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Deutsche Bank: Solar, distributed energy at ‘major inflection point’

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Deutsche Bank analysts have painted a bullish outlook for the global solar market, noting that solar PV is about to enter a “third growth phase” where it can be deployed without subsidies, and can resist a backlash from utilities.

The report by analysts led by US-based Vishal Shah estimates that three-quarters of the world’s market will be “sustainable” for solar within 18 months, meaning they can operate with little or no subsidy. (see graph at end of story). In two years, the market for solar will have flipped from one largely “unsustainable” – needing big subsidies – to one mostly sustainable.

That’s because with module prices stabilising at around $US60c-70c/watt, and installation costs of around $US1-$US1.20 a watt, the levellised cost of solar electricity is between US10c-20c/kWh.

“We believe the underlying economics of the sector have improved significantly and we may be just at the beginning of the grid parity era,” the Deutsche Bank analysts write. “Low natural gas prices may make large utility scale solar deployments in the US less attractive for now, but we remain bullish about rapid development of utility scale solar in several international markets over the next 3-5 years.”

Deutsche Bank said that although the market in Europe had contracted, at least one third of new, small to mid size projects were being developed without subsidies. Multi-megawatt projects were being built south of Rome for €90c/W. This was delivering electricity costs (LCOE – with 80 per cent self consumption) of around €80/MWh (€8c/kWh)

In India, unsubsidised large scale projects are being bid at US12c/kWh, and power purchase agreements were being written for solar projects in the US at $US9c/kWh.

But it also noted that distributed solar (or rooftop or local ground-mounted solar) was also likely to take a signficant share of the solar market as leasing models became more mainstream and various markets adopt policies to support the technology.

It said innovative financing was the key – and could lead to growth in above all expectations if new sources of low cost capital is made available for the sector.

It also noted that the speed of the sector’s transition to grid parity meant that most governments are “somewhat behind the curve” in adjusting regulation to promote the desired growth of the solar sector over the next several decades.

And it said the solar sector could also continue to face significant backlash from major utilities as this “disruptive technology” is clearly a big threat to the their business model.

But it said rising electricity prices, a need for competitive generation sources, and lowered balance of system costs will drive further improvement over the next several years. And despite the backlash from major utilities, solar and distributed generation would continue to gain significant share of new capacity.

“We believe solar will appear increasingly attractive in a long term environment of rising electricity prices and fuel price uncertainty.“

However, Deutsche Bank warned that being at grid parity on paper does not necessarily equate to a robust market.

“We believe overall grid capacity, demand, and regulatory constraints will prove to be significant hurdles in many countries going forward. As more markets reach cost competitiveness over the next 3-5 years, we expect sustainable demand to ramp accordingly as governments adopt more sustainable policies and consumers recognize the value proposition.

“Solar appears to be in the beginning stages of transitioning between ‘alternative energy’ and a truly cost competitive source of energy that may help both producers and consumers hedge against rising electricity rates and fuel costs.”

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  • NotZerohedge

    No doubt solar has a bright future. Utility companies should seize the opportunity and add solar to their energy generation mix. Else they will see new smarter entrants to the market making them obsolete.

  • mechanieker

    The problem with the concept of “grid-parity” for solar, is that it is calculated for a market that has 0% penetration of solar power. As solar power penetration increases, however, the cost of adding more solar power increases as well, which again increases the gap between (total) costs of solar power and the grid-parity price. From as little as 5% to 10% of energy market penetration for solar, the costs of adding additional solar starts increasing exponentially. That is why even if solar power becomes free ($0/Wp) then the cost of all the auxiliary equipment needed to reach high penetrations will still make it unprofitable. The only way to reach high penetrations of solar power is to install permanent subsidies, or in other words: total nationalization of the electricity sector. Financially, during this Great Recession, there is no chance of this happening. that is why we need cost-effective nuclear power to replace fossil fuels.

    Nuclear power doesn’t suffer from increasing costs as penetration increases. France gets 80% of its electricity from nuclear. Nuclear power gets less expensive as penetration increases, whereas intermittent energy source get (exponentially) more expensive. That is why renewables will never compete. Not as long as fundamental laws of physics hold. That is why renewables can only survive on permanent subsidies. Don’t fall for the hype.

