If the cost of solar photovoltaic electricity continues to fall, there must come a time when solar power is cheaper than electricity from coal. But when will that time come? This graph shows us that, for new coal-fired power, the time is now.

Cost of Electricity Production - Coal vs Solar PV

Cost of Electricity Production – Coal vs Solar PV

In the short term, PV prices seem to drop sharply and then stabilize for a period and even rise slightly. However, Ramez Naam (Scientific American, 16 March 2011) has shown that there has been an underlying steady decline in PV costs at a rate of 7% per annum for more than 30 years.

The main factor in the cost of coal-fired power is, of course, the cost of coal. In the short term. the price of coal fluctuates with supply and demand. But McNerney, Farmer and Trancik (Energy Policy, January 2011) have demonstrated that there has been no long term trend in the cost of coal, either up or down.

However, the cost of building a coal-fired power plant is increasing dramatically – in some circumstances almost doubling in as little as two years – mainly because of demand for engineering skills and resources. Increasing environmental and carbon capture regulation is likely to cause even more cost increases in the future. (See “Investment Risk of New Coal-fired Power Plants” by David Berry, Sierra Club, 2008.)

Taking into account the increasing construction cost, as well as the cost of coal, the total cost of new coal-fired power is increasing by about 5% a year.

Construction of a large coal-fired power plant takes about four years. Planning and obtaining approvals takes at least another two years.

Plotting all of these factors, gives us the graph above.

In essence, the graph shows that solar PV should be cheaper than new coal-fired power by the time a new coal power station, which is beginning construction now, is complete.

Notes: The relative starting costs of coal-fired and solar PV power are taken from the “Estimated Levelized Cost of New Generation Resources” by the U.S. Energy Information Administration’s Annual Energy Outlook, December 2010.
Because solar power is not always being generated, the cost of solar pv is based on a “capacity factor” (the proportion of installed capacity available to the grid as AC) of 25%.
The analysis is based on U.S. prices. Costs differ in other countries.