Plunging costs for solar photovoltaic power have lifted it to the level of an economically viable source of electricity.

For some 3,600 island nations across the globe looking for a cheaper alternative to imported oil, that’s a promising development, Wood Mackenzie said in a new report, except for the inconvenience of non-daylight hours. The solution may be a combination of solar and imported LNG, the consultancy said, especially for those island nations able to handle the relatively high upfront capex.

Wood Mac analysts focused on three solutions:

  • Solar and oil;
  • Solar and LNG; and
  • Solar and lithium-ion (Li-ion) battery storage.

“Clearly, the economics and viability of different options depends on many factors, including market size, location, solar irradiation and the cost of capital,” Wood Mac said in its report.

The analysts based their findings on the assumption of a $50 per barrel cost of oil and an upfront investment of $80 million to build a 100-megawatt (MW) combined cycle gas turbine. The LNG investment also includes a $75 million regasification infrastructure that includes a terminal with a 10,000 cubic-meter storage tank. Shipping cost is estimated at $2.50 per million Btu.

With a 74% utilization rate for the regasification plant, the levelized cost of energy (LCOE) for an island nation to use LNG alone would be 34% below the cost of oil in the short run, even with the expense of building the regasification infrastructure.

That beats the option of introducing solar power and reducing dependence on oil.

Assuming an investment of $104 million to build a 100-MW solar plant to work in tandem with existing oil generators, the LCOE would be 25% less than oil alone. Wood Mac notes, however, that this option will only reduce the consumption of oil for power generation by 30%.

The most expensive option is the combination of solar with Li-ion batteries. In this scenario, an island would have to build a 100-MW battery plant along with a solar plant, resulting in a cost of about $170 million.

“While this solution would have a zero carbon footprint, it would remain over 50% more expensive than the LNG only solution or the solar + LNG solution, unless battery costs fall significantly below US$100/MWh,” Wood Mac said. “We think this is unlikely to happen ahead of 2030.”

The affordability issue is even more pronounced considering Wood Mac’s assumption that by 2025 the cost of solar power will drop 17%, Li-ion batteries will fall 49%, and the price of a barrel of crude oil will rise to $68.

The economics supporting the solar-plus-LNG solution are keyed to full-oil displacement. More investment is required to build the solar facilities but would be offset by the reduced requirement for gas compared to the LNG-only solution. Wood Mac said this is the case even when taking in consideration the higher unit cost for shipping and storage.

This option does not work, the analysts said, if the island were to import less than 50,000 tons of LNG in a year. At that point, oil retains its economic advantage. Wood Mac said smaller islands would find better economics by pursuing solar plus oil or solar plus Li-ion batteries.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.