In 2011, the U.S. Department of Energy's Solar Energy Technologies Office (SETO) launched the SunShot Initiative to make solar-generated electricity competitive with conventional sources across most of the country by 2020. That goal was met for utility-scale photovoltaic installations three years early. In 2020, large utility-scale systems produced electricity at a levelized (life-cycle) cost below 5¢/kWh in locations with average sunlight, and as low as 3.5¢/kWh in the sunniest parts of the country, making it one of the least expensive forms of new electricity generation.¹

This reduction in cost in combination with solar policy incentives has led to rapid growth in solar photovoltaic (PV) generation capacity, from providing less than 0.1% of the U.S. electricity supply in 2011 to over 3% in 2020. This upward trajectory is expected to continue. To fully decarbonize power generation by 2035, solar power may need to supply more than 40% of the nation’s electricity.²

To accelerate the deployment of solar power, SETO has announced a goal to reduce the benchmark levelized cost of electricity (LCOE) generated by utility-scale photovoltaics (UPV) to 2¢/kWh by 2030.³ In parallel, SETO is targeting a 2030 benchmark LCOE of 4¢/kWh for commercial PV,⁴ 5¢/kWh for residential PV,⁵ and 5¢/kWh for concentrating solar-thermal power (CSP).⁶ Figure 1 compares the 2030 LCOE targets to their corresponding historical values.

The benchmark LCOE targets for PV shown in Figure 1 are for a location with medium solar resource. Areas with more sun have lower LCOE, while those with less sun have higher LCOE. Figure 2 illustrates the geographic variation in the annual solar resource and the resulting range in LCOE for a large UPV system. Note that there is less than ±30% variation in LCOE across the contiguous 48 states. This geographic variability is less than for any competing renewable-power technology.

The different LCOE targets for residential, commercial, and utility-scale PV systems is due primarily to the differences in size. This scale dependence arises because there are some project costs that are nearly independent of the size of the system, including office functions like engineering, sales and marketing, accounting, supply-chain management, and obtaining permits. Larger systems spread these fixed costs across more energy delivered. Utility-scale PV systems are the largest, typically between 5 and 500 MW, with some exceeding 1000 MW. Residential PV systems are the smallest, typically between 2 and 10 kW, though some homes have systems as large as 20 kW.⁷ Commercial PV systems span the gap between residential and utility-scale systems.

Residential and commercial systems are called distributed PV (DPV) systems. In 2020, DPV systems accounted for 30% of the solar electricity generated in the U.S.⁸ Although DPV systems have higher LCOE than UPV systems, they have the advantage of delivering power directly at the point of consumption, which makes it possible for DPV to be cost-competitive across most of the country.

The benchmark LCOE for CSP shown in Figure 1 is for a sunny location in the Southwest such as Daggett, CA shown in Figure 2. CSP installations are primarily focused on this region of the country because atmospheric haze and clouds impact CSP performance more than for PV.

Why Does Solar Power Need New Targets?

Solar power has become inexpensive, but the solar resource is variable – it peaks around noon and goes to zero at night. When solar power grows to supply a substantial fraction of regional energy demand, there will often be more solar power available at midday than can be immediately consumed. This is already happening in some parts of the country.

The generation of excess power around midday presents an opportunity. If there are ways to use this excess power cost-effectively, it will unlock the potential of solar power to contribute even more to decarbonizing the nation’s energy supply. There are three principal approaches. The primary one is energy storage, typically in the form of battery packs. Excess power charges batteries during the day that can be used later. Another is transmission, which allows excess power to be conveyed to some place that needs it. The third is to shift more electricity demand to midday. An example is charging electric vehicles at workplaces rather than at home. All three of these approaches come at a cost, whether it’s the cost of batteries, transmission lines, or EV-charging infrastructure. For any of these approaches to be cost-effective, solar power itself needs to cost even less, so that after adding these extra costs, the power delivered remains competitive with competing sources of electricity.

The three principal approaches for making effective use of excess power apply to both UPV and DPV, but whereas UPV systems supply excess power to a vast network of loads connected to the power grid, DPV systems primarily serve the site where they are installed. DPV systems frequently produce more power than is immediately consumed on-site, and the excess power is exported to the grid. Most electric power utilities pay DPV owners for their excess power, but as DPV becomes more prevalent, utilities are reducing the amount they pay. Consequently, DPV systems need to cost less. Reducing the cost of DPV systems will also expand the geographic range over which they are cost-effective.

