The Future of Energy: Can Solar Lead the Transition?
Evolution is inevitable, whether in biology, economics, or technology. We must adapt to our changing surroundings or face the consequences. Our energy system is no different. In the coming decades, crucial decisions must be made about how we manage energy consumption. While this transition will present significant challenges, such as balancing supply and demand, it is an issue we must begin addressing now.
Globally, over two-thirds of electricity is still generated from fossil fuels, illustrating the long journey ahead before the world’s power supply is fully decarbonised. Throughout history, energy sources have declined as new ones emerged. The key question remains: can renewables substantially reduce fossil fuel’s market dominance and become the primary energy source in a new era of power generation?
Growth of Solar PV
Energy transitions are not new; humanity has been adapting its energy mix for thousands of years, shaping the system we recognise today. This evolution will continue as we expand wind and solar energy while reducing reliance on coal, oil, and natural gas to achieve a more sustainable energy future. Thanks to technological advancements, these changes will occur faster than ever before.
A report by Ember states that between 2019 and 2023, Europe’s solar capacity more than doubled from 120GW to 257GW. Over the next five years, renewable energy generation is set to expand exponentially, with solar PV leading the charge. According to the IEA’s Renewable 2023 report, by 2028, solar power is expected to surpass wind energy in electricity generation.
For investors, one major advantage of solar is that once the initial capital has been invested, the cost of generating electricity is virtually zero. Unlike gas or coal plants, there are no ongoing costs associated with sourcing sunlight, meaning that even at low electricity prices, solar power remains profitable. As more solar installations come online, the cost of solar electricity will continue to decline, making it considerably cheaper than fossil fuels. This will naturally decrease demand for natural gas and accelerate the decommissioning of coal and gas power plants over the next decade. In Europe, demand for natural gas fell by 7.4 percent in 2023 compared to the previous year.
Solar Price Cannibalisation
However, solar power faces a significant challenge. In recent years, electricity market price volatility has increased as more renewable energy sources have been added to the grid. With local generators exporting excess electricity, there are growing periods in Europe where wholesale electricity prices are either zero or negative—a phenomenon known as ‘solar price cannibalisation.’
This typically occurs during times of high solar generation or low electricity demand, such as weekends or public holidays, but is becoming increasingly common on regular weekdays as well. When market prices are zero or negative, electricity that is not secured under long-term fixed PPA contracts has no financial value. In the future, this could make generating profits more difficult, potentially leading to an unsustainable renewable energy market. This trend is already becoming more frequent in Europe, and if it persists, it could hinder the growth of solar power. To continue reducing fossil fuel generation, we must find a viable solution.
The rapid deployment and low operating costs of solar PV make it a transformative force in the energy transition. It can serve individual businesses and be deployed at a large scale. To sustain investment, market pricing must remain favourable, but price cannibalisation could undermine solar’s long-term viability. To safeguard renewable energy assets and protect against negative market prices, battery storage must be integrated into every solar power system. By incorporating batteries, energy can be stored and used or sold later when electricity prices are more favourable.
Market Pricing
To maintain a stable renewable energy market, it is essential to recognise that the existing fixed pricing model for solar PV, such as fixed PPAs, will need to evolve. A market structure with fluctuating but consistently positive electricity prices is necessary. This ensures that investors can recover their initial capital outlay and generate returns, thereby encouraging continued investment in solar projects.
A pricing system that remunerates solar PV based on variable market rates, supported by both localised and national storage solutions, would help stabilise electricity prices. This approach would ensure that solar power remains profitable, competes effectively with fossil fuels, and funds the expansion of renewable infrastructure. Ultimately, this will drive solar energy towards becoming the dominant source of electricity generation.
Gas’ Final Role
Over the next 25 years, renewable energy will take centre stage in the transition away from fossil fuels. The remaining question is how much support from alternative energy sources—whether nuclear, gas, or green hydrogen—will be required during periods of ‘dunkelflaute,’ when wind and solar output is low.
Although gas may play a minor role in the future energy landscape, natural gas combined with carbon capture, utilisation, and storage (CCUS) is unlikely to be a cost-effective long-term solution. An analysis by Aurora Energy Research for Renewable UK found that by 2035, UK bill-payers could save £68 per year with an energy system dominated by offshore wind, compared to one reliant on gas, with or without carbon capture. Whatever the final energy mix looks like, by 2050, electricity generation will be led by battery storage and renewables, rather than low-carbon gas.
By Stephan Marty
For a list of the sources used in this article, please contact the editor.
Stephan Marty is CEO of Wattstor. Wattstor designs, builds, finances, operates, and optimises onsite renewable energy systems, including renewable assets, battery storage, and advanced energy management systems. It works directly with commercial and industrial clients, their suppliers, and utility partners, as well as solar installers, to fully fund solar and battery projects. This allows businesses to generate their own electricity at a cost lower than the grid price.