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UBS: Boom in unsubsidised solar PV flags energy revolution

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(ED: See also the second story from this report, Why subsidy -free solar is a no brainer for households).

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 un-subsidised 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.”

Screen Shot 2013-01-22 at 9.56.16 PMHere’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 per cent 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 per cent.

“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.

Screen Shot 2013-01-22 at 9.57.11 PMIt says residential customers, on average, could provide 29 per cent of their own energy needs by 2020. Individually, a house with a 3kWh battery and a 4kW PV system could to lower its electricity consumed from the grid by 50-60 per cent. 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 per cent 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).

Screen Shot 2013-01-23 at 10.19.11 AM

UBS predicts that by 2020, power prices will fall another 10 per cent, 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 per cent penetration rate of rooftop solar on available households.

(ED: See also the second story from this report, Why subsidy -free solar is a no brainer for households).

 

 

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  • http://thisnessofathat.blogspot.com.au/ Gillian

    The report says “a house with a 3kWh battery and a 4kW PV system could to lower its electricity consumed from the grid by 50-60 per cent.” That’s interesting because my 1.9kW PV system (no batteries) currently generates half the power I use. I guess that Sydney’s sunny climate makes the difference.

    I look forward to 2016 when my 60c FIT ends. It looks like the payback on additional PV plus batteries will make it attractive to go off-grid.

  • Rob Passey

    Of even greater importance than the impact on generators is the impact on networks. They are currently mostly paid for through TUOS and DUOS charges based on kWh sold, and less sales means less money to pay for them – which are deemed by governments to be an essential service. Networks were a major focus of the Power of Choice review, and their preferred solution to reduce peaks was the use of TOU tariffs – which will actually be pretty ineffective in reducing the major annual peaks that determine network capacity.

    I think we’ll end up seeing a raft of approaches to limit PV penetration (eg. we already have low rates for export and the abandoned QCA recommendation that everyone should go on gross meters (which both reduces payments to PV owners and increases DUOS income to networks)), as well as other approaches to increase income to networks (eg. increased daily standing charges). Batteries are an interesting one in that they can be used to reduce evening peaks (which will stop things getting worse) but will also allow larger PV systems which will reduce income to pay for networks.

    The Australian PV Association is currently working on an ASI-funded research project where we explore what is needed to establish a Distributed Energy Market, and it seems that the only way network operators can remain solvent over the longer term is for them to actively participate in this market themselves. The alternative is that both DG and EE are severely restricted.

  • Daniel

    I’d be interested to know views on the equity effect of this. For example, I have solar PV and my neighbour can not, due to site issues. Over time, will those in his position come to resent those with solar access and will that equity issue be used to inhibit solar installation, appreciating the arguments for solar off setting the need for new generation etc.

    • Rob Passey

      Very good point and I think that sort of equity issue is very important. Community PV offers a very good way around this. The first one is up and running (see http://reneweconomy.com.au/2012/embark-lend-lease-unveil-plans-for-400kw-community-solar-park-in-sydney-55682) and I expect/hope there’ll be many more like it. They also tend to be located on commercial premises where the load profile is a very good match to PV output.

    • Adam

      There’s a company called “Solar Mosaic” in the US which is hoping to smooth out the opportunities for solar access, and turn solar wanna-bes into into solar investors.

  • http://pragmatusj.blogspot.com.au/ John D

    It would be interesting to see what feed in tariffs would be if the tariff was set by competitive tendering for the supply of rooftop solar power. My guess is that it would end up below what power companies charge for power.

    • Ben Elliston

      John, I think you’re right. Subject to discount rate, the LCOE of residential PV is generally below 20c/kWh now.

  • http://pragmatusj.blogspot.com.au/ John D

    One of the real problems is that consumers are charged by the kWh while the cost of getting power to the consumer is essentially fixed. Perhaps we need to move to a system where most of the charge to consumers is based on net peak demand or something similar?

  • rolly

    Hey Gillian. I am doing just that. When the 60cents ends, I am going off grid. No more paying $450 a year for a supply access charge. No more power bills.

  • Jim

    Presumably this means there will be all out political attack by fossil fuel companies to hinder this trajectory and preserve their favoured status? Wait for measures to make the cost of distributed solar higher..

    • Giles Parkinson

      Almost certainly, Jim. Particularly in Australia. What’s interesting in Germany is that Merkel is pro-renewable, but here opposition is even more so, and they (coalition between SDP and Greens) just won the state elections in lower saxony, a major industrial region. Analysts said this would like reinforce policy support for distributed generation. in germany, the local network providers are often locally owned, and happy for people to leave or reduce dependence on grid. In Australia, many networks are state owned and don’t like it all, despite the obvious benefits of DG

  • suthnsun

    Bear in mind also, there exists around 7 years of efficiencies already in the pipeline (according to Amory Lovins).I checked yesterday on current power use of the same size TV I purchased only a few years ago, 60w against 160w.

    I can see that there may be a curious side-effect to this trajectory – the state governments will finally get behind the uptake of Electric Vehicles – to save their networks and generators. If they were supplying clean power I would be very happy with that.

    On the other hand the federal government will be very reluctant to lose their petrol taxes I imagine.

  • Dimitar Mirchev

    Take a look at this sheet for calculating how many years it takes for a PV build for self-consumption to payback

    http://bit.ly/LrRWPW

    Hope you find it helpful