Grid Parity DB-solar-important-590x445

Published on January 14th, 2015 | by Giles Parkinson

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Deutsche Bank Predicts Solar Grid Parity In 80% Of Global Market By 2017

January 14th, 2015 by  

Originally published on RenewEconomy.

Investment bank Deutsche Bank is predicting that solar systems will be at grid parity in up to 80 per cent of the global market within 2 years, and says the collapse in the oil price will do little to slow down the solar juggernaut.

In his 2015 solar outlook, leading analyst Vishal Shah says solar will be at grid parity in most of the world by the end of 2017. That’s because grid-based electricity prices are rising across the world, and solar costs are still falling. Shah predicts solar module costs will fall another 40 per cent over the next four to five years.

Even if electricity prices remain stable – two thirds of the world will find solar to be cheaper than their current conventional energy supply. If electricity costs rise by around 3 per cent a year, then Deutsche’s “Blue sky” scenario is for 80 per cent of countries to be at grid parity for solar.

“We believe the trend is clear: grid parity without subsidies is already here, increasing parity will occur, and solar penetration rates are set to ramp worldwide,” Shah notes.

Deutsche Bank says unsubsidised rooftop solar electricity costs anywhere between $US0.13 and $US0.23/kWh today, which is well below retail price of electricity in many markets globally.

“The economics of solar have improved significantly due to the reduction in solar panel costs, financing costs and balance of system costs,” it notes. And further cost falls over coming years will come from improved panel efficiencies, and falls in balance of system costs due to scale and competition.”

DB-countries-grid-parity-590x411The cost of finance will also fall, partly due to the development of new business models and partly because customer acquisition costs will fall as more consumers turn to solar and from the adoption of energy storage.

Shah says it is clear that solar is becoming an increasingly important component of the world energy market. This graph shows its rapidly rising share of new generation.

DB-solar-important-590x445And while short term policy fluctuations and uncertainty – in particular in Japan and UK – have caused it to revise down total uptake in 2014 and 2015, Deutsche Bank says demand for solar in the world’s two biggest economies is about to “take off”.

In the US, solar demand is expected to jump five fold to 16,000MW in 2016, making it the biggest market in the world ahead of China (which is expected to be about 13,000MW a year).

The US market will be underpinned by a sharp rise in rooftop solar demand and the expansion of solar leasing, as well as new sources of financing.

Oil market slump will not have huge impact

Shah downplays the impact of the oil price slump, noting that oil account for just 5% of global electricity production – and barely registers in the most important solar markets such as US and China. In addition, even at prices of $US50/barrel, oil still cannot compete with solar.

“The cost of oil based electricity generation even at $50 oil prices is the 7-9c/kWh range and as shown in the note, the marginal cost is higher than solar in many regions worldwide,” Shah writes. “Bottom line is that oil prices do not have a material impact on solar demand.”

Utilities begin to turn to solar

And because the rooftop market is linked so closely to the price of grid electricity, Deutsche says that companies with exposure to distributed generation are best positioned to capitalise on the long term fundamentals of the market.

This fits in with the recent decision by European giant E.ON to dump its conventional electricity business and focus instead on distributed generation, for leading US generator NRG to also focus on solar and storage, and for Australian utilities such as AGL Energy and Origin Energy to roll out leasing programs.

Indeed, Shah says that 2015 will signal a change when major utilities turn to solar, while others continue to fight it. (He’s talking about the US, although in Australia we are witnessing the same trend, albeit by the same utilities both arguing against solar incentives, and rolling out their own leasing models).

“We see the beginnings of what could indicate a long term shift in how utilities and their regulatory commissions interact with solar,” Shah notes. “In 2015, we expect several key decisions from utility regulators to continue shaping this debate.”

The argument over solar contributions

The key, then, will come around the framing of tariffs for solar energy. Shah neatly summarises some of  the arguments over solar and tariffs this way:

Some utilities argue that solar installations do not pay enough to support the grid, because transmission and distribution charges are generally based on metered electricity use. When a solar installation connects to the grid, it generates a portion of the owners electricity use and effectively acts as a reduction in grid demand. In most cases, this leads to a proportional decrease in the dollar charge for grid-sourced electricity (which includes a proportional charge for T&D cost recovery).

