Clean Power

Published on April 10th, 2014 | by Zachary Shahan


Solar’s Disruptive Potential Discussed In McKinsey Report

April 10th, 2014 by  

For a variety of reasons, solar companies have had a hard time profit-wise in recent years. However, that doesn’t mean their sales haven’t been growing. The solar market has grown in size year after year, and for the companies that squeezed through the toughest of financial times, the future looks very bright, disruptively bright.

Solar power, at approximately 0.85% of the electricity market in 2013, is likely to become the #1 source of energy (all energy, not just electricity) by the end of the century. That’s tremendous growth. McKinsey has more in an April 2014 publication:

The economics of solar power are improving. It is a far more cost-competitive power source today than it was in the mid-2000s, when installations and manufacturing were taking off, subsidies were generous, and investors were piling in. Consumption continued rising even as the MAC Global Solar Energy Index fell by 50 percent between 2011 and the end of 2013, a period when dozens of solar companies went bankrupt, shut down, or changed hands at fire-sale prices.

The bottom line: the financial crisis, cheap natural gas, subsidy cuts by cash-strapped governments, and a flood of imports from Chinese solar-panel manufacturers have profoundly challenged the industry’s short-term performance. But they haven’t undermined its potential; indeed, global installations have continued to rise—by over 50 percent a year, on average, since 2006. The industry is poised to assume a bigger role in global energy markets; as it evolves, its impact on businesses and consumers will be significant and widespread. Utilities will probably be the first, but far from the only, major sector to feel solar’s disruptive potential.

Ah, feel it they will.

There are a few obvious dynamics that will ensure solar is disruptive, world-changing. For one, solar technology will continue to see cost drops and efficiency improvements (as any young technology does). Resource-based energy options (i.e., fossil fuels), on the other hands, will see their costs increase as supplies continue to dwindle.

Furthermore, at just 0.85% of the market, solar has a lot of potential to cut “soft” costs as the market grows and economies of scale are obtained. In Germany and Australia, some of the more mature markets, soft costs are considerably lower than in less mature markets such as the US. The cost of solar in Germany is actually about half the cost of solar in the US. All markets, even Germany and Australia, will see notable cost reductions on the soft side of solar in the coming years. Don’t believe me? Well, pay some heed to McKinsey:

Sharply declining costs are the key to this potential. The price US residential consumers pay to install rooftop solar PV (photovoltaic) systems has plummeted from nearly $7 per watt peak of best-in-class system capacity in 2008 to $4 or less in 2013.1 Most of this decline has been the result of steep reductions in upstream (or “hard”) costs, chiefly equipment. Module costs, for example, fell by nearly 30 percent a year between 2008 and 2013, while cumulative installations soared from 1.7 gigawatts in 2009 to an estimated 11 gigawatts by the end of 2013, according to GTM Research.

While module costs should continue to fall, even bigger opportunities lurk in the downstream (or “soft”) costs associated with installation and service. Financing, customer acquisition, regulatory incentives, and approvals collectively represent about half the expense of installing residential systems in the United States. Our research suggests that as they become cheaper, the overall costs to consumers are poised to fall to $2.30 by 2015 and to $1.60 by 2020.

Yep, McKinsey is predicting a drop in the overall cost per watt of solar power capacity from $4 to $1.6 by 2020 (in the US).

Also, as I note every chance I get, it’s important to realize that residential solar power costs compete with retail electricity rather than wholesale electricity. That makes solar competitive for residential (and commercial) consumers sooner than many might realize. Actually, for tens of millions of Americans, the cost of solar power beats the cost of retail electricity over the life of a solar PV system, or even over a small fraction of the life of a solar PV system. For many homeowners, it even beats investing in the S&P 500.

Here’s a chart from McKinsey on “grid parity” in a number of countries and American states:

solar grid parity McKinsey

McKinsey also notes, as I have for years, that many in the developing world will actually benefit from jumping right from no electricity or unreliable electricity to solar electricity. As I said in a CNBC & Harvard Business Review interview a few years ago, people across the developing world will leapfrog (and are leapfrogging) large, centralized power plants just as they leapfrogged landlines and jumped right into the cell phone market.

Decentralization is a key trend in many sectors, not the least of which is the electricity sector.

McKinsey writes: “While these economic powerhouses represent the biggest prizes, they aren’t the only stories. Sun-drenched Saudi Arabia, for example, now considers solar sufficiently attractive to install substantial capacity by 2032,2 with an eye toward creating local jobs. And in Africa and India, where electric grids are patchy and unreliable, distributed generation is increasingly replacing diesel and electrifying areas previously without power. Economic fundamentals (and in some cases, such as Saudi Arabia, the desire to create local jobs) are creating a brighter future for solar.”

If you’re still skeptical about solar’s future (and present), consider this: some of the biggest corporations in the world are switching to rooftop solar power. “For example, Wal-Mart Stores has stated that it will switch to 100 percent renewable power by 2020, up from around 20 percent today. Mining and defense companies are looking to solar in remote and demanding environments. In the hospitality sector, Starwood Hotels and Resorts has partnered with NRG Solar to begin installing solar at its hotels. Verizon is spending $100 million on solar and fuel-cell technology to power its facilities and cell-network infrastructure. Why are companies doing such things? To diversify their energy supply, save money, and appeal to consumers.”

Definitely don’t discount the “save money” part of that. Walmart doesn’t need to sell itself as a green company. Walmart has one key selling point: our stuff is cheap. It’s infamous for that. Solar power is about cutting Walmart’s costs in order to keep prices low and profits high. It isn’t making token investments in solar. It has more solar power installed than any other company in the United States.

