Macquarie Group: Rooftop Solar Is Unstoppable
This article was originally published on RenewEconomy:
The fundamental transformation of energy markets brought about by the growing incursions of renewables such as wind and solar has been underlined in a new report by the European energy analysts at Macquarie Group, who have concluded that the plunge in costs for rooftop solar PV has fallen to such an extent that its continued rapid deployment may be unstoppable.
In an analysis that broadly reflects the conclusion of UBS energy analysts about how rooftop solar PV is heralding an energy revolution, Macquarie notes that many existing fossil fuel generators in Germany are losing money and could go out of business. And even steep subsidy cuts to renewables would not reverse the trend.
“Traditional wisdom suggests that steep subsidy cuts can bring the solar build-out under control again,” the Macquarie analysts note. “We disagree, though, as the ever-increasing prices for domestic and commercial customers as well as rapid solar cost declines have brought on the advent of grid parity for German roofs. Thus, solar installations could continue at a torrid pace.”
Here are some key graphs to illustrate its point. Macquarie notes that wholesale prices in Germany have fallen 29 per cent over the last five years, while retail prices have risen 31 per cent – both movements at least partly due to the impact of renewables. But those movements pale in comparison with the dramatic fall in the cost of rooftop solar PV.
(Click the image to see a larger version).
Macquarie says rooftop solar generation in Germany currently costs between €0.12kWh and €0.14/kWh (assuming 85 per cent debt financing and 4 per cent interest rate). These compare favourably with retail grid electricity prices of €0.28/kWh (even at just 50 per cent on-site self-consumption). But solar PV can even offer savings at industrial and commercial grid prices which are even lower at €0.11-0.17/kWh.
“Consequently, solar installations could continue at a rapid pace even without subsidies,” Macquarie notes. “Ultimately, this would threaten the role of coal-fired generation as the price setter in wholesale power price formation.”
Macquarie says that these effects seem self-reinforcing and hard to stop, unless there is a total power system overhaul. That, though, is unlikely. “We cannot see political will for such an overhaul. Quite to the contrary, German Environment Minister (Peter) Altmaier proposed in October 2012 to lift the country‟s 2020 renewable energy target to 40 per cent” (and its 2030 target to 80 per cent).
Moreover, in an election year that is likely to see the Social Democrats elected, either in coalition with the Greens or a “grand coalition” with Chancellor Merkel’s party, the pace of renewables expansion is likely to increase.
And as this story we published this week tells us, support in Germany for its “energiewende” (energy transformation) program remains strong. (It would be interesting to see how this corresponds in Australia, because utilities here appear to be simply taking matters into their own hands, by changing tariff structures or refusing and delaying solar connections).
As we highlighted nearly a year ago now, in our story of Why generators are terrified of solar, Macquarie has its own illustrations of what is happening to the energy market. It makes mention of key milestones on May 25, when solar contributed more than 20 GW of capacity into the German grid for the first time – accounting for one-third of peak demand – and on September 14, when wind and solar combined to produce more than 31.5 GW (solar 16.1 GW plus wind 15.4 GW) in the early afternoon.
Macquarie’s examples compare typical days in May and in March – the changes to the price curve are even more dramatic than that highlighted by the Melbourne Energy Institute’s Mike Sandiford in the case of South Australia last week. The loss of the curve represents a loss in revenue.
Here is the example from May:
And here is the example for March:
Again, the gap between the black and red lines represents lost revenue for generators.
And while the proliferation of renewables is proving to be a painful experience for utilities, it is forcing the energy industry to challenge their traditional baseload/peakload approach to energy supply. The alternative is now viewed – even by the major generator companies – as non-flexible and flexible generation, with the dispatchable energy produced by gas plants, or at a later date storage technologies, filling in the gaps between renewables. Germany is also reportedly about to announce a new tariff to encourage battery storage deployment for solar PV.
Still, the transition period promises to be problematic.
Macquarie does highlight some perverse impacts of this situation – the fact that cleaner gas-fired fuel is being priced out of the market, while lignite – what we know in Australia as brown coal – survives, and that ageing gas-fired generators are not being replaced by state-of-the-art modern plants.
However, it notes this has as much to do with the plunging carbon price in Europe, which has effectively removed the pollution price signal on dirtier fuels in the energy market, as well as the high cost of gas – most of which has to be imported from Russia. It notes that the current cost of new-build gas is nearly 50 per cent above average wholesale prices, and recently announced demand management initiatives, such as load shedding, are removing another major part of the market. That load shedding will result in up to 1,500 MW of demand to be switched off in a matter of seconds, and up to 3,000 MW within15 minutes.
