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New solar project to provide less expensive power than coal, but will it last?

Dubai has announced a new upcoming solar project that should deliver less expensive power than a recently approved coal-fired power plant in the area — a third less expensive. It’s part of a recent spat of price-beating going on in the industry, as companies and nations seem bent on maintaining the title of the world’s cheapest source of solar power. Just last month, Mexico laid claim to the cheapest solar power, but now the United Arab Emirates (UAE) has beaten that by a cool 15%, reaching a very impressive 2.99 cents per kilowatt-hour.

To be clear, what we’re talking about here is a bid by a company to provide power to the Dubai energy grid, a utility-scale project set to generate 800 megawatts overall. That sort of scale allows better efficiency than rooftop solar — but three cents per kilowatt-hour is still inexpensive. It’s so inexpensive, in fact, that some analysts wonder whether the companies undercutting each other to make these sorts of bids will be able to turn any kind of significant profit once the projects are complete.

The UAE hasn’t announced which company made the record-setting bid, but when the developer is revealed, that company’s long-term fortunes could be a good metric for the likely long-term health of the industry overall. If this bet pays off, along with other recent low-cost solar bids like it, then the process could continue indefinitely. If the price has already dipped below what the market can keep afloat, then solar investment should plateau, at least for a while. Whether it eventually begins to dip again will depend on the continuing advance of technology.

Still, it’s worth appreciating that when it comes to solar-first headlines, we no longer have to look forward into the projected future portion of the graph — we’ve now entered that portion, if only just. The recent bankruptcy of solar giant SunEdison has cast some doubt over the solar industry as a whole, but there does seem to be a general understanding that the company didn’t have to fail in the way that it did, so confidence might not take too great a hit as a result.

The rapid advance of solar technology does have a slightly perverse effect on investment, where each new record-setting project is assumed to be a purely temporary win, soon to be outdone and out-priced by a newer, sexier tech. That’s great for technology writers, but the relative stability in energy produced by igniting fossilized organic matter has allowed fossil fuels to be a pillar industry. With solar constantly in flux, uncertainty scares many investors away.

Will solar keep its tax benefits? What about under the next government? Will home batteries that charge in the day and provide power overnight dramatically screw with the market? Will the artificial price fixing on oil lead to an economic hiccup that swallows a few corporations whole? Constant worry about these questions, and many more like them, makes it difficult to attract more conservative investors — which are also some of the most lucrative investors.

As Bloomberg reports, however, there’s plenty of reason for optimism these days. American corporate darling and major tax dollar recipient First Solar has been vindicated by dramatically falling production costs on their panels, recently shown to be cheaper per-watt than China’s Trina Solar. The cost of panels directly affects the profitable price for any power those panels produce, so the cheaper they get to make, the cheaper solar power (should) become.

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