Led by cost reductions at Chinese manufacturers, and assuming a 7% weighted average cost of capital, solar energy is now the cheapest power source—in England! So concludes a new levelised cost of energy (LCOE) analysis by a group of European academics published last week. The study’s authors conducted a sensitivity analysis and found that WACC and, not surprisingly, location were the two most important parameters when comparing energy contract prices to traditional sources.

As with most valuation examinations, the authors comment that ‘market prices of photovoltaic modules and systems have developed so fast that it is difficult to find reliable up to date public data,’ but they reference other studies that report that solar module prices have fallen 90% in the past decade and generation system costs have dropped 80%. Meanwhile, private and public investment has poured in, keeping returns expectations reasonable (increasing nominal WACC to 10% dramatically increases energy costs for PV power).

Institutions have failed to keep up with the financial changes in the industry, argue the authors. They point out, for instance, that the European Commission’s current energy transition pathways do not even include solar energy and use decade-old financials to conclude that the capex for PV is too high to be even considered.

That being said, even in the UK, the current levelised cost of electricity from solar is now 42 euros per megawatt hour, compared to the average spot market price of traditional sources of 64 E/MWh. This comparison is biased because PV systems require storage. Including that factor, the authors conclude that solar energy will be cheaper to produce—even in London—by the end of 2020.

‘Impact of Weighted Average Cost of Capital, Capital Expenditure, and Other Parameters on Future Utility‐Scale PV Levelised Cost of Electricity’ is available at the Wiley Online Library. The authors include Ero Vartianen, Gaëtan Masson, Christian Breyer, David Moser, and Eduardo Román Medina.