    • Giles

      More bunkum: What additional expenses have been necessary for high penetration solar? costs increasing exponentially? where?
      France indeed gets more than 70% of its electricity from nuclear, and now it is totally stuffed because it needs to upgrade and replace this capacity, and can’t figure out how it can afford to do so. In the meantime, to support the nuclear rollout it has encouraged and created one of the most inefficient energy grids in the world, with per capita consumption extraordinarily high. That’s why France wants to cut its nuclear share to below 50% and some are urging to ditch it altogether.

      • mechanieker

        “Bunkum”?

        Suppose France had a 70% penetration of solar power. Given a capacity factor of less than 20% for solar in France, France would need to install 70%/20%=350% of its average electric power demand of solar panels. France’s average power demand is about 50 GW, so it would need about 180 GW of solar power. This means that on a sunny day, France will be producing up to 250% more electricity than it can use, or 130 GW of superfluous solar energy.

        What will France do with that overcapacity? If it doesn’t store it then that capacity cannot be counted toward it’s 70% energy mix. What is the cost of building a system that can absorb 130 GW of solar energy? Are you really suggesting the cost of such a system is zero?

        And we are not even talking about upgrading the French electric grid to accomodate 180 GW of fluctuating power, while it’s grid today only needs to handle less than half of that. Power lines are free as well, right?

        Bunkum, indeed! ;)

        • RobS

          No one would design a national grid with 70% solar, it is a specious argument. A more interesting mix to consider would be something like 20% solar, 30% wind, 20% hydroelectric, 20% nuclear and 10% natural gas. Solar has a 20% capacity factor so would need to install 100% of its average power demand of solar, and wind has a 30% capacity factor so you would install 100% of average power demand of wind. Tis would mean on hot summer sunny still days solar produced nearly 100% of demand and on cloudy windy days wind produces nearly 100% of demand. The natural gas, nuclear and hydro act as a small amount of base load but primarily load levelling to fill the gaps. This would produce nothing like the enormous overcapacity your scenario entails. The system can also be supplemented and supported by a combination of demand response and storage as those technologies continue to mature. The strength of renewables is in the complementary nature of a suite of technologies, it is easy to “prove” renewables won’t work by trying to make one technology fill the entire need, however they work best when installed lot tether to complement each other with backup for the outliers where they all under produce. Having spent many weeks dawdling about on my parents cruising catamaran over the years which has solar panels, a wind generator and a towed hydro generator all supplying a storage bank with a diesel generator for backup I can tell you first hand that such a system works quite well.

          • Giles

            Thanks Rob. Yes, 70% solar is ridiculous, unless you are the Pacific island of Tokelau and you aint got anything else. We reported on an alternative to France earlier this year – here it is http://reneweconomy.com.au/2013/graph-of-the-day-even-france-could-go-100-renewables-24283

          • mechanieker

            RobS, I agree that no-one would design a 70% solar energy system, of course. I was making the point that increasing the penetration of solar increases the costs, which is not the case with nuclear or other forms of stable generation.

            Besides, your energy system proposal is pretty enormous in it’s own right.

            I count at least 250% of capacity in your plan, with not enough capacity to survive periods of low winds and overcast skies. I guess your suggesting of a 100%/100% solar/wind system would get a capacity credit of less than 10%, so I think you would need at least about 100% of stable generation, not the 50% you currently seem to suggest.

            Dawdling on catamarans of ones parents is a very nice way to spend some time of course, but there are people who will have to pay for the new energy systems we are discussing here. People without catamarans, but with bills to pay nonetheless. How much will your proposal cost? I’m guessing it will be all in all about 5 times more expensive than today’s electricity cost, which implies that the electricity costs in Europe will rise about 4000 dollars per household per year just for electricity. I think we can do better. I think a system with at least 50% nuclear would cost about the same as todays system, thereby saving households 4000 dollar per year, which they can spend on equipment to reduce their energy usage (specifically: their oil usage)

            Therefore, I think we need at least 5000 GW of nuclear power by the end of the century and I don’t like some people calling themselves environmentalist insist on killing nuclear.

