PARIS – Solar power has been the star of the clean-energy transition, delivering major benefits for the climate, the cost of living, and energy security. With an average annual growth rate of almost 30% over the last decade, the market for solar power has undergone a rapid transformation. What was once a heavily subsidized renewable-energy technology is now a readily available mainstream solution – whether one needs to power skyscrapers in large cities or deliver electricity to small businesses in rural areas.
Solar has become an increasingly attractive option for electricity producers and consumers alike. In 2023, additions to the world’s renewable power capacity grew by 50%, and most of that was solar PV. With supportive policies already in place in more than 130 countries, solar power looks set to continue playing its starring role for the rest of this decade. Compared with the previous five years, solar PV deployment through 2030 is expected to more than double in major economies such as the United States, China, the European Union, India, and Brazil.
Falling costs have been a key driver of this growth, with solar-panel prices declining by almost 50% in 2023. The combination of lower costs, scalable manufacturing, and quick installation means that solar PV is cheaper than new fossil-fuel power plants in most markets. Moreover, the benefits of solar can be amplified when paired with energy storage such as batteries or connected to larger, flexible systems via grids to deliver reliable power supplies.
Still, despite the unprecedented growth of solar power in recent years, the world needs to triple its renewable-energy capacity by 2030. At the United Nations Climate Change Conference in Dubai (COP28) last year, all countries agreed that meeting this goal is necessary to keep the 1.5º Celsius target for global warming within reach. The task for policymakers is to provide regulatory certainty for the private sector; ramp up investments in solar and other renewables, electricity storage, and grid infrastructure; cut red tape and remove administrative barriers; and improve access to finance, particularly for projects in emerging and developing economies.
Fortunately, even high inflation and tightening supply chains have not prevented the cost of solar PV from falling dramatically. But since this trend is largely due to China’s massive investments in solar-panel production, the international solar supply chain has become highly concentrated. As the growth of solar PV continues, manufacturing will need to become more diversified to ensure resilient supply chains. Initiatives such as the US Inflation Reduction Act, India’s Production-Linked Incentive, and the EU’s Net-Zero Industry Act will be crucial to building and revitalizing homegrown clean-energy industries.
Solar will be essential to meet growing energy demands, not least in emerging and developing economies, where policymakers are seeking to help their citizens realize their economic aspirations while limiting greenhouse-gas emissions. For many countries, renewables like solar can also reduce reliance on energy imports, limit exposure to global supply disruptions, and improve energy security over the long term. But as technologies and consumer behavior evolve, the need for more sophisticated energy infrastructure will grow.
As matters stand, investments to expand grid infrastructure are not keeping pace with the growth of clean-energy technologies, and this is delaying the rollout of new projects, including for solar. New electricity networks often take 5-15 years to plan and complete, whereas new renewables projects take only 1-5 years. Making matters worse, investment in grids – which needs to reach more than $600 billion per year by 2030 – is not flowing to the regions that need it most. Grid investments in many emerging and developing economies have been well below the levels needed to meet robust growth in electricity demand and to expand access.
This shortfall represents an opportunity that must not be squandered. Solar PV has enormous potential to provide electricity to the many millions of people who currently lack it, most of whom are in Africa. But access to finance is crucial. Many emerging and developing economies (with the exception of China) are missing out on the current wave of clean-energy investments because of the high costs of capital for new projects. The risk premium that investors demand to enter less-established markets is directly undermining solar power’s competitiveness.
Removing this obstacle requires action from governments, multilateral development banks, and others to bring down the cost of capital in these markets. The situation is urgent. To limit global warming to 1.5°C, we must more than triple annual clean-energy investment in emerging and developing economies within the next decade.
Solar’s growth shows what is possible. If policymakers can overcome the remaining technological, regulatory, and financial barriers, the COP28 goal of tripling renewable-energy capacity by 2030 will be well within reach – with solar leading the way. But if these barriers remain unaddressed, the energy transition will leave many countries behind, and it will fall far short of what the world needs.
Copyright: Project Syndicate, 2024.
