Published on September 7th, 2015 | by Giles Parkinson129
Solar PV Is Unstoppable, And Subsidies Can Be Removed Sooner Than Thought
September 7th, 2015 by Giles Parkinson
Originally published on RenewEconomy.
New report finds solar will be cheaper than wholesale electricity prices across Europe by 2030 – without the need for any technological breakthroughs. The implications for fossil fuels are obvious – and means high renewable targets might reduce the energy costs, rather than increasing them.
Solar generation costs are likely to fall below the average wholesale price of electricity across Europe by 2030, according to a new study, highlighting the potential of a solar revolution across the globe – not just in the household and commercial market, but also for utility-scale installations.
The study by the EU-sponsored European Photovoltaic Technology Platform, released this week, suggests that solar PV costs will fall by half over the next 15 years – after an 80 per cent fall over the last five years – even without any new technology breakthroughs.
This means that by 2030, the generation costs of solar PV – including grid integration costs of 2c/kWh– will be lower than the wholesale price of electricity in most of Europe. In southern European states, it already is cheaper, and by 2030 the cost of solar PV could be as low as €20-€25/MWh, depending on the cost of capital. Even in London, the cost of large-scale solar PV will be around €50/MWh – equal to the current wholesale price and way below the cost of nuclear, the current Tory government’s clean technology of choice.
“By 2030, large-scale PV would be competitive with the current wholesale electricity price almost all over Europe,” the EU report says. “It can be concluded that PV will probably be the cheapest form of electricity generation in most countries in the coming decades.”
The report says that the cost cuts could be so dramatic that the capacity of solar PV could grow from around 170GW now to more than 3,000GW in 2030, and to 5,700GW by 2050, displacing an enormous mount of fossil fuels – coal-fired power stations in particular.
The report tells us what we already know about rooftop solar – that it is already cheaper than retail electricity prices across most of Europe, even in those countries with little sun, such as the UK and Sweden.
What we now know is that large-scale solar is also cheaper than wholesale electricity prices in southern Europe, and will be in the rest of Europe by 2030.
In Spain, if the real cost of capital is around 5 per cent, a 50MWp solar PV system in Spain would produce electricity at around €45/MWh now. In Italy it is a little more, but in Italy the average spot market electricity price in 2014 was €52/MWh. By 2030, the cost of solar on 5 per cent cost of capital would be cheaper than that across Europe.
The predictions are significant on a number of levels. Firstly, it is already recognised that solar PV is cheaper than new-build fossil fuels in most countries, and solar is already competitive in those countries that need to build new capacity and have high wholesale electricity prices. In Chile and the Middle East, solar is being built without subsidies.
But solar was never expected to be able to compete with fully depreciated, already built coal-fired power stations in developed economies for a few decades hence.
The fall in the cost means that subsidies for solar will be able to be removed, sooner than many thought. US energy secretary Ernest Moniz said this week that this could happen within a few years. As we reported in June, UBS suggests that subsidies for solar will be completely removed over time, and it predicts that up to half of all capacity could be solar by 2050, in its “dream” scenario. (That article is worth re-reading but the EU forecasts are even higher in terms of capacity).
The second major element of the EU study is that these cost reductions will be achieved without any significant technological advances.
“Such results can be achieved without any technological breakthrough,” said Gaëtan Masson, a co-author of the report. “We simply assume that PV modules and other PV system components will become more efficient and less expensive and that operation and maintenance procedures will be optimised.”
This is a critical point, because many of the critics of renewable energy, particularly those in the nuclear-lobby, speak of the need for “next generation” solar technologies to make the big price breakthroughs.
But as the EUPVCC studies show, the current generation will do the job anyway, and it will become a pretty obvious choice for energy planners and investors which technology to choose, particularly as solar provides no fuel price cost, and therefore no fuel price risk for investors.
The lack of fuel price risk helps reduce the cost of capital, which means that the savings on solar can be even greater. And so, with battery storage costs also falling heavily, and already delivering savings at a network level by deferring or avoiding expensive grid upgrades, and with the ability of batteries to provide load shifting into the peaks, storage for night-time, and frequency and other ancillary services, then the prospect for even higher renewable penetration becomes quite compelling.
The findings are important for Australia too, for the obvious reason that Australia has much better solar resources than Europe, and needs to replace a higher proportion of coal-fired capacity.
Aspirational targets like the 50 per cent renewable targets set by the Labor state government in Queensland and by federal Labor for the whole of Australia are dismissed by the Coalition, who drum up numbers such as the $85 billion used to quantify the cost of Labor’s federal target.
But like the Coalition’s emission abatement cost estimates, this uses very high estimates of solar technology costs, and doesn’t allow for any reduction between now and 2030.
Large-scale solar costs in Australia are comparatively high, but that is only because little in the way of large-scale solar plants has been built. As more is built, through tenders such as those planned by the Australian Renewable Energy Agency, the ACT government and the Queensland government, then costs will fall rapidly.
Some expect a 50 per cent cost reduction by 2020, and more after that. Large-scale solar is looking particularly attractive in Queensland, and is expected to account for a large part of the 5,000MW to 6,000MW needed to meet the 2020 renewable energy target, say both Bloomberg New Energy Finance and Origin Energy.
Rooftop solar costs in Australia, which boasts the highest highest penetration of rooftop solar in the world, are among the cheapest – mostly through efficiencies in installation and maintenance costs driven by the thriving market.
The EU study says the outlook beyond 2030 is even more attractive. Again, eschewing any major technology breakthroughs, and just relying on a modest 0.4 percentage point increase in module efficiency per year, the cost of a 1MW ground mounted system – even on a 5 per cent WACC – would fall to just €20/MWh in Malaga by 2050. This assumes a module efficiency of 30 per cent and system prices around one-third of what they are now.
“Parity with wholesale market electricity will be reached by 2030 almost everywhere. There is every reason to believe that this development will continue after 2030 because there is still a huge improvement potential in various PV technologies,” the report says.
Even in London, the cost could be below €40/MWh. To put that into context, the Hinkley nuclear plant, due to start in 2026 if financing is ever obtained, will cost €92.50/MWh and will then rise with inflation. By 2050, it will be paid more than €200/MWh for its output. By 2058, probably more than €300/MWh.