Solar power, once a minor player, is set to become the largest share of generation capacity by 2031, surpassing hydropower by 2027, gas-fired generation by 2029, and coal by 2031. This rapid growth is fueled by falling costs, with the average unsubsidized lifetime cost for utility-scale solar at just $36 per megawatt-hour (MWh) in 2021, a 90% decrease since 2009. In comparison, coal costs $108/MWh, combined cycle gas $60/MWh, and wind $38/MWh. Even with recent cost increases, solar remains the cheapest option for new electricity generation globally.
Despite this overall positive outlook, the solar industry faces challenges, particularly with policy changes in major markets. In China, the introduction of market-based pricing for renewables in June led to a sharp slowdown in new additions. The US is also expected to see slower growth due to less favorable policies towards renewables, with the IEA downgrading its US solar growth forecast for 2025-2030 by almost 40% compared to 2024. These shifts have led developers to rely more on battery storage and long-term contracts to manage price volatility and secure predictable returns. In 2024, global battery storage additions jumped 75% year-over-year, reaching 77 gigawatts, with nearly 80% supporting large-scale renewables.
Growth in new solar capacity additions rose by 16% this year, a significant increase but the slowest in several years, down from a 30% average over the past decade and over 70% in 2023. Bloomberg now projects annual growth to average about 3% by 2035. While the US and China are cooling, emerging economies in Asia, Sub-Saharan Africa, and the Middle East are expected to see larger gains, with Saudi Arabia being a significant example due to cheaper panels from China and efforts to diversify its energy mix. Other challenges include increasing difficulties in obtaining permits, skilled labor shortages, and trade conflicts, such as the US ban on imports from China's Xinjiang region and potential tariffs on components from Southeast Asia.
Despite a recent 18% jump in building costs in the US due to tariffs and elevated interest rates, solar power remains the cheapest form of new electricity generation. The levelized cost of energy for new combined-cycle natural gas plants, by contrast, reached a 15-year high. Record US electricity demand, driven by data centers and electrification, is increasing the need for new generating capacity while also driving up development costs. However, analysts remain optimistic, with solar expected to continue its growth trajectory, accounting for almost 60% of all power installations in the next five years.
