University of Queensland researcher Matt McDonald recently used the phrase “immovable objects” to describe impediments to a UN Security Council resolution on climate change and, more broadly, to “international action consistent with the urgency of the climate crisis.” But what happens when an immovable object is struck by an irresistible force? And is either characterisation accurate?
Evidence of seemingly immovable obstruction isn’t hard to find. Oil and gas companies have resumed investment in exploration on the assumption that internal-combustion vehicles and gas-fired electricity generation will be around for some time to come. Everywhere the expansion of solar and wind power is being obstructed by NIMBY objections to new transmission lines, complex permitting procedures, and grids designed to distribute power generated by coal and gas. Higher interest rates have added to the obstacles facing solar and wind projects.
Against this seemingly immovable resistance is ranged the irresistible force of massive reductions in the cost of solar photovoltaics, or PV, and, to a lesser extent, wind. The result has been a huge expansion in production capacity, estimated at 650 gigawatts a year in China alone. Geopolitical concerns have meanwhile driven the United States and other countries to reduce reliance on China through “friendshoring,” the expansion of production capacity outside China.
The International Energy Agency estimates that global solar PV manufacturing capacity will reach almost 1000 gigawatts in 2024. This exceeds current projections of demand so much that the IEA warns “the industry is rushing headlong into a supply glut.”
That warning implies that stocks of unsold inventory will build up, as is already occurring. As the growth of stocks becomes unsustainable, prices will fall to a point where demand and supply are brought back into balance. Where will that equilibrium be found?
It is easier to look at the supply side first. Solar module prices have fallen to historically low levels of US$0.14 per watt, a decline of nearly 40 per cent since the beginning of 2023. These are stunningly low prices. In the absence of soft costs, and assuming 7 per cent interest, and 2000 hours of operation per year, the cost of electricity from such a module would be a mere 0.5 cents per kilowatt hour. Even at these prices, though, solar PV producers are rushing to invest in new production capacity.
The decline has been accelerated by a fall in the price of polysilicon, the raw material for a solar cell, as well as reductions in the amount required for a cell with given capacity. Solar cells now require only two to three grams of polysilicon per watt of capacity. With polysilicon prices now below US$10 per kilogram, that’s no more than 3 cents per watt.
The next big input to the production of solar cells is electricity itself. Solar PV manufacturing has tended to be located in coal-intensive provinces of China, notably Xinjiang and Jiangsu. But as the glut of solar modules develops, manufacturers will find it more economical to “eat their own dogfood,” using surplus modules to supply the electricity to produce new ones at ever lower costs.
Improvements in the efficiency of solar cells along with increases in the surface area of modules translate into reductions in installation costs. With solar cells now very cheap, manufacturers have an incentive to focus on design changes that produce lighter and more flexible modules, further reducing costs.
In other words, even a severe glut seems unlikely to result in sustained reductions in output. Rather, manufacturers will accept lower profit margins and seek ways to cut costs even further.
The demand for energy is growing and nearly all of this demand can be met by electricity in one way or another. As solar generation capacity increases, the benefits of using solar PV to meet the growing demand will become more and more evident. Battery storage is expanding rapidly too, threatening the role of gas-fired electricity as a source of “dispatchable” electricity — electricity that can be turned on or off at short notice.
What happens when such an unstoppable flood of generation capacity runs into the seemingly immovable barriers of entrenched interests and political resistance? The outcome will undoubtedly be messy, but one way or another the flood will find its way around, over or perhaps under the barriers.
The problem of transmission lines provides one example. New solar generation is now commonly sited near where coal-fired power plants have been shut down, thereby taking advantage of already-installed transmission lines. But once solar costs fall enough, it becomes economically sensible to buy and demolish coal plants in order to use their transmission capacity for solar. That’s increasingly true even when the plants are nowhere near the end of their operational life.
Rooftop solar provides another way of avoiding constraints on transmission capacity. It’s politically popular, so regulators have shied away from onerous permit requirements in most jurisdictions. Thanks to the incentives provided by the Small-scale Renewable Energy Scheme, as well as its sunny climate, Australia has been a world leader in rooftop solar. That will only accelerate as the cost of solar modules drops. In fact, the cost reduction associated with that decline is so great that, even in the absence of government incentives, rooftop solar will soon be an attractive option in any sunny climate.
Another possible path is the production of “green hydrogen” using electrolysis to split water into its components, hydrogen and oxygen. The low price of electricity implied by a severe glut of solar PV would make electrolysis competitive with coal-based technologies. Replacing these polluting technologies with electrolysis to meet existing demand for hydrogen would use about 2300 terawatt hours, or nearly twice the global total solar PV generation for 2022.
The shift to hydrogen would be constrained by the massively increased need for electrolysers, which are currently produced on a much smaller scale than would be needed. Nevertheless, production of even a modest share of current hydrogen demand would absorb any glut in solar PV production. And the prospect is that demand will increase sharply, most notably in steel production.
One way or another, the force of massively increased solar production capacity and ever lower costs will breach the “immovable barriers.” But compared with an efficient and orderly transition, the process will be slower than is needed, and the costs will be much greater. •
