How Solar Energy is Redefining Power?

Did you know that by 2040, solar energy is projected to become the primary source of human energy consumption? Welcome to the Solar Revolution. 

The world is on the brink of a monumental transformation. In 2024 alone, a staggering $500 billion (about $1,500 per person in the US) will be funneled into solar panel purchases and installations, almost matching the investment in upstream oil and gas.  

Solar power is set to hit several major milestones: by 2026, it will generate more electricity than all the world’s nuclear power plants; by 2027, it will surpass wind turbines; by 2028, it will exceed hydroelectric dams; by 2030, it will outpace gas-fired power plants; and by 2032, it will outperform coal-fired plants. This trajectory underscores a transformative shift toward renewable energy sources. The same can be understood from the chart below:  

So, let's beam into the history of solar energy 

Seventy years ago, AT&T's Bell Labs introduced a groundbreaking technology for converting sunlight into energy, initially intended to replace batteries in remote locations. This innovation showcased the incredible potential of scientific advancements, exemplified by a press event where sunlight powered a toy Ferris wheel. 

Fast forward to today, and solar power has advanced far beyond its experimental stages. Solar panels now cover an area roughly equivalent to half of Wales, generating approximately 6% of the world's electricity—nearly three times the amount of electrical energy consumed by America in 1954. However, the most remarkable aspect of solar power's rise is that its growth is far from reaching its peak. 

One might ask, why go for solar?

Well, solar energy promises cheaper energy, which increases productivity by reducing costs across virtually every aspect of life. The rapid growth rate of solar energy has transformed it from a niche technology to a significant player in the energy sector. Michael Liebreich, a seasoned clean-energy technology and economics analyst, highlights this progression: in 2004, it took the world a year to install one gigawatt (GW) of solar capacity. By 2010, the same amount was installed in a month; by 2016, it took just a week. Remarkably, in 2023, there were days when a gigawatt of solar power was installed globally. Analysts at BloombergNEF project that in 2024, between 520 and 655 GW of solar capacity will be installed, equating to up to two 2004s worth of installations per day. 

Affordable energy will unlock new possibilities, such as lighting homes, driving cars, purifying and desalinating water, powering artificial intelligence, and making homes and offices more comfortable in increasingly hot summers. The most significant impacts will come from innovations yet to be imagined. With the abundance of cheaper energy, human creativity will be unleashed, sparking excitement and new possibilities in ways we cannot yet foresee. 

When we talk about solar energy, how can we forget China?

Almost all the purified silicon used in solar panels is produced in China, whose highly competitive and heavily subsidized solar industry currently outstrips global demand. This robust capacity ensures that solar energy expansion can continue for years, even if some companies fail and investment decreases. 

In the long term, generating more energy without relying on oil and gas from unstable or hostile regions will lead to a more stable global energy supply. However, the concentration of such a crucial industry in a single, potentially adversarial country is concerning. This concern is particularly acute in America, which has responded by imposing tariffs on Chinese solar equipment. Nevertheless, since most of the demand for solar panels lies in the future, there is ample opportunity for other countries to enter the market. Easing restrictions on panel installations and grid connections could unleash significant pent-up demand, with a terawatt of new solar capacity ready to be connected. Carbon pricing would also facilitate this transition, just as it did in the European Union's shift from coal to gas. 

The downside of rapidly expanding Chinese solar capacity, which has surpassed global demand, is the significant squeeze on industry profits. Polysilicon, wafers, cells, and finished modules sell below-average production costs. According to the report, plummeting prices led to a 5.6% drop in Chinese solar export revenues last year despite a surge in volume. Longi's share price has plummeted by approximately 60% since early 2023. In March, the company announced plans to lay off 5% of its workforce, citing an "increasingly complex and competitive environment." The share prices of other Chinese solar giants, such as Trina Solar, JA Solar, and Jinko Power, have also taken a significant hit. 

Let's not forget Africa and its pressing energy crisis

African poverty is significantly linked to energy poverty. Unlike other continents, where most people have access to electricity, 600 million Africans, or 43% of the population, still lack reliable power. Even those connected to the grid face frequent outages, hindering economic growth. This energy crisis has allowed private firms to play a pivotal role in transforming the energy landscape. 

Private firms are increasingly driving Africa's solar revolution. Last year, Africa installed a record amount of photovoltaic (PV) capacity, although it still represents just 1% of the global total. Unlike other regions where utilities build most solar PV, 65% of new capacity in Africa over the past two years came from large firms contracting directly with developers. This decentralized approach is crucial for reducing reliance on unreliable grid power and expensive diesel generators. 

Ground zero for this revolution is South Africa, where private firms have significantly contributed to the increase in solar capacity, helping to mitigate frequent load-shedding. As the cost of solar systems plummets, industrial users find it cheaper to buy electricity from private developers than from the national utility, Eskom. This shift creates a more stable and sustainable energy supply, benefiting the economy and reducing outages. 

The surge in startups providing distributed renewable energy (DRE) solutions has also played a crucial role. These firms offer millions of Africans access to electricity through solar home systems and mini-grids, enhancing energy access, creating jobs, and fostering economic growth. In countries like Nigeria, private firms' adoption of cleaner energy solutions is accelerating, particularly after the phasing out of petrol subsidies. This trend is reshaping the energy market and providing a sustainable path forward. 

So, What Next?

China’s solar industry faces a period of consolidation, often called the “solar coaster,” characterized by slight profits, extended periods of poor margins, bankruptcies, and exits, as Jenny Chase of BloombergNEF observed. While demand may eventually catch up with supply due to lower module prices encouraging more installations, the industry should brace for turbulence. Providing billions of people in developing countries with energy access represents a significant demand, especially as the need for air conditioning alone is in the terawatts and growing with rising populations and temperatures. Cheaper solar power will likely spur innovations that further increase electricity demand globally. William Jevons, a 19th-century economist, noted that cheaper energy leads to higher consumption, a phenomenon known as the “rebound effect.” While this can be an environmental concern with fossil fuels, solar energy's primary cost is marginal land in grid-connected areas, which makes it more benign. Human ingenuity has consistently found ways to utilize better access to energy, driving economic benefits and innovations. As real energy costs plummet and access expands, betting against significant advancements would be betting against the historical successes of capitalism’s innovative engines.