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“uåX˜äŠÊ˜·³Ç's annual review of generation costs noted that solar photovoltaic (PV) is now wind's principal competitor. In recent months, some reports have appeared quoting solar PV generation costs that appear to be lower than the minimum of $100/MWh quoted in our analysis. On closer inspection, some of these projects benefited from tax credits and/or special financial arrangements.

There is, however, a consensus that PV costs are falling more rapidly than wind costs, and the question arises whether — and if so when — PV generation costs will undercut those of wind.

There is no easy answer to this question, which depends on the location of PV systems — the sunnier the climes, the more productive the PV project — but unsubsidised PV is already matching wind in some instances. It is likely to become more competitive in future.

Cost comparison

In very broad terms, the productivity of PV — on an annual kilowatt hours per kilowatt basis — is just over half that of wind (although it is rising), so the installed costs of PV need to be around half the installed costs of wind for generation cost parity to be reached. Whether or not this will be achieved depends on which cost projections are given most weight. Three sets of projections for PV and wind are shown in the chart.

Data from the American National Renewable Energy Laboratory suggest that, even by 2030, installed PV costs will still be more than half of wind costs and so, except on very good solar sites, PV generation costs may still be higher than those of wind. NREL suggests the installed costs of wind will fall slowly in the next 15 years, to $1,630/kW by 2030, and that utility PV costs will fall to $1,069/kW in the same period, but does not expect them to fall any further after that.

Biggest fall prediction

Data from the South East Europe 2050 Energy Model suggest lower values of installed costs for both wind and PV, possibly reflecting lower labour costs in the region. The 2015 average for wind was $1,430/kW and it falls slowly to $1,322/kW by 2030. For PV the "high" estimate for 2015 was $1,240/kW, after which it falls rapidly to $400/kW by 2030. (The "low" estimate is $305/kW at that date).

Based on these estimates, by 2030, PV would be likely to undercut wind costs by a considerable margin. Another estimate of PV installed costs that would see them fall to less than half their present level by 2030 comes from the Fraunhofer Institute in Germany.

They do not suggest as rapid a fall as the South East Europe study, but project an average cost (across four different scenarios) of $761/kW by 2030. The minimum value in these scenarios was just over $600/kW and the upper end of the range was around $820/kW. Based on these figures electricity from PV — depending on location — would be close to, or below, wind energy costs.

In the near term, unsubsidised PV is already matching wind in favourable locations. A recent Peruvian tender yielded almost identical prices for PV and wind, and PV is likely to undercut wind in several instances by 2020. NREL's estimate for installed cost for wind in 2020 is $1,674/kW, and two of the estimates for PV are around $1,000/kW. On a good PV site (26% capacity factor) the generation cost would be about $55/MWh.

To match this, a wind farm would need a mean wind of about 8.8 m/s, which is at the top end of the onshore range. If the installed costs of wind fall to $1,250/kW (the lowest estimate in the figure) by 2020, then cost parity with PV would be achieved at a lower wind speed. These estimates all assume an 8% interest rate. With lower interest rates, all figures would be lower, but the conclusions would be very similar.

At a glance — This month's report conclusions

Current and Future Cost of Photovoltaics, Fraunhofer Institute, February 2015 Projects an average cost of $761/kW for PV by 2030, which would deliver electricity close to, or below, wind energy costs.

South East Europe 2050 Energy Model, SEE Change Net Foundation, July 2015 The average cost for wind will fall slowly from $1,430/kW in 2015 to $1,322/kW by 2030 while PV costs will drop rapidly from $1,240/kW to $400/kW by 2030.

Annual Technology Baseline, National Renewable Energy Laboratory, 2015 The installed costs of wind will fall slowly to $1,630/kW by 2030, and utility PV costs will fall to $1,069/kW in the same period, but they are not expected to fall any further after that.