Solar Has Crossed a Critical Economic Tipping Point

For years, the economic case for solar centred on its lack of fuel costs and low operating expenses, with the understanding that it produced cheaper electricity than new coal or gas plants over their lifetime. The primary drawback lay in the upfront investment required, as solar projects needed significantly more capital for installation due to its intermittent nature and high module costs.

This made solar less competitive in emerging economies, where limited public budgets and competing infrastructure needs often led to the preference for cheaper fossil fuel options. However, a new analysis from Ember points to a critical economic tipping point for solar: it now requires less upfront investment than coal or gas plants for delivering the same amount of electricity.

This marks a fundamental shift, as solar can now compete with fossil fuels even before the first coal or gas is purchased. The decline in solar's upfront costs is driven by mass manufacturing, which has led to an 87% drop in total installed costs since 2010 and improved efficiency, expanded supply chains, and increased installation experience across major markets.

While solar still requires substantial capital upfront, the costs have remained high, whereas those for fossil fuels have decreased over time. This trend is particularly significant in emerging economies facing high electricity demand, high borrowing costs, and dependence on imported fossil fuels. In these countries, solar's parity with fossil fuels in upfront costs can help alleviate the paradox of choosing between a capital-intensive clean asset and a cheaper fossil fuel asset with recurring fuel expenses.

The falling costs of battery storage have also improved solar's competitiveness, with storage costs declining by 93% since 2010, reducing the flexibility premium required for solar-plus-battery systems. As a result, solar is increasingly facing the first problem in financing, not the second, and is becoming a more viable alternative to fossil fuel power generation even in emerging economies.