Costs of the clean energy tech will keep falling over the next decade.

By Katie Fehrenbacher
June 13, 2016

Solar will become the cheapest source to produce power in many countries over the next 15 years, according to a new report from Bloomberg New Energy Finance.

Part of the cheap solar power will be unleashed because the cost of installing solar panels at big solar farms and on rooftops will drop 60% to an estimated average of around four cents per kilowatt hour by 2040, the report said. That’s cheaper than coal and natural gas power in many regions.

A limited number of solar projects in sunny and solar-friendly places like in Mexico have already gotten to that ultra-low four cent cost this year. But those projects have been able to optimize costs by building at huge scale, across miles of land, and selling power to utilities. By 2040, even the generally more expensive process of installing solar panels on residential rooftops could be that cheap. At the same time, large scale utility solar projects could even drop into the range of three cents per kilowatt hour.

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Previously almost all of the falling costs of solar—from the mid 1990’s up to the present—were due to technology and manufacturing improvements (in addition to government support) as more international conglomerates started to mass produce silicon-based solar panels. But in the future, much more of the solar industry’s cost reduction could come from what the industry calls “soft costs,” like financing, permitting, and selling solar projects, says the report.

For all the investors and entrepreneurs out there, that means it could be a good time to start building services businesses that can take advantage of the plummeting solar costs, like better ways to sell solar panels online or software that can streamline solar projects. Down the road, the Bay Area solar-focused incubator Powerhouse, which supports solar startups, might not be so rare.

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The low cost of solar will encourage solar panel installations to the point that solar could account for 43% of all the new power generation added worldwide between now and 2040, says the report. That’s enough solar projects to represent $3 trillion of new investment. A little over a third of these solar projects will be small in scale (like on a home roof), and two thirds will be industrial scale for utilities and other bid businesses.

By 2040, 15% of the world’s electricity will come from solar panels, says Bloomberg New Energy Finance. Each year, people and businesses will invest nearly $135 billion into solar energy infrastructure.

At the same time that the cost of solar drops, wind power will also become cheaper. Together, the low costs of these clean energy technologies will be enough to outpace new energy production from fossil fuels. While the price of coal and natural power will stay low, and drop by about a third over the next couple of decades, “cheaper coal and cheaper gas will not derail the transformation and decarbonisation of the world’s power systems,” says the report.

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