Solar power is in the middle of a breathtaking global surge. In 2017, countries around the world installed nearly 100 gigawatts — fifty Hoover Dams — worth of solar capacity. Investors poured over $160 billion into solar projects, more than any other electricity source, clean or dirty. And the price of solar power plunged to once-unthinkable lows around the world. In Mexico, Chile, and Saudi Arabia, the price of solar electricity fell to around 2 cents per kilowatt-hour, less than half that of power from coal or natural gas plants.
Supportive government policies have helped encourage the boom in solar energy. Developed countries such as Germany footed the bill for the early scale-up of the solar industry in the 2000s. Then China lavished billions on its domestic solar producers, creating an unrivaled manufacturing industry, and set sky-high mandates for the deployment of solar panels, making it the world’s largest solar market today. It is tempting to continue with more of the same.
That would be a grave mistake. Solar power is no longer a cottage industry, and the public policies that it will need to thrive over the coming decades are very different from those that kick-started its growth.
Harnessing the sun’s energy is the single most promising way to combat climate change and deliver affordable energy to rapidly growing economies around the world. Every hour, the sun beams down more energy to Earth than the world uses in a whole year. But today, solar energy only supplies about 2 percent of global electricity and meets less than 1 percent of total global energy needs. The solar industry will have to surmount formidable barriers to displace fossil fuels as a primary source of energy. Those barriers — including a shortage of investment, stagnant solar technology, and the unpreparedness of power grids to handle large amounts of volatile renewable power — could cause the industry’s surge to fizzle, halting a promising transition to cleaner energy.
The world needs three types of innovation to boost solar energy’s long-term prospects. Financial innovation will make it easier for the biggest funds to invest in solar projects and deliver the trillions of dollars that the industry needs to continue its rise. Technological innovation that replaces today’s solar panels with versatile coatings tomorrow could drastically reduce solar power’s cost, and other new technologies could store the sun’s energy in the form of portable fuels. Finally, systemic innovation could upgrade power grids and refashion the entire electricity system, making it easier to store and productively use solar power, despite its surges and sags.
Governments around the world should focus on promoting all three types of innovation. Unfortunately, the most common policy interventions — such as direct incentives to install solar panels on homes or trade barriers to prop up domestic solar panel production — fail to support any of the three and instead waste money while setting back innovation. By updating their policies, countries can reap the benefits of clean and abundant solar energy while doing their part to save the planet.
In the coming years, the most pressing obstacle to widespread adoption of solar power will be a scarcity of capital investment. Solar power projects — whether massive solar farms out in the desert or rooftop installations atop homes — are capital-intensive. Nearly all of the cost must be borne up front; once installed, solar panels will simply sit there producing electricity — requiring minimal maintenance and no fuel except sunlight — while bringing in steady revenues for decades to come.
Thus far, taxpayer-funded schemes have attracted private investment to fund solar projects, but that strategy is becoming untenable as the scale of solar deployment mushrooms. For example, in Germany, over a quarter of an average household’s electricity bill now goes to subsidizing renewable energy, up from 5 percent a decade ago. Customers are unlikely to tolerate paying much more, and the German government has already slashed subsidies for new solar projects.
In the developing world, where government assistance is scarce to begin with, unsubsidized private investment is crucial for solar energy to take off. India, for example, will need a total of $100 billion of private investment by 2022 to reach its ambitious target of installing 100 gigawatts of solar power — more than the whole world installed last year. Yet it remains far from attracting that level of investment; and worldwide, Bloomberg forecasts that private investment in solar power through 2040 will fall $2.5 trillion short of the level needed to stave off catastrophic climate change.
The only investors with pockets deep enough to bankroll the next phase of the solar industry’s growth are institutional investors such as pension funds, insurance funds, and sovereign wealth funds. For them, the few trillion dollars needed to boost the industry is small change. Most have passed over solar power as a major investment opportunity, even though the low risk and steady cash flows of solar projects fit their investment strategies. The problem is that solar projects do not resemble the stocks and bonds that institutional investors are much more comfortable trading. Unlike such securities, solar projects are neither easily assembled by investors into a diversified portfolio nor readily bought and sold on public capital markets.
Government subsidies aren’t the way to persuade institutional investors to plow their capital into solar energy; rather, the private sector must develop the financial tools needed to make it easier to invest in solar power. Fortunately, that is already happening. In Europe, stock-market investors can now buy shares in a diverse portfolio of large-scale solar projects, a practice that is growing in popularity. And in the United States, firms are starting to apply securitization — a financial practice common in the auto and home mortgage industries — to raise funds for rooftop solar installations by packaging together households’ solar loans and selling them on public capital markets. Although securitization can sometimes be risky — as the financial crash of 2008 made clear — investors have access to an increasing amount of data on the performance of solar projects and the creditworthiness of the customers installing panels, enabling investors to knowledgeably price solar securities rather than speculate on their value.
