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China Laughed When It Saw How Cheap Solar Could Be
Michael Sankowski, Monetary Realism
Jun. 6, 2014, 12:01 PM

Do you remember when Dr. Evil was going to hold the world ransom for $1,000,000?

This is what we are facing today in Solar – the Dr. Evil ultimatum. The cost to get Solar to coal parity is going to be laughably tiny.

The cost sounds like a lot of money to old people, or to people who haven’t thought it through, or to people who do not know how large world GDP is today and how much we spend on energy already.

But the cost is tiny, and China laughed when they found out the cost.

*snip*

China decided back in 2000 they wanted needed to go green due to what was obviously going to be a massive environmental problem. I had friends tell me pollution was a terrible problem for China in the early 2000’s. Everyone in China knew this was a problem that had to get worse because they needed the electricity and energy.

China needed a solution to provide huge amounts of cheap electricity and not cause pollution. There are not many ways to do this. Solar was one possible path to clean and cheap energy way back in 2000, but it was very expensive then, and could not supply much capacity because there were few Solar production facilities.

So the Chinese leadership asked a question:

“How much will it cost to make Solar Cheaper than Coal?

This question has an answer. It turned out to be a dollar value China was willing to pay.

The dollar answer to this question requires knowing a few stylized facts about solar:

1. Solar gets 20% cheaper for every doubling of worldwide installed capacity. This is called Swanson’s Law and has held for at least 40 years.
2. The amount of installed solar is tiny today and was much smaller in the early 2000’s. This means Doubling capacity would cost very little in absolute dollar values in the early days. Even today is quite low. Testing Swanson’s law is “cheap”.
3. Solar plants are extremely quick to develop compared to coal plants, which means the planning and possible cancellation time is very low.
4. The market is willing to pay more for solar than it is for coal.
5. Some increasing portion of the current year cost to test Swanson’s law will be willingly funded by the market because the market will pay more for Solar than it will for coal power.
6. Installation capacity has a high but real upper limit to how much it can grow each year.
7. Solar plants have almost 100% of their costs up front, so the financing is an important cost factor.
8. Solar cells last about 30 years, which is longer than the financing term, so the last 10 years are free electricity even if Solar turns out to be a boondoggle during the time you are paying for it.
9. Electrical energy storage costs have their own Swanson’s law.

Analysts at places like McKinsey make models based on observations like this all the time. Industries are given estimated growth rates, and end up with some level of market penetration, with some mitigating factors and limits.

Swanson’s law predicted 20% price declines for every doubling of installed capacity. Since capacity was so low in the early 2000’s, doubling total world capacity a few times would cost just a few billion dollars.

The Chinese leadership turned the model on its head, and asked how much it would cost to get them to get Solar cheaper than coal.

I can imagine the conversation between the Chinese leadership and the engineers who were asking for funding.

“We have a looming environmental problem due to wanting much more electricity.”

“What are some possible solutions?”

“Solar could one day be cheaper and solve both the cost and pollution problems.”

“How much money do you need to find out?”

“A lot, about $10 billion”

At this point the leadership fall on the floor laughing. China is a country where they build entire ghost cities with nobody in them. They build massive public transportation systems in 15 years because they can. Spending $10bn to find out if they can solve both energy and pollution was completely worth it to them.

*snip*

I contend given the current levels of pollution in China, paying a modest premium for energy is completely worth it to them. If Solar ends up being the same cost as coal in just a few years, China will shift over to Solar power in an astonishing way. They will just stop building coal plants, and build an incredible amount of Solar plants instead.

Look at what China did in Shanghai. The city was entirely transformed in 20 years. China put up the equivalent of Chicago in 20 years.

Why would their response to cheap, clean energy be different? It won’t. China had a Dr. Evil moment with Solar, where it was shocked at how little it would cost to get clean energy. They tested Solar and it worked as expected. China is now laughing as they almost certainly preparing to roll out a truly huge amount of solar in the next 10 years.

This is going to drive down Solar prices far more rapidly than anyone expects. They are beginning to put together the information for the next 5 year guideline today and it looks great for Solar. The capacity China will add beginning in 2016 is likely to exceed even the highest estimates, simply because the combination of lower cost and pollution-free energy will be so compelling to China.

http://www.businessinsider.com/china...ould-be-2014-6