Solar energy: The economics of light
Solar energy is past the point of needing to be explained or defended. Over 450 gigawatts of new photovoltaic capacity gets installed annually these days, accounting for around two-thirds of all newbuild power generation. A technology long considered to be a vision of the future has thus since become the industry standard. Growth, efficiency, and capital markets by now are telling a common story – one that is less euphoric than before, but which, in return, is all the more resilient.
A new dimension
The evolution of solar energy can be read most clearly from the sheer size of its deployment. Recent figures show that over 450 gigawatts of new photovoltaic capacity gets installed annually around the world, more than any other form of power generation. Global installed solar power generating capacity by now exceeds 2.2 terawatts and continues to expand – a magnitude more or less matching the combined installed output of almost all nuclear power plants worldwide. Solar energy is thus no longer a supplement, but rather the dominant driver of new power generating capacity. The amount of solar power generation is strikingly noteworthy, but so is the economic logic behind it. In much of the world, solar energy is the cheapest form of new power generation today. In North America, the electricity production cost of modern solar photovoltaic plants amounts to around USD 58 per megawatt hour (MWh), compared to around USD 78 per MWh for new gas-fired power plants and around USD 122 per MWh for coal-fired power plants. This difference explains more than any political debate does about why solar power continues to grow even if public support mechanisms are weakening or regulatory uncertainties are mounting.
From vision to infrastructure | The maturity of solar energy
Aggregate installed solar power generation capacity, measured in gigawatts (GW)
Sources: IRENA (2025), Our World in Data, Kaiser Partner Privatbank
Sturdiness in the face of headwinds
The USA arguably provides the most interesting stress test. Despite political polarization, altered energy policy priorities, and curtailed government funding programs, growth in renewable energy deployment has remained remarkably robust. More than 80% of newly installed electricity generating capacity stems from renewable sources, with solar energy forming the backbone. The buildout of solar power is proving resilient, even in a less favorable political climate than before. The expansion dynamics are increasingly being driven by economic fundamentals rather than by regulatory stimulus. Long-term power purchase agreements, competitive electricity production costs, and rising electricity selling prices enable planning certainty. In addition, there’s a structural increase in demand for electricity. The power demands of data centers look set to account for up to 8% of total US electricity consumption by 2030. This means that artificial intelligence, cloud computing infrastructure, and digital services are not only altering business models, but are also changing the load profiles of the energy system. Solar energy benefits from this structural demand because it is quickly scalable and increasingly systemically integrated. The market is becoming more and more self-sustaining. Political cycles create volatility, but do not alter the basic economic trajectory.
Structural rotation | The transformation of electricity production
Projected change in US electric power generation in 2027 compared to 2025, in %
Sources: Energy Information Administration (EIA), Kaiser Partner Privatbank
From module to system
At the same time, the nature of the growth has changed. Costs for solar modules have fallen by around 90% since the year 2000. Hardly any other energy technology has experienced a price decline of that magnitude. This cost revolution lays the foundation of today’s competitiveness. For many years, the continuous drop in the price of solar modules was the defining narrative in the industry. But as the market increasingly matures, value creation is shifting from individual modules to entire systems. The speed of capacity expansion is no longer all that matters; so does the quality of the integration in an energy system that is becoming more complex. Efficiency gains, less degradation, improved grid connectivity, and falling financing expenses further lower overall costs even if solar module prices are now deceasing less sharply than before. This means that the role of solar technology is also shifting. Stability, planning predictability, and system compatibility are gaining importance. Solar power no longer has to grow spectacularly to be relevant; it just has to deliver electricity reliably.
Steep learning curve | From cost factor to efficiency machine
Price per watt in US dollars (2024, logarithmic scale)
Source: IRENA (2025), Nemet (2009), Farmer and Lafond (2016), Kaiser Partner Privatbank
This systemic change becomes evident mainly in the interplay between solar power and storage. Approximately 77 gigawatts of new battery storage capacity was installed around the world in 2024, an increase of 75% compared to the previous year. Battery prices fell by around 20% in the year 2024 alone and look set to decrease further. Solar energy in combination with battery storage devices is increasingly turning into a round-the-clock power plant. This development fundamentally changes the risk profile of solar energy. Electricity is no longer merely generated, but also gets actively managed, transforming solar from a production asset into a flexible energy component that cushions price fluctuations and opens up new sources of revenue. Solar power delivering electricity even at night is no longer a theoretical promise. Around 45 gigawatts of battery storage capacity was installed in the USA as of end-2025, and another 24 gigawatts are reportedly slated to be added in 2026. Stored solar power already covers a substantial percentage of nightly electricity demand today in some regions.
