This article is making a really big deal out of bids. While the trend is encouraging, let's wait and see if the winning bidders can actually deliver at the prices they bid before getting too excited.
Now, I actually DO think they can deliver at the prices. But that doesn't mean solar prices dropped by 50%.
Imagine this: you've got a business opportunity for a 20 year contract. Currently it costs you $10 to run per year, but that will drop to $6 after a few years, and drop further to $1 per year in the last 10 years.
Where will it be priced? Well if I said say $5, then most would agree that makes sense. After all, your average cost will probably be something like $3 a year, so locking in the rate at $5 means you're making a profit. In fact, you'd expect others to outbid you until the price approaches the average cost of $3. But let's say it ended up priced at $5... well a journalist might say 'prices dropped by 50% this year'. When in reality, prices will drop over the next TWENTY years, and 20-year contracts reflect that expectation. Solar prices today are still $10 today, not $5.
Of course these are just made up numbers. Point is, even if companies can deliver at this pricing, it's mostly a reflection of expectations of future prices, not today's prices.
Actually I don't think it matters if they deliver at that price or not, just as long as the infrastructure gets built. Just like the companies that built the transnational railroad went bankrupt. That's the boom, bust cycle at work, for good at least this time.
I think that's part of the reason the bids are so cheap, though. They're probably counting on some cost reductions over time so that even if they lose some money up front, the long-term profitability will be there. I doubt that anyone can actually deliver solar power at a profit today for the bid prices listed.
Given that the vast majority of solar costs are upfront, and that the lifetime of a solar install is greater than 20 years, how would future cost reductions help with a project that's starting soon?
>DEWA invited developers to submit bids for configurations made up of three sub-phases: a mandatory 200MW to be commissioned in April 2018, and another two optional 300MW tranches in 2019 and 2020, respectively,” the firm said in an analysis of the results.
so it's not being built for 2 or 3 years and they are probably hoping costs will continue dropping during that period.
As far as energy goes, that's still very near term. But costs will continue to drop in that time period, without a doubt. Perhaps as important, they're hoping that interest rates remain low for the next few years.
Don't see why they would need to hope that interest rates remain low. Interest rates are already low, so they can sell debt at current interest rates for the term needed. I do think you're correct that low interest rates are a factor.
>One can suspect that Masdar had access to long-term financing through the wealthy emirate of Abu Dhabi that no commercial banks, the primary source of capital for the other bidders, could match in cost.
It's some factor of both things are cheaper now and things will be cheaper in the future. I'm betting these companies know what they are bidding for and it's likely technology will continue to make incremental improvements in this area. Compound interest works well here too and even modest decreases in costs compounded over 20 years will be very worthwhile.
