The outlook for natural gas has never been brighter, but in many areas -- including North America, Europe and the entire southern hemisphere -- using solar energy to generate electricity could become cost-competitive or even gain a cost advantage over gas-fired generation by 2025, according to a report by Boston-based Lux Research.
That surprising conclusion was reached despite the effect of burgeoning production from shale plays in North America and elsewhere, and the resulting decline in natural gas prices, analysts said.
"While government subsidies currently insulate solar from competition from gas, cheap gas could end the dream of unsubsidized grid parity and force solar to the fringes as subsidies expire," said the report. But a detailed levelized cost of energy analysis revealed that solar becomes competitive with gas in all 10 regions analyzed by 2025 in the most likely gas price scenario. That's because solar costs would fall faster than gas prices -- even in gas-rich regions -- as increasing domestic demand and liquified natural gas exports counter supply growth from significant shale development.
And solar's eventual cost-competitiveness means increased gas penetration would actually benefit it "by enabling hybrid gas-solar technologies that can accelerate solar adoption without subsidies and increasing intermittent renewable penetration without expensive energy storage or infrastructure improvements," said the Lux analysts. The levelized cost of energy from unsubsidized utility-scale solar closes the gap with combined cycle gas turbines to within $0.02/kWh worldwide in 2025, they said.
Solar would become cost-competitive with natural gas by 2025 "in the likely scenario of gas prices above $7.60/MMBtu," they said, and could be competitive as early as 2020 if gas prices are between $4.90 and $9.30/MMBtu.
But the transition from a subsidized market to an unsubsidized one won't be easy for the solar industry, the analysts said.
"Turmoil is imminent because standalone solar will not yet be competitive when subsidies start expiring in markets like China, the U.S. and Japan. Companies will need to diversify geographically and transition to areas with fewer gas resources -- or develop hybrid systems that take advantage of low gas prices," the Lux analysts said.
By 2016, the world will get more of its electricity from solar and other renewables than from natural gas, according to the International Energy Agency's (IEA) "Medium-Term Renewable Energy Market Report," which was released earlier this year (see Daily GPI, June 27). But in the Americas, particularly the United States, natural gas is still in the lead, IEA said.