A quiet expansion | Solar power in the global electricity mix
Percentage share of total power generation
Sources: Ember, Kaiser Partner Privatbank
Industrial discipline
However, this maturity is not devoid of tensions. This can be seen especially clearly in China, the industrial epicenter of global solar production. China controls around 80% of the world’s solar module manufacturing capacity and thus shapes the price level, investment cycles, and profit margins worldwide. In the first half of 2025, approximately 256 gigawatts of new solar power generating capacity was installed in China, more than twice as much as in the rest of the world combined. At the same time, Chinese factories further stepped up solar module production substantially. The resulting overcapacity put massive downward pressure on prices. The four largest solar module manufacturers in China recorded a combined half-year loss of around USD 1.5 billion, and the gross profit margins of some of them fell to around 3%. This phase means retrenchment and consolidation for the industry, but it acts as a catalyst for the global buildout of solar power. Falling module prices reduce project costs, improve return profiles, and enhance competitiveness versus fossil fuel-based alternatives. Materials like silver, polysilicon, and copper remain core cost drivers, but are being utilized more efficiently than before. Competition is shifting from volume to productivity. The price implosion affects manufacturers, but doesn’t alter the structural demand. While industrial value creation is undergoing a correction, the economic attractiveness of solar technology is solidifying at the project level.
Differentiation rather than euphoria
This shift is particularly visible in capital markets. After a time of considerable uncertainty, a period dubbed the “solar winter,” the share prices of solar companies rebounded sharply in 2025, with stocks like Nextpower, Sunrun, First Solar, and SolarEdge posting gains ranging from around 50% to more than 130%. The rally was triggered less by technological breakthroughs than by a re-rating of the risk premium. Political interventions turned out milder than expected, rising electricity prices improved profitability, and the structurally increasing demand for electricity lent the sector additional stability. The market began to view fundamental earning power separately from political uncertainty. At the same time, though, the environment remains challenging. After key tax-abated construction deadlines expire in 2026, prospects look set to become more uneven, particularly for suppliers in the large-scale solar installation business. The stock market reacts sensitively to debt, profit margin performance, and project pipelines. The phase of across-the-board valuation expansion is thus transitioning into a phase of selective differentiation. Growth alone is no longer enough. What’s needed is capital discipline, robust business models, and resilience across cycles. Precisely this differentiation is a sign of normalization.
EnergizedBusinesses as a driver of the energy transition
Leading US companies’ installed solar power generating capacity, in megawatts (MW)
Sources: SEIA Solar Means Business 2024, Kaiser Partner Privatbank
From promise to reliability
Solar energy is not a magic bullet. It remains weather-dependent, capital-intensive, and embedded in complex grids. Global growth rates are slowing, political framework conditions are wavering, and industrial overcapacity is causing tensions. And yet, the sector has achieved something that remains elusive to many technologies: it has gained economic credibility. Not as a vision, but as a substantiated, tangibly reliable experience. Solar power supplies electricity at competitive costs, is getting increasingly integrated into energy systems, and is holding its ground even in the face of difficult conditions. For long-term-minded investors, that’s exactly where the importance of solar power lies – not in the promise of limitless growth, but in the plannable revenue and earnings structure of a technology that has arrived in the unshuttered light of everyday life.
1) Nemet, Gregory F. (2009). Interpreting Solar Energy Cost Dynamics — Learning Curves, Experience Curves, and Technological Progress. Environmental Research Letters, 4(1), 015004.
2) Farmer, J. Doyne & Lafond, François (2016). How Predictable Is Technological Progress? Research Policy, 45(3), 647–665.