While PV is the most prevalent technology for converting sunlight into electricity, it is not the only way. Concentrating solar-thermal power (CSP) uses the sun’s heat to drive a conventional turbine-generator, which works best in areas with sunny skies such as the desert Southwest. CSP systems can be efficiently integrated with thermal energy storage to collect solar heat during the day and use it to generate power when it is needed most, even after dark. This ability to ramp power up or down on demand (dispatchability) is an attractive attribute, but to compete economically, CSP costs must be reduced to compete with other energy sources.

Utility-Scale Photovoltaics (UPV)

There are many paths to reduce the LCOE for UPV systems to the target set for 2030, but they all rely on improvement in seven key parameters: module conversion efficiency, module cost, balance-of-system (BOS) cost, initial operating cost, operating cost escalation, initial annual energy yield, and degradation rate.⁹ Table I lists representative values for these key parameters for a large UPV system using single-axis tracking¹⁰ of monofacial modules installed in 2020 near Kansas City, a location with medium solar resource. Two possible sets of these parameters are shown that would achieve the LCOE target in 2030,¹¹ one representing a low-cost approach and the other a high-performance approach. The low-cost scenario assumes that the cost of PV modules continues its historical downward trend unabated, but module conversion efficiency increases only slightly. The high-performance scenario assumes that by 2030 very-high-efficiency modules are available, though at higher cost. Component reliability and lifetime are improved in both scenarios, but more so in the high-performance scenario.

Table I. Benchmark parameters for a 100-MW UPV system in a location with medium solar resource.

The trade-off between allowable module cost and efficiency is illustrated in Figure 3. Here, the curves represent the module cost per watt that is necessary to achieve an LCOE of 2¢/kWh at a location with medium solar resource, as a function of the module efficiency. For the top two curves, all parameters other than module cost and efficiency correspond to the two 2030 scenarios of Table I. These curves show that a module having less than 13% efficiency cannot achieve the target LCOE in a UPV system in either scenario. The red curve differs from the low-cost scenario only in that the degradation rate is increased to 1% per year with a corresponding 20-year lifetime. Achieving a module cost as low as the red curve is unlikely, but that curve shifts upward if BOS cost is further reduced, and it would approach the low-cost curve if all BOS costs are reduced from 2020 levels by 50% instead of 30%.¹⁵

Figure 4 illustrates how the target reduction in LCOE is distributed across the categories in Table I for both of the 2030 scenarios.²²

Commercial and Industrial Photovoltaics (C&I PV)

Commercial and industrial photovoltaics represents a broad class of DPV systems that can be ground-mounted or mounted on the flat roof of a commercial building, typically 20 kW to 5 MW in size. The C&I PV market is evolving rapidly, including dual-use applications such as architectural solar, floating solar, and agricultural solar. Because of the wide range of system types within the C&I PV category, there is no single system configuration that can be considered typical of the category as a whole. The majority of systems, however, can be classified as either roof-mounted or ground-mounted systems.

Table II lists representative values of the key parameters for two C&I PV systems installed near Kansas City in 2020 and corresponding values that would achieve the LCOE target of 4¢/kWh in 2030. One system is 200 kW roof-mounted at a 10-degree tilt and the other is 500 kW ground-mounted at a fixed south-facing tilt of 33 degrees. The 2030 values for module efficiency, module cost, degradation rate, and O&M escalation match the low-cost scenario in Tables I and III for the ground-mounted and rooftop systems, respectively. The financial terms match those for utility-scale systems,⁹ except that a 1% higher annual return on investment is assumed to reflect the higher risk that investors typically perceive for C&I systems.

The ground-mounted system has higher energy yield than the rooftop system because of the higher tilt angle and its ability to generate additional power from the light that shines on the rear surface of bifacial modules. As a result, the ground-mounted system requires significantly less reduction in BOS cost than the rooftop system to achieve the same LCOE target.

Table II. Benchmark parameters for C&I PV systems in a location with medium solar resource.