(Australia faces a potentially similar issue because, while it has a carbon price, the main brown coal generators, at least for the moment, have been largely insulated from this by the generous compensation package, and the emergency funds provided by the government. And Australia also faces increasing gas prices).
Macquarie goes as far as to say that the German energy market is “kaput.” “Without radical overhaul, we conclude the German power system is structurally broken,” they say. The analysts note that in the normal course of events, up to 20 GW of conventional capacity would be shut down, but authorities would likely prevent 10 GW to retain structural integrity to the market.
Still, despite the closure of nuclear facilities, Macquarie estimates that production from thermal generators (gas and coal) would likely fall by 40TWh by the end of the decade – a reduction of 10 per cent in current output – as solar (18 GW) and wind (9 GW) continued their capacity additions.
German authorities are currently trying to get their head around a new design for the market, one that rewards not just renewables but provides the right incentive to retain the capacity that is required to usher in that transition.
One radical proposal came from the former Head of the Federal Network Agency, who proposed to temporarily shut off, without recompense, renewable energy sources during times of excessive peak production. But Macquarie said it was difficult to imagine how this would work, as it would be difficult to decide exactly at which times the market is excessively supplied. “Moreover, it would require retroactively changing the subsidies for renewable energy plants, which would presumably not just lead to lawsuits against the German government in international courts, but also weaken general investment confidence into Germany.”
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Export the surplus renewable power.
While PV has already reached grid parity in Germany (as far as consumer electricity prices are concerned), so have efficient light-bulbs, appliances, connector-strips etc. and yet there hasn’t been a run on those products either.
One also needs to keep in mind that most people and businesses are oblivious as far as their electricity consumption is concerned and thus don’t do anything to reduce their electricity bills.
As a community, we reduced domestic consumption by whatever means existed over the last decade. There’s no more porridge left in the pot.
Prices went up when we reduced per capita consumption, because sellers made lower profits.
Prices went up when alt eng was foolishly adopteded, because the true base price is about 5 times that of existing power sources – and alt eng does practically nothing to reduce GHG.
My electricity supplier wrote an arrogant letter last week ” … with the deregulation of electricity pricing in Victoria; AGL is able to set its own pricing for electricity.”
In earlier times, prices were decided by mutual agreement and negotiation, not by enforcement of neo-monopolistic powers yet to be tested in Courts.
Geoff, I’m in Australia right now and I’d just like you know that I’m making out with my electric hot water heater while my 19 year old air conditioner watches. It’s so hot! Because my place is completely uninsulated! I’ve opened the drop bear shutters so people can see us through the thin, single plane of soda glass.
Well, I attempted to write something even more stupid than what Geoff wrote, and much to my chagrin I believe I failed.
I have to wonder if Geoff has ever been to Australia. Or perhaps I should be asking if Geoff has ever left Australia? Maybe if he had he’d know that Australian household have not done all they can to reduce domestic power consumption. Most Australians think that weather sealing is what happens when walruses fall from the sky.
Very good points.
One would hope the story is a bit better with solar panels because they’re more visible and really freakin’ sexy!
How far will generators go to halt this trend? I suspect the efforts to be for nothing in the end. It will only act to slow it down but even that could do its damage on the climate.
solar is cheaper than diesel generators across the developing world now. think it must be cheaper in Oz, too.
Perhaps now it is time to reimburse those whose architecture disallows rooftop solar, we who have been slugged to subsidise the free riders out for a windfall subsidy of a junky technology.
By any reasonable analysis, subsidised rooftop solar is a most unfair and often regressive concept. There is no excuse for failure to provide compensation, in the original plan, to those who could not use it.
At least there is the negative comfort that some units are not likely to last their advertised life, as is becoming more evident overseas, so that the carpetbaggers will lose some of their small initial personal contribution. Also, by then, there will have to be a cost structure for those with failing/failed units to have them removed and trashed safely. Or does the community expect the excluded to pay this cost also?
Show me a government subsidy plan and I’ll show you a fiddle.
Whine not, Geof.
Solar on other people’s roof will bring down the cost of your electricity.
Solar on a portion of German roofs is bring down the wholesale price of electricity in Germany. The same will happen everywhere. And wind on the grid will bring down the cost of electricity just as it is doing in Texas.
You want to see a successful government subsidy plan?
