Initially driven predominantly by Europe and Japan, solar PV deployment has spread to other areas of the world. In recent years, there has been rapid development of PV systems in China and the U.S., for example. At the end of 2016, China (77.4 GW) led in terms of cumulative capacity, followed by the Japan (41.6 GW), Germany (40.9 GW), U.S. (32.9 GW) and Italy (19.2 GW). Together these five countries account for about 73% of the total global installed capacity.

Solar PV’s contribution to the global generation mix remains marginal and it currently produces only 1.8% of global electricity (2016). This is largely explained by solar PV’s low capacity factor. However, some countries have high penetration rates; PV supplies more than 7% of the electricity consumed in Greece, Italy, Germany and Honduras. Japan is just short of the 5% mark, while other majors like China and the U.S. exhibit penetration rates of less than 2%.

Installed PV capacity is expected to rise from 175 GW in 2014 to 547 GW in 2021. Asia is forecasted to be the principal engine of market growth (China, Japan and India being major contributors). The U.S. market is expected to grow by 60 GW between 2014 and 2021, driven by utility-scale projects. By 2021, PV capacity in other regions (Middle East, South Africa, etc.) will witness rapid growth to 30 GW, which will be more than cumulative global PV capacity in 2009. Europe will lag behind in capacity additions, but may still witness solar PV making bigger contribution in its overall generation mix compared to other regions as they suffer curtailment and delays in grid-connection.

In the long run, solar PV is expected to play a crucial role in most visions of the energy future. Under the IEA’s 2°C Scenario, for example, solar PV would account for 9.4% of global electricity supply by 2050. To meet this target, all applications - i.e. utility-scale, distributed generation, and off-grid - will need to coexist and expand rapidly.

PV Energy Technology has experienced rapid and significant annual cost reductions as a result of falling module prices

PV is a capital-driven technology. Total PV investment costs typically range between $1.3 and $5.1 per watt, depending on project location, application, scale, and market conditions. Annual operating and maintenance costs account for only 0.5%-1.5% of the initial investment. Investment costs can be divided into two components: module costs and BOS costs.

Once accounting for the majority of PV costs, modules now account for a limited share of total investment costs (typically 20% and 36% for residential and utility-scale systems, respectively). This is largely because, over time, modules have experienced significant decreases in prices: costs have fallen on average by 22% for each doubling of cumulative production capacity. The prices of PV modules associated with various technologies have converged. Cost reductions are expected to be limited in the future, as manufacturers are already selling modules at no margin.

BOS costs typically account for 80% and 64% of investment costs for residential and utility-scale systems respectively, and vary significantly, depending on the labor costs and regulatory environment of each local market. Reducing balance of system (BOS) costs has become a priority to drive down overall PV system costs. The main ways of doing this include lowering the costs of hardware components, improving module efficiency and standardizing and modularizing PV systems. In some regions, market growth may also lead to reduced soft costs due to greater competition, lower customer acquisition costs and processes.

PV has experienced significant cost reductions as a result of falling module prices. Reflecting the strong decline in costs, variations in solar irradiance and the large number of manufacturers and technology in existence, solar PV generation costs vary significantly. This is reflected in the levelized cost of electricity, LCOE, which typically ranges from $60 to $400 per MWh. However, significant subsides have recently contributed to an LCOE as low as $30 per MWh.

PV generation costs are still, on average, higher than those of conventional technologies. Generation costs are often compared to the prices paid by end-consumers of electricity to highlight the growing competitiveness of solar in some regions. Grid-parity is commonly used to design the tipping point at which the levelized cost of electricity (LCOE) from solar PV falls below the consumer price of electricity. However, as relevant as it may be for off-grid solar, grid-parity does not suffice is assessing PV’s competitiveness, since it does not take into account: transmission and distribution fees; the taxes that are usually included in final electricity prices; and the time at which the electricity was produced.

Despite a maturing industry and the development of innovative business models, the ecosystem of solar PV is largely shaped by public support policies

Government support policies remain crucial for solar PV deployment. Support instruments are usually categorized according to whether they mandate a certain minimum quantity (quantity-driven), or alter the prices to which investors are exposed (price-driven). Figure 5 highlights that these measures vary significantly between countries, but feed-in tariffs, tax incentives and renewable portfolio standards are generally the preferred choice of governments. Net energy metering is another support policy that has proved efficient in bolstering distributed solar PV in some regions, such as California, but is criticized for not being sustainable it the long run.