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Solar set for 'disruptive' future as costs fall, says McKinsey

Apr 2, 2014 - Ben Willis -

The increasingly attractive economics of solar mean it will be a disruptive technology going forward, says McKinsey.

A report by influential consultancy McKinsey has painted an upbeat assessment of solar’s future prospects despite recent problems from overcapacity, subsidy cuts and a global financial crash.

The report ‘The disruptive power of solar’ said the economics of solar were “improving” even in the face of pressures such as competing resources such as cheap gas, government support cuts, competition and an economic downturn.

These factors had “profoundly challenged the industry’s short-term performance”, the report said. “But they haven’t undermined its potential; indeed global installations have continued to rise – by over 50% a year, on average, since 2006,” the report added.

As a result, McKinsey said solar was “poised to assume a bigger role in global energy markets; as it evolves, its impact on businesses and consumers will be significant and widespread”.

McKinsay said utility companies would “probably be the first, but far from the only” major sector to feel solar’s disruptive potential.

In its analysis of solar’s economic fundamentals, McKinsey highlighted how ongoing improvements in technology and in falling ‘soft’ costs would result in costs to consumers falling to US$1.6/watt by 2020.

This would put solar within eceonomic “striking distance” of traditional generation technologies.

“That’s true not just for residential and commercial segments, where it is already cost competitive in many (though not all) geographies, but also, eventually, for industrial and wholesale markets,” the report said.

All this means solar could “seriously threaten” utilities, McKinsey, as it will increasingly capture new demand, an area that utilities’ business models have traditionally relied on to fuel growth.

“By altering the demand side of the equation, solar directly affects the amount of new capital that utilities can deploy at their predetermined return on equity, the report said. “In effect, though solar will continue to generate a small share of the overall US energy supply, it could well have an outsize effect on the economics of utilities – and therefore on the industry’s structure and future.”


Updated: 2003/07/28