Take a look at wind. Thirty years ago the price of electricity from a wind turbine was $0.38/kWh. Now it’s $0.06/kWh. That’s more than a 6x price reduction.
Take a look at solar panels. Thirty years ago they were $100/watt. Now they are selling for just above $0.50/watt. That’s almost a 200x price reduction.
(Don’t look at fossil fuel and nuclear subsidy plans. Those haven’t worked.)
—
What data do you have for solar panel lifetime from overseas?
Is that 6 cents/kwh with or without govt subsidies? And what about the cost of storage for intermittent wind…I think it is at least 3 times the cost of simple generation and that is only where there is possible infrastructure for this…such as an ability to pump water up to a reservoir at a higher elevation…and let it fall back through generators when needed.
Six cents does not include subsidies. Take a look at the LCOE here – http://en.openei.org/apps/TCDB/
Pump-up hydro is quite affordable. The cost to store electricity with pump-up is around two cents per kWh as best I can determine. Batteries should get down to the cost of pump-up over the next few years and because batteries are quicker to scale I think that’s what we will use for storage. But that’s just my guess.
A very interesting chart. Thanks.
Where did you find info on pump-up storage costs? My guess at x3 of wind generation cost came from an article I saw around 18 months ago about a guy in Montana who was planning a wind farm near bluffs where he also owned a place to put higher elevation lakes and provide 24/7 power. I do not know if I kept the link, but I remember his estimate of the storage add-on would triple his costs.
Batteries could certainly fit into the scheme at more locations. I think flow batteries are the most economical…weight is not an issue. But I thought their costs were still much higher than 2 cents per KWH. If you are correct, however, then wind with storage could quite competitive if the wind farms are fairly local and transmission losses not too high. Security is also better for smaller, more distributed power systems.
But I am still skeptical. Have you heard of any total 24/7 wind facilities anywhere that can sell wholesale power for under 10 cents/KWH without large subsidies?
Siemens and Vista are quickly shrinking wind manufacturing facilities, citing the reduction or future uncertainty of subsidies as the main cause. I do not believe this is not all because of Chinese wind mill competition…which is cited as a PV company killer by many U.S. and European PV panel outfits.
I don’t have a good kWh price for new pump-up. I’m simply repeating what I see printed here and there. And that number could be a myth.
If you look at the LCOE link I gave you then you can see actual prices for existing wind farm production. Those are non-subsidized numbers. Over three quarters of all farms produce for less than 10 cents.
The (threatened) shrinking of wind turbine manufacturing was due to Congress waiting to long in the year to approve 2013 subsidies. That’s behind us now and the new subsidy system should eliminate the problem in the future. No longer do projects have to be completed before the end of the subsidy year, they just have to be in the process of being built.
Storage is the big unanswered question. We could create 99%+ renewable grid and supply electricity for roughly what we are now (full accounting). That’s using storage technologies that we have available. I think we’ll see less expensive storage becoming available.
link for that last comment: http://cleantechnica.com/2012/12/11/wind-solar-storage-could-power-full-electric-grid-cost-effectively-99-9-of-the-time-by-2030-report/
Regarding subsidies, there’s no denying that subsidies drive more growth. Vestas and Siemens aren’t going anywhere, but they have to shift their focus.
The thing is, at this stage of the game, storage is overhyped. As it becomes an issue, grid expansion & improvement, demand response, natural gas, and storage will compete to fill in. But that’s not a huge concern yet. See:
The story of Denmark today: http://cleantechnica.com/2012/09/28/danish-renewable-energy-generation-wind-energy-generation-percentage/
This NOAA study: http://cleantechnica.com/2012/02/20/clean-energy-could-supply-u-s-with-70-of-electricity-by-2030-noaa-director-says/
This NREL study: http://cleantechnica.com/2012/07/02/80-clean-renewable-energy-potential-2050-us/
Oh yeah, one more, on a 99.9% renewable grid (cheapest option) by 2030: http://cleantechnica.com/2012/12/11/wind-solar-storage-could-power-full-electric-grid-cost-effectively-99-9-of-the-time-by-2030-report/
Bob & Zachary, thanks for you comments & links. I will look at them when I have a chance. I heard in Canada that they are trying pumping compressed air into what are essentially big balloons fairly deep in I think Lake Ontario and driving air turbines to retrieve power as needed when renewable power is diminishing. Sounds promising, but did not hear any $$ numbers. Deep water is close to many population centers and a puncture should not be an environmental issue…just air bubbles. I hope it proves out.
Yeah, have heard about that project… will see where it goes & what it costs.