In 2009, when I first traveled to South Africa for Scatec Solar to develop the market for solar PV, the price of a solar panel was $2,2 per watt. In the 12 years to 2021, we saw a remarkable solar revolution: The cost of the PV panel fell to about $ 0,20-0,25 per watt, driven by an unprecedented growth in the global PV market that expanded from about 10 GW in annual installation to close to 200 GW in 2021. But then, in 2021 and 2022 in the aftermath of the pandemic, the cost of PV equipment and logistics suddenly started to rise.
Due to a shortage of polysilicon and bottlenecks in the supply chain, the cost of solar PV panels increased by about 15 %. Combined with a higher cost of shipping and other costs, developers saw the costs of installing PV in Africa and elsewhere increasing by 20 %. This unforeseen cost increase was one of several reasons why PV investments on the continent excluding South Africa, actually fell in the years 2021 and 2022. Has the downward trend in PV costs reached its bottom?
The answer, we see now, is no. In 2023 the module price of solar modules amazingly dropped 40 % to less than $0,15 per watt, mainly because of cheaper polysilicon but also because of technology improvements. Experts predict solar module prices will approach the threshold of $0.10/W by 2025, and to reach $ 0,07-0,08 per watt by 2030.
What effects will the staggering fall in module prices have for Africa’s solar market? Modules typically represent about 20-25 % of the total PV system cost. The balance of system (BOS), construction and permitting – have generally not become much cheaper the last years, with the partial exception of inverters. We should expect the 40 % decline in solar PV module costs seen in 2023 convert to a 7-10 % drop in the overall cost of solar PV installation. By the time module prices fall below the $0,10 per watt threshold, solar PV systems will be about 10-15 % cheaper than it is today, assuming the balance of system and construction costs follow the general inflation.
So, what will a module price of $0,10 per watt mean for the levelized cost of electricity (LCOE) from solar PV? The answer depends on several factors, including your cost of capital.
Speaking from an equity impact investor with a special focus on Africa, Empower New Energy estimates that a 7-10 % decline in system cost would translate to a tariff reduction- in projects with a 15–20-year PPA or similar- of about 5-9%. In other words: Module prices dropping to $0,10 per watt will certainly help to stimulate the market, but is not in itself a game-changer, mainly because solar in most cases already is cheaper than the alternatives.
However, if we look for a game-changer, we should hunt elsewhere: Cheaper PV in combination with less expensive batteries.
Let me illustrate with an example I believe is representative for the solar PV market across Africa. Our company recently signed a Power Purchase Agreement in Kenya, with Abyssinia Iron and Steel. The company wanted a 4 MW solar PV plant to cover as much of the daytime demand as possible with clean energy, but because of load fluctuations, holidays, etc a 4 MW plant would result in considerable losses due to electricity produced but not consumed. Contrary to the situation in industrialised countries, energy users in Kenya and most of Africa are not allowed to sell excess electricity to third parties or to the grid company via net-metering.(or if net-metering is allowed, the revenue is unsustainably low) This is a very important barrier to unlocking the huge potential for C & I solar market in Africa, and is equally important for the growth of utility-scale, mini-grid and off-grid markets. The solar plant therefore needed to be scaled down to 2,5 MW.
Now let’s look at the potential effect of batteries, using the Kenya PPA as an example.
Let’s assume a battery system designed to deliver electricity to the factory at a constant load of say 2 MW for 5 hours per day, ie a 10 MWh of storage capacity.
This would require an increase in the size of the PV plant from 2,5 to 9 MW, equal to an additional investment of about $ 3,5 million. The cost of the battery system, however, is more difficult to benchmark and predict. As an example, quotes to Empower in 2 H 2023 revealed a total cost of decentralized lithium BESS systems in Sub-Saharan Africa in the range $400 -600 per KWh, causing a total investment of $ 4-6 million for 5 hours of 2 MW storage.
Fortunately, prices are about to fall. Following a spike in battery prices in 2022, BloombergNEF now reports that price of lithium-ion battery packs for stationary storage fell 14% to a record low of $139/kWh in 2023. Especially the growth in lithium iron batteries (LFP) contribute to the significant cost decline. When you can buy a complete battery pack for about $150 per kWh, the total BESS cost including installation should approach $200 per kWh, which is about 50-60 % less than currently offered to developers in Africa. There are many reasons why BESS is much more expensive in Africa than elsewhere; the most important being small, immature markets and lack of competition.
As the battery costs continues to fall by an expected 10 % or more per year, the competitiveness of solar PV plus storage will improve radically, especially in Africa where so many businesses are relying on expensive diesel or a mostly fossil fuel-powered and often unreliable electricity grid. Let’s go back to the Abyssinia example cited above, and assume a BESS cost of $200 per kWh instead of about 500 as quoted today. The revised 9,5 MW PV + 10 MWh BESS investment – ca $10,5 million – for Abyssinia would convert to an average cost of electricity in the range of $ 0,12 – 0,13 per kwh, equal to about 15 % below the grid tariff and still offering a payback-time of 8- 9 years. In addition, because of the investment, the energy user would benefit not only from being greener but also being more in control of its energy supply. The total estimated CO2 savings from the investment would double to about 10 000 tons per year. In situations where the solar plus battery plant replaces power from diesel gensets, the financial and carbon savings would be significantly bigger.
In other words: Cheaper PV modules are welcome, but what first of all will help to unlock Africa’s solar future is the bright prospect of more competitively priced battery systems.
