Solar Energy Costs to fall further as Low-interest rates Become another Major Cost Deflator

Renewable energy costs are set to decline further as interest rates have become negative in large parts of the globe. With the COVID-19 crisis leading to a GDP decline in most countries, central banks globally have been rapidly cutting rates to fight the crisis. The USA has cut rates to zero while central banks in Europe have gone even deeper into the negative territory. With renewable energy costs being made up in a large part by financing costs, this means that solar and wind energy plants will have even cheaper LCOE compared to earlier. The demand slowdown and sharp increase in supply from China has led to solar equipment costs falling by almost 15-20% over the last year. With most countries seeing disruptions, supply from China has not found a home leading to further cost declines in the prices of solar cells and panels.

With both equipment and financing costs coming down sharply, solar LCOE is set to fall further. Recently, Abu Dhabi saw a solar plant with an LCOE of around 1.5 cents. Other parts will also see similar prices in the coming year with interest rates remaining very low. This will put even further pressure on fossil fuel plants which are seeing growing opposition from climate change activities. Many countries like the UK, during the COVID-19 crisis, did not touch RE plants but sharply reduced the power generated from coal and other plants.  Few countries also showed great robustness of their power systems even with renewable energy making a greater than 50% share of the overall power generation for long periods of time.

With solar technology showing continuous improvement and financing costs falling, solar energy could become almost free over the coming 10-15 years with prices already touching 1 cent and falling further every year. In the coming years, the cost of generation will become almost a nonexistent cost factor with most of the costs coming from integrating renewable energy through batteries, hydrogen, and other technologies. Fossil fuels have a bleak future going forward.