Furthermore, banked and investors have been warming up to solar, and better financing options have resulted. Solar is getting to play with the big boys now. And you know that when that happens, the big boys will also protect solar’s future growth.

For more on solar’s potential and the disruption — including utility disruption — that the solar sector is bringing, check out the full McKinsey article.

Check out our new 93-page EV report, based on over 2,000 surveys collected from EV drivers in 49 of 50 US states, 26 European countries, and 9 Canadian provinces.

Tags: , , , , , , , , , , , , , , , , , , ,

About the Author

is tryin' to help society help itself (and other species) with the power of the typed word. He spends most of his time here on CleanTechnica as its director and chief editor, but he's also the president of Important Media and the director/founder of EV Obsession, Solar Love, and Bikocity. Zach is recognized globally as a solar energy, electric car, and energy storage expert. Zach has long-term investments in TSLA, FSLR, SPWR, SEDG, & ABB — after years of covering solar and EVs, he simply has a lot of faith in these particular companies and feels like they are good cleantech companies to invest in.

  • Custom_Blinds

    You might find more productive discussions if you segregate the issues of generation, transmittal and storage. There are unique challenges and opportunities in each but glomming them all together and stating something like “Solar sucks and you’re a poopy-head” advances nobody’s understanding.

  • Larry Lievre

    hey everybody! this is Awesome!

    I would like to cordially invite you to join us on our daily Google Hangout where we discuss disruptive technologies and growing masterminds. The hangout is held at 10PM MST and just before the Hangout begins, the link is posted on our Founder’s Trishaly Banack’s Facebook Page.

    Look forward to seeing you!


  • Hans

    “it’s important to realize that residential solar power costs compete with retail electricity rather than wholesale electricity.”

    Only if you have net-metering in your area, or if there is a FiT close to the retail price. Otherwise it is only true for the part of the production that you can use yourself at the moment it is produced. You can get a substantial self-usage percentage only by having a very small system (you always have some electricity usage, even if you are not at home), or by installing batteries, which means substantial extra costs.

    • Calamity_Jean

      Well, we need to lean on places without net metering to start allowing it. That’s a political issue for anyone who lives in a place that is even nominally democratically governed.

      Batteries may be getting cheaper as battery production for electric cars increases. However, it’s unwise for electric utilities to provoke its customers to install batteries. Once a household has batteries, it’s tempted to install more solar panels and go off-grid. The utility has then completely lost a customer.

      • Bob_Wallace

        Net metering is not the answer. If enough people install solar then the value of midday electricity falls very low. The utility has to take this not-valuable electricity and pay back with more expensive electricity.

        Look at what solar does to the wholesale price of electricity in Germany. (It’s starting to do the same thing in California.)

        With only a modest amount of solar the wholesale price of electricity collapses. Pre- and post-sunny hour electricity still costs the utility a lot of money.

        We need a good reimbursement system that’s fair to both sides.

  • Will E

    solar will exceed 100 % and go to hundreds %% plus and will be used
    for new all energy need, transport, heating, desalination, and so on.
    Solar will change the world and nature. cheap clean easy.

    • Mahdi

      Add production of chemical feedstocks.

  • Jouni Valkonen

    I think that we will go 100 % solar in 2030’s. At least on southern latitudes. Not perhaps here in Finland.

    • Omega Centauri

      I can’t see it ever being 100% solar, except in a few isolated spots. Even at 100% renewable, other sources will be tapped. Some places have good potential in site specific renewables: hydro, wind, geothermal, tidal etc.

      • Jouni Valkonen

        The way to go 100 % solar is to install about four times more solar production capacity than it is needed. Then there is enough solar electricity production capacity even in the cloudiest day of winter.

        Batteries are good for night time and perhaps also some wind power in the mix also, where conditions are good for wind.

        • Bob_Wallace

          More like 10x.

          Why not use and store wind at night, use and store solar during the day?

          • Jouni Valkonen

            wind and storage are too expensive.

          • Bob_Wallace

            Give us what you think the prices are.

            And explain how it would be cheaper to use solar and store it for non-sunny hours than to use wind.

          • Jouni Valkonen

            The price of solar panels is approaching zero. We already have prototypes that if/when scaled on mass production they have projected cost more close to zero.

          • Bob_Wallace

            OK, so you aren’t serious.

            Got it.

          • Jouni Valkonen


          • Bob_Wallace

            That steps over the bounds.

            If you’d like to re-post your argument without the insult you are free to do so.

          • Jouni Valkonen

            I edited some arguments for you. But that insult will remain, because you deserved it, until you fix your own post that was derogatory and impolite.

          • Steve Grinwis

            Solar is getting cheaper, but so is wind. Plus solar and wind tend to complement each other, with availability greatest at different times…. Pretty clear the future will be a mix of both.

        • Omega Centauri

          I think thats going to be a tough sell. At this point the task is to keep the high growth rate going, after we reach say 20% penetration, we will see if the cost has become low enough to make something like that acceptable to the cheapskates. Try to push the compromise 100% renewables will need too soon, and they will get sticker shock, and that might delay the solar expansion.

    • William C’est Tout

      I agree. Solar is still fighting bizarre and unjustified skepticism.

      • TravisJSays

        It’s not skepticism, it’s reality and economics.

    • tibi stibi

      in holland i’m now on 75% solar (rooftop) and 25% wind (share in large wind turbine) and saving money.

      i agree that in 2030 everybody will be smart enough to install solar 😉

      • MorinMoss

        How much solar do you have installed & how much did it cost?
        When did you install your panels?

Back to Top ↑