In the developed world, these financial trends are already in motion. Governments can speed them along by getting out of the way — for example, by making it easier for developers to obtain the permits required for solar projects. In developing countries, governments will need to work harder. For example, in India, public electricity utilities are so heavily indebted that there is a risk they might renege on contracts to purchase solar power from newly constructed projects. That risk scares off investors who might otherwise fund new projects. Government reforms that improve the financial health of power utilities — for example, requiring state-run utilities to charge customers enough to recover their costs rather than subsidizing customers for political gain — could encourage more private investment.
Governments can no longer afford to simply subsidize solar’s growth, now that the required funds are in the trillions of dollars. Rather, they must pursue structural economic reforms that create a favorable climate for private investment to flow.
The spectacular growth of solar power around the world has masked a disappointing stagnation in solar technology innovation. By the time today’s solar panels reach their limits, it might be too late to develop superior technologies before time runs out to slash the world’s carbon emissions. To prepare for the future, governments must make investments in technological innovation today.
Today, over 90 percent of solar panels are made from silicon, a material that has fallen in cost from over $4 per watt to under 40 cents per watt in the last decade. Yet even though silicon solar panels are cost-competitive with fossil fuel power plants today, they might not be in the future. As more solar panels are installed, they will flood the grid with electricity in the middle of the day. Soon, customers will no longer need much more power during lunchtime, when solar panels are pumping out electricity; when they do need power, at dinnertime, the sun will have set and solar electricity will be nowhere to be found. So even though solar electricity may well be cheaper in the future than it is today, its ability to meet customer demand — which underpins its value — could decline even faster than its cost. In other words, solar power could be a victim of its own success; as more of it connects to the grid, the next solar project will only be able to sell electricity at a fraction of the price that the first solar project was able to. Investors will no longer be interested in funding new solar projects that do not generate enough revenue to justify their cost of construction. As a result, the growth of solar power could hit a wall.
For solar power to remain economical even as more of it is deployed, the cost of producing it must fall much faster than it is today. And that will require commercializing new solar materials that are dirt-cheap and highly efficient at converting sunlight into electricity. Fortunately, promising alternatives to the existing silicon technology already exist in scientific laboratories around the world. The frontrunner, a material known as “perovskite,” could one day enable industrial-scale printing of rolls of high-efficiency solar coatings in a range of colors and transparencies. In the future, solar power could be ubiquitous, with flexible, lightweight, and aesthetic coatings wrapped around urban skyscrapers and deployed atop flimsy roofs in the slums of the developing world.
In addition to these new solar coatings, other emerging technologies could harness the sun’s energy to produce portable fuels. For example, artificial leaf technology — inspired by plants’ ability to use sunlight to produce sugars that store energy — has already made impressive strides in the laboratory and can exploit sunlight to split water into hydrogen and oxygen. That hydrogen can then be used as a fuel in its own right — to power vehicles, for example, or to produce liquid fuels in a reaction that combines hydrogen with the carbon dioxide emissions from fossil fuel plant smokestacks, negating the environmental impact of those emissions. Such clean fuels, produced with the sun’s energy, could weaken the oil industry’s grip on fueling cars, trucks, ships, and airplanes.
Commercializing these breakthrough technologies will require public investment. A decade ago, private investors plowed venture capital funding into innovative solar startup companies, but nearly all of them disappeared when Chinese companies — flush with loans from the central government — began exporting massive quantities of silicon solar panels to the rest of the world. As a result, the private sector is now skittish about funding solar technology bets. Rebuilding its confidence will require public funding for solar research and development to grow new technologies that private firms can commercialize.
In 2015, all of the world’s major economies signed the Mission Innovation pledge to double public funding for clean energy R&D. But the world’s leading R&D spender, the United States, has reneged on its commitment under President Donald Trump, who wants to slash renewable energy R&D spending by two-thirds. This would be disastrous. China already dominates global production of solar panels, and the only way for the United States to capture a share of the rapidly growing market is if its firms can manufacture technologically superior products.
Trump’s recent decision to impose tariffs on solar imports aimed to bring back solar manufacturing from China, but because the tariffs are set to decline and expire within four years, they will stimulate neither domestic manufacturing nor innovation. Instead, Trump’s policy will raise the cost of deploying solar power in the United States, and because the majority of jobs in the U.S. solar industry involve the installation of panels, the tariffs will destroy many more jobs than they create. A far better strategy would be for the United States to invest in solar R&D, for example through the Advanced Research Projects Agency-Energy, an agency modeled off its military counterpart DARPA, to fund farsighted innovations in energy technology. Moreover, the U.S. government should help start-ups scale up the production of breakthrough technologies at home by building facilities that companies can use to test advanced manufacturing techniques. Finally, the federal government should fund first-of-a-kind field demonstration projects, to embolden the private sector to invest in the mass production of new technologies.
