Renewable Energy Foundation has published two substantial studies of wind farm economics by Professor Hughes, the latest of which appeared in 2020. The present study applies the same principles to the analysis of large, utility-scale, solar generation in the United Kingdom and in the United States. Inquiries regarding the study can be made to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
1. Between 2011 and 2020, 13.4 GW of solar generation capacity was installed in the UK, two-thirds of it in the years 2014 to 2016 in response to what were seen as generous subsidies. This study uses data from company accounts to examine the actual capex and opex costs of building and operating solar plants. In addition, it examines the relationship between age and the performance of solar plants in both the UK and the US. The results are used to assess the economic viability of solar generation if subsidies are reduced or eliminated completely. The conclusions are strikingly different from the claims or assumptions made by official bodies and industry sources.
2. It is well-known that the cost of solar panels fell sharply during the 2010s. Many have assumed that the overall cost of building solar plants has fallen similarly and, even more important, will continue to fall in future. The data show that there was a 15% decline in the average capex cost per MW of capacity from 2011-13 to 2014-16 and a 10% decline from 2014-16 to 2017-20. The average capex cost per MW was £0.95 million at 2018 prices. The trend in capex costs is consistent with the fall in the costs of solar panels and inverters, but other costs have increased over the period and appear to be affected by a scarcity of equipment and skilled labour. Further falls in the cost of solar panels will only have a limited impact on total capex costs.
3. The average annual level of opex costs per MW of capacity for solar plants is 3 to 4 times the official assumptions at about £36,500 for a plant in the size category of 10-20 MW. Opex costs are highly variable over time and across plants because of equipment failures and other factors, but the pooled data suggests that they tend to increase with the age of the plant. The estimated rate of increase over time was about 5% per year in real terms. That rate of increase may fall as the industry matures but it would be prudent to assume that opex costs will increase by 2.5% to 3% per year in real terms.
4. There is extremely strong evidence from both the UK and the US that the output of solar plants falls at 1% to 2% per year after age 3 years, after controlling for the level of solar radiation. The rate of decline in output is higher in the US than in the UK which may reflect differences in maintenance practices or the greater length of experience in the US. If the US pattern prevails in the UK, solar plants reaching the end of their period of eligibility for ROCs will have an expected output for standard weather conditions which is 30% lower than in their early years of operation.
5. The combination of rising opex costs and declining performance means that existing solar plants are unlikely to cover their operating costs once their period of eligibility for ROCs comes to an end after 20 years and they move to operating as merchant generators. Recently, many of the SPVs which own and operate solar plants have changed their accounting assumptions to increase the economic life of their assets from 25 to 35 years. This modification is ill-judged and potentially damaging to investors as the evidence suggests that the economic life of solar assets is unlikely to be significantly greater than 20 years.
6. The breakeven price of electricity for new investment in solar plants is £108 per MWh over a 25-year life under the most optimistic assumptions about opex costs and performance and it is £123 per MWh under more realistic assumptions. These breakeven prices are significantly higher than for onshore wind but comparable with breakeven prices for offshore wind.
7. Solar plants in the UK are not financially or economically viable as pure merchant generators. They require either subsidies or non-commercial power purchase agreements which offer an average offtake price that is at least three times what they could expect to earn by selling at the average day-ahead price over the period 2015-19. Since solar plants must compete with wind generation for CfD contracts, new investment in solar plants is likely to rely primarily on the willingness of companies to pay much higher than market prices for the electricity that they produce or to make sites and other resources available at below market rates.
8. It should be emphasized that the UK has much poorer solar resources than some other countries in Europe and most states in the US, while both land and skilled labour are expensive in the parts of the UK where solar resources are best. The conclusions of this study about the relationships between operating costs, performance and age are relevant to solar generation in other locations. However, the fundamental determinant of the economic viability of solar plants is the quality of the solar resources. Spending public money to promote solar generation in the UK seems to be a very poor use of limited budgetary resources.
9. The UK Government’s Energy Security Strategy published in April 2022 claims that: “The cost of solar has fallen by around 85% over the past decade [...] We expect a five-fold increase in deployment by 2035.” The first statement is demonstrably false when applied to utility-scale solar plants which account for about 50% of total capacity. The goal of increasing solar capacity by 56 GW would destabilise the grid and impose a burden of up to £10 billion per year on either taxpayers or energy consumers for practically no benefit. It is, of course, a fantasy in practical terms but such fantasies cause enormous damage by diverting resources from addressing the real sources of high energy costs in the next five years.
 Economic-Solar-Generation.pdf |