So about 5 years ago or so I became aware of the fact that, based on a number of analyses showing the costs of solar photovoltaic cells decreasing exponentially over time, the cost of solar-generated electricity appears to be subject to Moore’s Law style economics. As a result, I’ve been predicting that we’re going to see solar PV hit grid parity soon: I was thinking it’d happen sometime between 2015 and 2020. (Apparently I wasn’t the only one: President Bush predicted the same in 2007.) But it looks like we may get there early: FT predicts unsubsidized grid parity within 3 years. And once you include subsidies, we’re already there, which is why Google just invested $280 in SolarCity, which finances rooftop solar projects.

So as PV prices continue to come down with additional technology improvements and economies of scale, we’ll soon see demand skyrocket as everyone realizes they can get financing to put up solar cells and save more in electricity costs than they pay in lease (or interest) payments for the system. What then?

At the moment, solar PV is a tiny fraction of total energy production, but is growing exponentially. According to the Renewables 2010 Global Status Report, “Between 2004 and 2009, grid-connected PV capacity increased at an annual average rate of 60 percent. An estimated 7 GW of grid-tied capacity was added in 2009, increasing the existing total by 53 percent to some 21 GW.” Total world energy use is about 16TW, growing at about 5%/yr. If you look at actual production and not just capacity, solar PV production is below 0.1% of total energy use.

Given how hard solar PV manufacturers are working to ramp up production exponentially at 60%/yr (doubling every year and a half or so), the increased demand we are likely to see (as prices drop low enough to make it worth switching to solar) is likely to result in price declines flatting out somewhat, and the growth in production to continue on its exponential trajectory (perhaps even accelerating slightly).

For how long? Well let’s run some math on the exponential growth and see how long it’d take for solar production to ramp up to handle all of the world’s growth in energy consumption:

At year n, world energy use should be at approximately (16 TW * 1.05^n) and annual growth should be 5% of that: (.05 * 16 TW * 1.05^n). If we add in a 25% load factor to account for the fact that the sun doesn’t shine all day, solar production should be about (.25 * 21 GW * 1.60^n) and annual growth about 60% of that: (.60 * .25 * 21 GW * 1.60^n).

Plugging that into WolframAlpha gives us n=13, which means that at current growth rates, annual solar PV production could surpass the annual growth in world energy consumption sometime next decade. Even if solar PV growth slowed to 43%/yr, we’d still break even by 2020.

Such exponential growth likely won’t continue that long, but just to illustrate the power of compounding, if it did, then solar capacity would exceed total world energy use (on current growth trends) less than 10 years after that, by which time the world would be using 40TW of energy.

So, pretty equations are nice, but what does that mean will likely actually happen in the messy real world? My prediction is that prices will continue to decline for a few years until we’re obviously past unsubsidized grid parity. At that point price declines will flatten out and production will continue to expand a a very high exponential growth rate. During this time, grid electricity prices will remain fairly flat as well. Once we hit the point where annual solar PV production exceeds annual energy demand growth, demand for PV will start to drop, and prices of both grid electricity and solar cells will start to drop as well. As solar PV costs drop, more and more fossil fuel plants will be idled as their marginal cost of production start to exceed even the fully amortized cost of solar PV. At that point, the cost of solar PV and grid electricity will be inextricably linked, and will continue to fall over time.

So what would the implications of all this be? I’m sure you can think of a number of them, and I’m sure there are a number of them none of us have thought of yet. I have some thoughts as well, but I’ll save them for a follow-up post.

-Scott