Another reason the solar energy boom could fizzle is that existing energy systems will struggle to cope with the volatile fluctuations of solar power. Even the most basic changes in weather, such as passing clouds, can cause the output from a solar farm to vary wildly. Solar optimists contend that it will soon be economical to use batteries to store all the excess solar power in the middle of the day and then feed that power back into the grid after the sun sets. This is implausible. Although battery technology has made exciting strides, it will still be too expensive to rely on batteries alone to smooth out the massive fluctuations in solar power. Governments must build flexible energy systems, starting with upgrading the power grid, to accommodate a rising share of solar power.
At the levels that countries are targeting for solar power, the scale of the disruption to existing power systems will be enormous. Germany, for example, aims to derive 30 percent of its electricity supply from solar energy by midcentury — more than four times its present level. Because solar energy can only be generated during the day, achieving an annual share of 30 percent solar power will require so much capacity to be built that excess solar electricity will have to be thrown away on a sunny day. Already, excess renewable energy spills over Germany’s borders, threatening to overload its neighbors’ grids. In the future that Germany envisions, its grid will struggle even more to handle unpredictable solar output. On a sunny afternoon, excess solar power could exceed customer demand and storage capacity; on a cloudy day, a huge share of the grid’s electricity supply will simply disappear.
Batteries are part of the solution, but it is not feasible to scale them up enough to solve the problem of solar power’s volatility. By some estimates, reaching 100 percent renewable electricity in the United States would take 37.8 billion Tesla Powerwalls — which are similar to the automaker’s electric vehicle battery packs but are meant to sit in your garage and provide backup power to your home. That’s 320 Powerwalls per household.
There are other ways to help manage the intermittent nature of solar power. Pumped hydroelectric storage plants, which move water uphill to store power and let it flow downhill later to run a turbine and produce electricity, currently provide more than 90 percent of the world’s energy storage. It is the only proven large-scale technology that might be able to store solar energy over long periods to smooth out fluctuations in the weather. And a different kind of solar power plant, which uses concentrating mirrors to convert sunlight into heat, is a promising complement to more familiar solar panels, because the heat can be used to generate electricity through the night.
Nuclear reactors — the largest source of clean energy in the United States — can actually smooth out volatile solar output by ramping up and down in response to solar fluctuations. So can plants fueled by natural gas — and if equipped with technology to capture and store emissions, those plants could produce zero-carbon energy. In an affordable, reliable, and clean electricity mix, solar power can shine as the star, but it should be flanked by a strong supporting cast.
The power grid itself has an important role to play in enabling a solar future. China wants to build a globe-spanning grid so that solar power can be generated wherever the sun is shining and then transmitted to parts of the world where it is not. That proposal is likely too audacious, but regional supergrids might be in the cards in the coming decades. Such supergrids — linking East Asia, North America, and even Europe to North Africa — would connect faraway solar generators with urban areas thirsty for energy.
An upgraded power grid might be able to flip the 20th-century model of the electric power system — on-demand power plants serving customers when they need power — on its head. In the future, solar power plants would produce volatile output, but customers would be able to adjust their energy use on the fly based on the availability and cost of electricity. Customers might program electric space and water heaters to automatically adjust their electricity consumption based on dynamically changing prices. Drivers could set their electric vehicles to charge up in the middle of the day when solar electricity floods the grid. Then, later in the day, those vehicles could opportunistically send power back to the grid to help stabilize volatile solar power output, while making sure to charge up by the time they need to make the next trip.
Unfortunately, few countries are taking proactive measures to promote this sort of systemic innovation. China is an exception. It is building a cross-country grid that will be able to move enormous amounts of renewable electricity across vast distances. By contrast, the two other largest carbon emitters in the world, the United States and India, are lagging. The United States is paralyzed by grassroots opposition to long transmission lines, which can reduce local property values and risk environmental damage; few nuclear reactors are under construction as a result of activist opposition, cost overruns, and project delays; and state officials have been slow to change the regulatory structure that leaves power utilities without any incentive to build a smarter grid. India could be in even more dire straits, since its ramshackle grid is in no shape to handle the coming influx of solar energy, and government funds to upgrade the grid are scarce. Blackouts, already common across the country, will only get worse.
Governments still have time to act. They have a golden opportunity to capitalize on the declining cost of solar power to reduce their carbon emissions, but only if they plan for the future. They must move beyond the policies of the past and carefully craft far-sighted replacements that promote innovation. The reward — a global clean-energy transition — will be well worth the effort.
This essay was adapted from Varun Sivaram’s new book, Taming the Sun: Innovations to Harness Solar Energy and Power the Planet.