          • RobS

            It is a myth that nuclear or any power plant is “stable”. Spinning reserve is not only required for renewable generators, in all grid management you must have spinning reserve or demand response available at all times, usually enough to cover the two biggest generators tripping simultaneously. Coal plants, nuclear, NG They all can and do fault and all require spinning reserve capacity or demand shedding to cover the shortfall. Opponents of renewables love to trot out the spinning reserve argument against renewables but are either misleading or misinformed in that all power plants carry the exact same requirements.

            It would get a capacity credit of about 30% requiring approx 70% available capcity for outliers, however those plants would only need to actually generate ~50% of supply averaged. Remember France currently has 75% nuclear generation therefore you simply keep some plants availabel as spinning reserve rather then decommision all the excess, given the expense of decommisioning a plant is not dissimlar to keeping it running having some idled capacity is not a significant added expense.

            I think you misunderstand the type of boat we are talking about, I am talking about a self built cruising catamaran, not some sort of superyacht, I assure you we payed, and sometimes struggled with, bills. My point was that people who have managed power systems on boats, like those in remote cabins know how well the combination of wind, and solar complement each other with diesel back up, allowing a storage system with only ~2 days of consumption capacity.

            Nuclear economics are atrocious. The current LCOE’s are almost identical to solar PV however they only include capital costs, not the insurance costs covered by national governments, decommissioning or fuel storage costs. Once those are included costs blow out. Even with projected capital costs, care to point me to any new build nuclear plant whose costs haven’t blown out by 50-100% during construction in the last 10 years?

          • mechanieker

            We’ve built nuclear power plants on time and on budget, before anti-nuclear propaganda and politicians caused costs to rise uncontrollably. China is now leading the way on how it should be done. They are building new AP1000 and EPR class power plants on time and on budget. They will realise their long-term goal of over 1000 GW of nuclear energy. So will the Indians. Those countries are not spending billions on their nuclear programs because nuclear power is expensive or dirty. They are doing it because they know that nuclear power is clean and cheap.

            Whenever the issue of nuclear energy costs comes up, please ask yourself the question: how is it possible that a human developed technology seems to become more expensive, rather than less expensive? The answer is: it is being MADE more expensive by the fossil industry bought politicians and the politicians who are trying to appease irrational demands from anti-nukes, for more than 30 years. The is called “Regulatory turbulence and regulatory ratchetting.

            http://www.phyast.pitt.edu/~blc/book/chapter9.html

            Anyway, like I said, Shamefully for the West, it will be the East that shows the world how it should be done again. Why? Because the East politics is not dominated by fossil fuel interests and pseudo-environmentalist propaganda ganging-up on the worlds cleanest and cheapest proven energy resource.

          • Peter Wilson

            irrational demands from anti- nukes. One word fukushima !!!!!!
            the greatest ecological disaster the planet has ever experienced.

          • Bob_Wallace

            Obviously you do not understand.

            Fukushima is a prime example of why nuclear reactors are too dangerous to put in the hands of humans. The people who approved and built the facility knew the tsunami danger and ignored it.

            Nuclear reactors are risks that we simply do not need to bring into our lives. We have much safer and cheaper alternatives.

          • mechanieker

            “It is a myth that nuclear or any power plant is “stable”.”

            The concept of “stable supply” is a normal concept in power engineering. It concerns supply that can be turned on or off at will. Here is a good discussion of the issue for Europe:
            http://ec.europa.eu/energy/nuclear/studies/doc/2011_10_electricity_supply.pdf

            Of course there will be unplanned outtages. But nuclear power plants have an availability that is >90%. So in principle only 10% of backup is needed.

            Conversely, the availability of solar is 0% and of wind it is less than 10%, so wind/solar will always need about 90-100% backup, which is about ten times more than needed for nuclear.

