Progress in solar panels has been so dramatic and sustained that … prices adjusted for inflation [have been] falling around 7 percent a year. … If the downward trend continues — and if anything it seems to be accelerating — we’re just a few years from the point at which electricity from solar panels becomes cheaper than electricity generated by burning coal. And if we priced coal-fired power right, taking into account the huge health and other costs it imposes, it’s likely that we would already have passed that tipping point.
Joshua Gans responds:
According to Ramez Naam in Scientific American, the cost of solar photovoltaic models has been falling at an exponential rate since 1980. Installation costs have been falling too. So much so, in fact, that in a decade, solar would outperform the average kilowatt energy cost in the US. A decade after that and it will be approaching the cheap baseload fuels.
Tyler Cowen responds:
If a solar breakthrough is now likely, in which market prices do we see it reflected? It is true that fossil fuel prices took a steep tumble in the last few months, but I’ve never heard anyone suggest that price plunge had to do with a forthcoming solar revolution. … Those shale oil and natural gas discoveries … will further raise the bar against solar power. … Is there a bubble in the stock prices of solar power specialists? What’s the total market cap of companies selling solar panels? Or is there a bubble in the share prices of companies which supply cheap and reliable power storage? The evidence on these points seems weak to say the least. Keep in mind that other countries can make the switch even if you think political conspiracy will prevent it here. …Is there any reason, based in industry-wide market prices, to be optimistic about the near-term or even medium-term future of solar power? I don’t see it.
(I posted on this in March.)
When solar is cheaper than coal or oil, that will include the cost of supporting infrastructure, such as building power plants. But since we’ll still have lots of old plants and infrastructure, we’ll still use a lot of carbon. And since places vary in the relative attractiveness of using carbon or solar power, we may even build more carbon plants after that point. Solar getting cheaper than carbon would show up in a gradual fall in global investment in coal infrastructure relative to an alternative still-full-carbon history, and a gradual rise in investment in solar infrastructure.
A transition driven by price lines crossing in twenty years would have very little impact on current stock or commodity prices. At ordinary discount rates used for business investment, returns after twenty years hardly matter. And changing tech and business conditions make today’s top solar firms a poor vehicle for investing in a transition twenty years hence. Of course current stock prices would probably show signs of a price-line crossing if investors expected it to happen in five years. So that scenario can probably be excluded.
This is one of the reasons we could really use long term prediction markets, to more clearly see our distant future. They only require that enough folk care enough about that future to pay to create and subsidize such markets. Alas, few care.