How solar energy can (finally) create value

The market for solar power is growing faster than ever, but profitability has been lagging. The keys to improvement are better capital and operational efficiency.

Solar energy is becoming a force to be reckoned with.

Last year, China and the United States installed a record 15 and 7.5 gigawatts (GW) of solar, respectively. This year, the world could install as much as 66 GW.1 In 2015, investors poured $161 billion of capital into solar, the largest amount for any single power source.2 In China, 43 GW of capacity have been installed, more than in any other nation; India aspires to build 100 GW of solar capacity by 2022. Across the sun-drenched Middle East, investment rose from $160 million in 2010 to about $3.5 billion in 2015.3

The world is building more solar-power plants because they are getting cheaper. Since 2009, the total installed costs of solar have fallen by as much as 70 percent around the world. New power-purchase agreements frequently fall below $100 per megawatt-hour, with some reaching less than $30.4 That price puts solar at or below the cost of a new natural-gas plant.

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This article was originally published on McKinsey Sustainability on October 18th, 2016.  Link to the original article is here: https://www.mckinsey.com/capabilities/sustainability/our-insights/how-solar-energy-can-finally-create-value