Solar Power Currently Cheaper than Oil, and Why That isn’t Exactly Good News

Solar energy is a form of renewable energy that is traditionally known to be considerably more costly compared to its more conventional counterparts. We all hear about the necessity of subsidies to make solar energy more available, because it apparently loses out to oil because oil is currently more efficient (comparatively) and is higher in demand.

But within the past few months, we have seen the cost of solar energy go down gradually. As of 2012, solar energy costs have lowered down so much, that a few solar PV systems in some areas around the world can already produce electricity that is actually cheaper than energy costs that come from oil-based sources.

Is it a time for celebration? Perhaps, but you might want to know that this is not really entirely good news, at least from a development standpoint.

The Good News that’s Not So Good After All

Even a few decades ago, it has already been predicted that renewable sources of energy, with continued development would eventually outpace conventional non-renewables, as supply reserves gradually run out. This means that it has always been just a matter of time before solar energy could catch up to oil-based energy sources. The years from 2010 to 2012 seems to have been the starting years of this eventuality, but what exactly caused this event?

Based on some reports made some time ago, the primary factor seems to be global market forces. There is currently a great abundance or surplus of solar panels, as well as their individual components. Since the global demand for solar energy isn’t exactly high, what would then happen? Prices would definitely drop down. So, it isn’t exactly because solar energy is now a lot easier to produce, and most certainly not because are they made more efficient now; there’s just too much that is left unused.

Cheap Solar Energy is Bad?

From a practical standpoint as a consumer, this is good news, because you can now invest in cheap solar energy that would let you buy back the investment capital in a shorter amount of time. As a corporate entity however, this is bad news, because that means your solar panels are not getting sold that often. Solar Trust of America for example, had recently filed for bankruptcy earlier this 2012 because of the solar energy price drop.

Probably one of the worst things that happened since the cost of solar energy dropped was the removal of supporting subsidies for solar panels. This is logically correct though, why would you subsidize something that is even cheaper than the standard competition. This does leave a hole though, because what if solar prices started rising back up again as demand eventually increases?

Despite this seemingly pessimistic view about the solar price drop phenomenon, the end result is that solar energy is now literally an economic threat to oil, and it is projected that it will continue this trend. India in particular currently enjoys this price drop, as solar-based electricity is now just around 9 rupees ($0.18) per kilowatt-hour there, a significant deviation from oil-based electricity costs of 17 rupees ($0.34) per kilowatt-hour.

Photo credit: Some rights reserved by  IntelFreePress  via Flickr.

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Christian Crisostomo (250 Posts)

Christian Crisostomo is just your average tech geek that loves to see man's newest and most recent technological exploits. He holds great interest in the potentials of green technology, and is enthusiastic about the continuous development of environment-friendly alternative energy.

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