Residential Photovoltaics (RPV)

Residential PV systems are small DPV systems installed on rooftops, most commonly on tilted roof surfaces that face roughly south (±90 degrees). Reducing LCOE for RPV systems requires improvements in the same parameters listed in Table I. In addition, the size of a residential system has a significant impact, with larger systems having a lower cost per watt and a lower LCOE. Residential systems are typically sized so that their annual energy production matches the energy consumed on-site. In 2020, this typically required 10 – 30 modules.²⁹ By 2030, increasing use of electric vehicles and building electrification could more than double the number of modules needed per residence, so that the size of RPV systems will increasingly be limited only by the amount of suitable roof space.

The financial arrangements for RPV systems are quite different from UPV systems, because residential systems are typically financed by the homeowner rather than by investors. For homeowners who have equity in their homes, the lowest-cost financing available is a mortgage-backed home-equity loan. The discount rate that describes how homeowners perceive the value of benefits that won’t be received until years later is also different from that of investors who fund UPV systems. Also, since homeowners are not in the business of selling the electricity they produce, there is no profit on which to pay taxes and no asset depreciation to deduct. Despite these extensive differences between the financing of RPV versus UPV, the effective cost of capital taking into account the perceived time value of money is remarkably similar, at 5 - 7% per year.

Table III lists representative values for the key parameters for a typical RPV system installed near Kansas City in 2020,⁸ and two possible sets of these values that would achieve the LCOE target in 2030, one representing a low-cost approach and the other a high-performance approach.

Table III. Benchmark parameters for a residential PV system in a location with medium solar resource.

The influence of system size is illustrated in Figure 5. Achieving the 5¢/kWh target for a system smaller than 36 modules would require a greater reduction in component costs. For example, a system of 22 modules would require intrinsic BOS costs be reduced below the values in Table III by an additional 10%. That could be realized for systems installed as an integral part of new home construction.³⁵

Reducing LCOE for RPV systems requires improvement in the same factors illustrated for UPV in Figure 4. Two additional factors that are important for RPV are reducing the cost of the loan for financing and increasing the system size. The contribution of each improvement to reducing LCOE is shown in Figure 6.

Concentrating Solar-Thermal Power (CSP)

CSP systems use a field of mirrors that track the sun and focus its rays onto a receiver, where a heat-transfer medium is heated to a high temperature that can be used to drive a conventional turbine-generator. CSP can directly address the grid-integration challenge posed by the variability of sunlight by efficiently incorporating thermal energy storage. The ability of the grid to draw power from a CSP plant whenever it is needed is called dispatchability. Dispatchability adds value to the grid, so the LCOE that makes CSP economically competitive is higher than for UPV. The benchmark 2030 LCOE target for CSP is 5¢/kWh for a system in the Southwest with at least 12 hours of thermal energy storage.

The primary cost components for CSP are the power block that houses the turbine-generator, the field of tracking mirrors, site preparation, the receiver at the focal point, thermal energy storage, and the cost of operations and maintenance. The primary opportunity for improving performance is the efficiency of converting thermal energy to electric power. Three scenarios that would achieve the LCOE target for CSP are shown in Table IV. The low-cost scenario focuses on reduced cost with only a marginal improvement in efficiency. The high-performance scenario focuses on increasing the power block’s efficiency, which allows higher costs for the system components to achieve the same target LCOE. An intermediate scenario is also shown that matches the high-performance scenario except for the field cost, which matches the low-cost scenario, thereby reducing the required net power-cycle efficiency to 50%.

Table IV. Benchmark parameters for a 100 MW CSP system with 14 hours thermal storage.³⁶

The cost of capital used for financing the CSP systems in Table IV is higher than for the UPV systems in Table I because CSP technology has not been as extensively proven in the field. If, by 2030, CSP systems can attract financing on the same terms currently available for UPV systems, it would reduce LCOE for each of the 2030 scenarios in Table IV to less than 4¢/kWh. 

Figure 7 illustrates how the efficiency of thermal-to-electric conversion affects the power-block cost that is needed to achieve the target LCOE of 5¢/kWh for the three 2030 scenarios in Table IV. The thermal components (solar field, tower, receiver, and energy storage) are held fixed as efficiency is changed, so the rated electrical power output of the plant changes in proportion to the power-cycle efficiency.

Figure 8 illustrates how the individual improvements in the key parameters achieve the LCOE target for each 2030 scenario in Table IV. Most of the improvement is related to the field (cost of the solar field and site preparation) and the power block (reduced cost and increased efficiency).