2008, prices even start to increase. That was really driven by a shortage of turbines in the market,” she said.

Between 2008 and 2012, the demand for turbines turned into a supply glut. “People produced a ton of turbines, there was too much capacity, and the market didn’t grow as fast as people were expecting,” she told me. Since then, the price of building turbines has been brought down by a “learning curve”—that is, manufacturers have gotten better at building turbines better, cheaper, and faster.

“For wind, we’ve seen a 9 percent drop in the cost of an actual turbine, for every doubling of installed capacity,” Grace said.

But the falling cost of turbines is not the only factor driving down the price of wind. Manufacturers have also gotten better at making individual turbines produce more energy. Wind turbines can now be mounted higher, so they reach more powerful breezes; and their rotors can be bigger, so they capture more air. Utilities have also gotten better at deciding where to place turbines, and they’re more reliable, so they don’t break down as often.

Back to that car-market comparison. Grace seemed to understand these many improvements to turbines as amounting to an almost fundamentally different machine. Today’s car market, she said, “is not just about producing a 1920s car more cheaply. When you think about a 1920s car versus a car today, the performance has improved dramatically.”

For that reason, too, wind turbines are unlikely to be commoditized any time soon. Turbines are delicate and complex instruments, and they’re also pricey investments. Utility companies, when deciding whose technology to purchase, are likely to go with superior and reliable manufacturers.

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Solar is a different story. “It’s pretty simple—it’s all about the experience curve. The more of something we do, the better we get at it,” said Jenny Chase, the head of solar at Bloomberg New Energy Finance, in an email.

“Loads of solar got installed in Europe from 2004 to 2008 in response to German and Spanish incentives, meaning it was finally worth building big specialized solar module factories (mostly in China),” she said. “The manufacturers pushed down cost by making the wafers thinner, by optimizing the structure of the cells to get more efficiency (i.e. more energy output for the same area), by reducing the use of silver paste and other expensive components, and all the other ways scale can be reduced.”

Manufacturers also got better at building polysilicon, a key material in photovoltaic cells. The story there was similar to the one in wind: “From 2004 to 2008, the actual price of these modules stayed pretty high because the raw material polysilicon was in short supply,” says Chase. Prices for polysilicon got as high as $400 per kilogram. That enticed more manufacturers to get into the industry, creating a supply glut and a price crash.

It was that price crash that gave us current prices. Enough manufacturers survived to supply the industry, she told me, “and the price is now at a record low below $15 per kilogram,” she said. “The effect of this supply-shortage easing was to make the price drop seem more rapid than it would otherwise have done.”

As with wind, smaller improvements have also brought down the price of solar. In particular, Chase highlighted the falling cost of inverters, which convert the direct current produced by photovoltaic cells into the alternating current used by the electrical grid. She also told me that contractors have gotten much more efficient at installing solar panels: “Installers have trained their roofers to build residential photovoltaic systems in one hour, not one day, and got better at sending out teams with everything they need so they don't have to waste any time.”

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Regardless of whether there’s a deal in Paris, the two great mechanisms pushing along renewables—competition and ever-improving technical know-how—are likely to keep chugging along. The only question is how fast they’ll move, and how soon they’ll be definitively cheaper than coal and other fossil fuels.

More funding is likely the way to get there. Already at the UN conference, India has announced a global solar alliance of 120 mostly developing nations, and the U.S. and 18 other rich countries committed $20 billion to green-energy research. Even this funding will not be enough. Bill Gates and other technologists believe the world needs to retool its economy—as the United States did before World War II—to fight cataclysmic change.

And just think. If the pace of renewable innovation has already surprised us despite the industry receiving only meager public funding, imagine how much more efficient and powerful those wind turbines and solar panels can eventually be.

* This article originally misattributed quotes from Amy Grace, the head of wind at Bloomberg New Energy Finance, to Jennifer MacDonald, a spokeswoman for Bloomberg Philanthropy. We regret the error.