Solar companies, individual users, and freedom-of-choice advocates believe this representation does not accurately account for the positive external contributions that solar installations provide. Theoretically, large scale distributed generation adoption should lower peak electricity demand, reduce strain on the grid, provide emissions-free electricity with no fuel cost, and lower the amount of necessary future investment in the grid on all fronts. In a scenario where ‘smart grids’ allow distributed solar resources to be dispatched as requested by the grid operator, the benefits from DG installations should increase.

Long term, we believe the business models for solar and utility companies will necessarily shift as grid penetration rates increase (currently no more than 1- 2% in even the high penetration states). Grid access charges could increase, utilities may start to compete more directly with solar installers, and cost recovery mechanisms generally will go through a rigorous analysis in most major solar markets.

Reprinted with permission.

 
 
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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • This article is misleading, true grid party will not be reached by 2017, rather closer to the 2030 mark.

    The “$US0.13 and $US0.23/kWh” is strictly for the LCOE cost of PV and does not include the cost of storage. Without storage neither residential nor commercial consumers would go off-grid. This is because PV alone would not be able to support the on-peak demand that every consumer has. The sun does not shine at night time. Further, no rooftop (residential, commercial, or industrial) has the square footage to support a PV system that would be able to support on-peak demand, panels are just too heavy.

    There are no consumers that would go off-grid only to have their electricity cut off when they most need it. The magnitude of demand side management and conservation demand programs, even combined, will not have the ability to reduce load enough that PV alone can support.

    The cost of storage (typically lithium ion for PV deployments) is estimated in the $US3.00 range presently. Factor that in and I suspect true grid parity would only happen past the 2030 mark, for all consumers, though I suspect that industrial and commercial deployments will reach grid parity first due to economics of scale.

    One could argue that Panasonic and Elon Musk’s Gigafactory will bring the cost of lithium ion down; however this has yet to become a reality and even if so, the price of storage would not drastically decrease given that lithium is becoming more and more of a rare earth metal.

    Just my 2 cents.

    • Bob_Wallace

      Andy, solar grid parity means the cost of solar produced electricity has reached the average price of electricity from other sources.

      If you want to talk about the various prices of different combinations of inputs that is a different topic.

  • Vensonata

    His low figure for residential rooftop pv is 13 cents kwh. I think we might get a very different answer depending on the inputs. Apparently the national average U.S. price installed complete is $3.78 watt. Average solar production nationally is 1500 kwh per 1 kw array. Now here is where we get the wild cards coming up. For how many years will pv produce? 20? 25? 30? Do I hear 35? You can plainly see that 20×1500=30,000 while 35×1500=52,500. This makes a huge difference. At 30,000, the price per kwh is 12.6 cents. At 52,500 it is 7.2 cents! So before we go hoping for cheaper panels or increasing utility rates we had better get clear about the math. Maybe we are already there and haven’t realized it.

    • I read that they are only now finding any real figures about solar efficiency and durability over long time periods.

      • Bob_Wallace

        We’ve got an array in Germany that was still going strong at age 35 and that was a few years ago.

        http://www.presse.uni-oldenburg.de/einblicke/54/files/assets/downloads/page0009.pdf

        We really don’t know what the upper limit is for solar panels. And we don’t know what percentage of all panels will reach old age.

        We’ve got multiple example of panels that have been in operation for 25 to 30 years with only small decreases in output. The NREL states that panels built after 2000 should hold up better than ones manufactured earlier.

        http://www.nrel.gov/docs/fy12osti/51664.pdf

        There’s one study of panes over 25 (?) years which reported that 2% of the panels failed due to connector corrosion or delamination and had to be replaced during the time in service.

        It may be decades before we know how long solar panels will be useful.

  • Hans the Elder

    “Some utilities argue that solar installations do not pay enough to support the grid, because….”

    The same is true for, for example, working singles who are not at home during the day and only draw power during a short but high peak at the evening. Their energy demand is low, but their peak power demand is high. Nobody talks about charging working singles more than families with a stay-at-home parent. This shows that the argument is opportunistic and only serves to protect the utility monopoly.

    If the utility would be serious about unfair grid payments to the grid they should introduce a grid-tariff that depends on both the total electric energy demand and on the highest power load.

    Moreover, I am of the opinion that US utilities should be split up in transmission, distribution, production and retail parts and that production and retail should be organised as a free market.

    • Casper

      I am sure that the near future will provide households with solar and battery options so that they don’t really need to rely on large scale utilities. I would imagine household generators, like ones sold at lowes/home depot can be bought as a standard home appliance in case of solar equipment failure.

  • omar

    Figure 20 is not clear to read and i couldn’t click on it to make it bigger

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