This articles was originally published on Renew Economy. It has been republished with full permission.
The revolution in energy markets caused by the growing impact of rooftop solar PV is about to take a dramatic leap in scale.
According to analysts from the global investment banking giant UBS, the arrival of socket parity – where the cost of installing solar is cheaper than grid-sourced supplies – is about to cause a boom in unsubsidised solar installation in Europe, and the energy market may never be quite the same again.
Such forecasts have long been the province of environmentalists, climate activists, university researchers, and the occasional industry leader, such as David Crane, the head of NRG, the largest generator of electricity in the US.
Now, the team of energy analysts from UBS, writing in response to plunging power prices in Europe, has issued a stunning report entitled “The unsubsidised solar revolution” – suggesting that investing in solar will become a “no brainer” for households in several European countries, and will have profound implications for the incumbent energy industry.
“Solar has turned from a heavily-subsidised marginal technology into a mainstream source of power generation,” the UBS analysts write. “Thanks to significant cost reductions and rising retail tariffs, households and commercial users are set to install solar systems to reduce electricity bills – without any subsidies.”
Here’s a graph to illustrate what they mean. It shows the light blue line at the top, which indicates where grid-based electricity costs are heading.
The dark blue line indicates the cost of solar PV – it’s now at an inflection point in southern Germany and will get cheaper.
But PV with battery storage, while more expensive now, will cross over in 2014 and ultimately deliver the biggest savings.
UBS says this means utility customers will effectively become utility competitors. It estimates there could be 80GW of unsubsidised solar installed in Germany alone.
This is on top of the 32GW already installed through subsidised installation, and the 52GW cap put on subsidised installations.
“We are at the beginning of a new era in power markets,” the UBS analysts write. ”Purely based on economics, we believe almost every family home and every commercial rooftop in Germany, Italy and Spain should be equipped with a solar system by the end of this decade.”
It says up to 18% of electricity demand could be replaced by self-produced solar power in these markets, at the expense of centralised generation. Even as soon as 2020, up to 43GW of unsubsidised solar could be installed in Germany, Italy and Spain, replacing up to 9 percent of electricity demand. This is on top of reduction in demand caused by energy efficiency measures and weak GDP growth.
The impact on utilities will be profound, and will be made worse by the emergence of cheap battery storage, which would allow households – and businesses – to consumer more of their own energy, and effectively remove the morning and evening peak in pricing, as well as the midday peaks, as we revealed in a dramatic graph in our article last May of Why generators are terrified of solar. Without any peaks, the profit margin of generators is removed. UBS calculates the EBITDA profit pool of the conventional generators will shrink by around 50 percent.
“Households will be able to use the electricity stored in batteries during the evening, which means pressure on spot prices during the evening hours. So far, solar has only been shaving the midday peak. Even worse, batteries installed in family homes or commercial buildings could also reduce the morning peak as they could be charged with low-cost electricity from the grid during night hours,” UBS notes.
It says residential customers, on average, could provide 29 percent of their own energy needs by 2020. Individually, a house with a 3kWh battery and a 4kW PV system could lower its electricity consumed from the grid by 50-60 percent. Commercial businesses could cut even greater amounts, and even a car manufacturing giant like BMW could produce 490MWh of solar electricity per year using its own land, or 29 percent of the group-wide electricity demand.
The impact on the generation industry will be severe. Here’s what UBS estimates the combination of solar PV and battery storage will do to the tariff curve by 2020 – the full impact of their predictions will result in an even greater flattening of the curve. (Please click on graph if it is not totally visible).
UBS predicts that by 2020, power prices will fall another 10 percent, and coal-fired generators, once the major providers of baseload power, will be reduced to the role of filling the gaps between renewable. UBS estimates that the load factor of lignite (brown coal) plants in Germany drops from 72% to 59%, while the load factor of hard coal plants drops from 47% to 31% by 2020. That will give them a lower load factor than many wind or solar farms.
UBS says that the explosion of solar will have a cascading effect – as noted by AGL Energy in Australia, and the local utility in Hawaii. AGL used the circle of death as an argument to reduce feed-in tariffs. But the significance of unsubsidised solar is that the proliferation of solar is unstoppable – unless, of course, it is halted by regulation, or fixed tariffs.
Given the rising costs of fossil fuels, this would be a PR nightmare for the generation industry, but UBS raises the possibility, echoing our story last year about how electricity business models and markets are effectively broken. “At some point, we think this will trigger a political debate about how the grid fees and renewables subsidies should be paid for. It could lead to a flat-fee pricing model,” the UBS analysts write.
The UBS analysis does not extend beyond Europe. It says there is no immediate prospect of unsubsidised solar in other European countries, either because retail tariffs are lower (France), or because of lousy sun (northern Europe). But it clearly has implications for other countries, particularly Australia, which has high retail tariffs and excellent solar resources, and which already has a near 10 percent penetration rate of rooftop solar on available households.
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