            By the way, the existing baseload fossil plants are not likely to serve as good backup systems. That is why Germany is building *new* power plants that are especially designed to withstand huge power ramp-speeds in order to protect the energy system against clouds, nightfall, and low or high wind. Building fossil fuel power plants that are both efficient, clean, and flexible is very expensive. In my country, the new coal plants that are coming online now cost about the same as a new nuclear power plant.

          • RobS

            “Of course there will be unplanned outtages. But nuclear power plants have an availability that is >90%. So in principle only 10% of backup is needed.”

            You are confusing the concepts of instantaneous availability with long term utilisation rates. It is irrelevant if the long erm utilisation is 90% if the entire plant trips, having 10% back up is useless in the event of an unplanned trip. As I said before grid engineering requires that the 2 largest generators have full back up spinning reserve available for immediate dispatch in the event of an unplanned outage. Claiming that only renewables require the use of high levels of spinning reserve is dishonest.
            The availibility of of solar on hot summer afternoons. when dispatchable power and distribution capacity is most strained. is certainly not 0%. Generating it at the user end saves on the need for both generation and distribution upgrades that would otherwise only be needed a few days a year and represent up to 30% of grid capacity expense. Take a look at peak demand curves for Germany in the last few years, the curve has flipped. Hot summer afternoons, that were previously the highest demand with price spikes up to $10 per kwh on the spot market, now we see a demand dip on summer afternoons and almost a complete elimination of summer price spikes with a few occasions of the price actually going negative because of surplus solar output when added to base load generation.
            Did I or anyone else fort that matter ever suggest coal as a good backup plant? If I did then I must have been drugged at the time, it is woeful in such a role, Nuclear can serve that role to an extent depending on the reactor design, however the economics of nuclear requires high utilisation rates to amortise the lifetime costs over as high a number of energy units as possible therefore the economics take a huge knock if used for reserve generation rather than continuous duty. The best fossil fuel for spinning reserve is natural gas, with relatively low plant costs and rapid output ramping ability. The best load levelling generator overall by far is hydro, with the turn of a valve it can go from 0-100% output in as little as 30 seconds instantly filling gaps in other generators output.

        • Dimitar Mirchev

          You are missing the point.

          If France has more than 70 GWp producing more electricity than the demand EVERYTHING else should be stopped when those PV are working.

          That means no more base-load power, no more nukes :)

  • Wolfie Rankin

    Fukushima, that is all.

  • Clem Stanyon

    Thanks for another great article, Giles! I enjoyed your comments, too.

  • barkway

    As soon as solar becomes economically viable, scaleable, and a potential source of profit is when our govt will outlaw any DIY solar systems and make people pay exhorbitantly for them.

  • Christian Mihatsch

    I was looking for the original report from Deutsche Bank but could not find it on the web. Please point me to a download location. Thanks

  • Clive Dobson

    I don’t want my energy going into the pockets of rich bankers…. http://www.thevenusproject.com

  • Luke Rogers

    can anyone tell me where to find this report?

    • Giles

      It’s a subscription thing. Deutsche don’t make it publicly available.

  • Mister Lala

    Are you talking to us, Spaniards? Here the government has put taxes to solar energy and now it’s more expensive use them that pay to the traditional energy companies. And we are talking about a country that has no petroleum.

  • Bob_Wallace

    “That’s because with module prices stabilising at around $US60c-70c/watt and installation costs of around $US1-$US1.20 a watt, the levellised cost of solar electricity is between US10c-20c/kWh.”

    Top end of range – 70c/W for panel + $1.20/W for BoS = $1.90/W

    Using the EIA’s financing numbers of 6.6%, 30 years, their 1c/kW O&M number, some of the US’s poorest solar territory (the NE with only 4.2 avg solar hours per day – 17.5% capacity) and the NREL’s LCOE calculator I get 10.5c/kWh.

    Using the 5.5 avg solar hours for the SW (23% capacity) I get a LCOE of 8.3c/kWh.

  • rt85

    what are the three phases??

  • http://about.me/RalfLippold RalfLippold

    Solar definitely on the rise – though the implications for the individual solar-related industries (especially in high wage countries like Germany) are getting more challenging. Producing cheaper panels won’t be the winning strategy. Extending the value proposition will rather be!