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Solar’s trillion-dollar market: Driven by EVs, microgrids and cost parity for storage

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Demand for solar is expected to surge over coming years, but its growth rate could effectively double if there is rapid uptake of electric vehicles, and as more companies turn to the technology to save energy costs, and more countries reach solar and storage “parity” with grid prices.

A new report from leading solar analyst Vishal Shah, at Deutsche Bank, says demand for solar is already expected to increase by 10 per cent a year out to 2022, to around 140GW.

But the impact of EVs, solar micro-grids, corporate power purchase agreements and storage parity could see this growth rate more than double, pushing annual demand for new solar power to 250GW by 2022.

solar - global solar analysis - fig 2

Shah says solar is the logical replacement for “liquid fuel generation” – primarily dirty and expensive diesel – which currently accounts for around 405GW of capacity around the world. Given an average capacity factor of 25 per cent, that suggests an addressable market of 1,600GW for the solar industry.

Shah puts the cost of diesel power at around US40c/kWk, around four times the cost of a comparable solar solution. He factors in annual growth demand of 20GW for this market, but concedes that could be conservative.

Corporate demand is about 1GW to 3GW today, but Shah suggests this could grow to 5-10GW a day over the next five to 10 years as companies increase their focus on alternatives to expensive grid power.

He suggests that if self-generation reaches 10 per cent for the global industrial and commercial sectors, and solar accounts for half of the incremental demand, then that could create 350GW incremental demand for solar.

But it is electric vehicles that could provide the biggest step change in forecasts. The widespread adoption of EVs is likely to lift global peak demand by around 2-3.5 per cent, and Deutsche expects at least half of that incremental peak power capacity will be met by solar.

Underpinning the overall growth, however, is the continued fall in the cost of both solar modules and battery storage. Deutsche says solar module prices have declined from 75c/W to 35c/W over the past three years and are set to decline by a further 20 per cent over the next five years.

Improvement in installation and balance of systems costs should drive down solar system costs by another 20 per cent, and Deutsche sees total utility-scale system costs reaching 70c/W by 2022 timeframe.

“At these price points, solar would be cheaper than coal in more markets globally representing 5,000GW of available market potential, in our view.

“Both utility-scale and distributed solar has the potential to represent over 50 per cent of new global capacity additions over the next five years, representing $1 trillion of cumulative investment opportunity.”

solar - global solar analysis - fig 5

The countries driving this will not be the traditional markets of Japan, US, China and India, but “rest of the world demand” where solar capacity is currently just 2 per cent of the market, but which could rise five-fold over the next five years.

“We believe over 50 countries are already at grid parity if we compare the cost of solar electricity to prevailing grid prices,” the analysts say. And as the graph above shows, some countries such as Australia are already at grid parity for both solar and storage, and the numbers will increase out to 2022 and beyond.

It cites Vietnam, a rapidly growing economy with manufacturing growing at 6 per cent a year, but where industrial customers face peak rates from its new grid of US18c/kWh, as a case where many are considering solar as an alternative because it costs half as much now, and will likely fall to just US6c/kWh by 2022.

Deutsche says that having installed 38GW of power generation in the last 15 years – around 40 per cent of it hydro – and achieving a 98 per cent electrification rate, almost entirely through public funding, it is still facing significant energy security and environmental and health concerns.

 Solar – which has barely registered to date – is expected to be a major source of power generation growth in the country through 2030, with 12GW of expected to be installed by 2030. “This could turn out to be conservative, in our view, given our cost and LCOE forecasts.”

Solar is also becoming the preferred source of energy for net energy importing countries like Jordan, Morocco and Pakistan, especially with solar LCOE below current market prices for oil and LNG and at par with natural gas generation. The record low bids for solar in Dubai and mega projects are changing the perception of the technology.

  

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  • onesecond

    Can’t wait to see the coal, oil and fossil gas barons cry and go bancrupt. In that order. 🙂

  • Alastair Leith

    how can you have one label on your left vertical axis and another on your right vertical axis without having two datasets?

    • Peter G

      The scale is the same but is it that the curves are read from the right axis (i.e. today’s [top curve] and 2022 [lower curve] costs of solar plus storage in different solar locations) and the dots from the left axis as each country has distinct grid parity price that would trigger this the effects.

      • Ian

        It’s an awesome graph. The area of the dots is the size of each market. The position on the x axis the average insolation and the dots position on the y axis the cost per KWH for solar plus storage. The blue lines indicate where grid parity would occur for different years. Up and out to the left is better from a grid parity point of view. Australia is amazingly expensive considering it is top of the pack as far as insolation is concerned. You’d wonder how much grid prices and subsidies are responsible for the price of solar plus storage. Take South Africa for instance, a country similarly isolated as Australia, just as remote from the big industrial base and the big consumer markets. Their cost of solar and storage is nearly 1/2 that of Australia’s. Their grid electricity price is about 15c/KWH. Germany’s insolation is half ours but their cost of S&S is the same as ours – they need twice the amount of panels as us to achieve the same yield. They are in the thick of the consumer world and can be expected to have cheap equipment, yet South Africa matches their equipment price, and we are double. You could say we are being ripped off by solar and storage equipment suppliers and installers. You could also say that removing subsidies and halving the price of electricity would cause our market to look like South Africa’s and S&S would still be worthwhile here.

        • Ian

          We should expect our cost of S&S to be similar to Spain,Brazil – similar sorts of economies, similar insolation, but those countries’ costs are about 1/2 ours. We’ve talked about our utilities ripping us off, our suppliers and installers are doing a pretty good job of ripping us off too.

          • TheTransition

            China is amazingly good at large scale industrial projects. Chinese Nuclear Power comes in at less than $3000/KW for the capital cost. Hydro is way cheaper. Of course coal plants are very cheap in China but no one likes the air pollution from them.

  • Peter G

    “Given an average capacity factor of 25 per cent, that suggests an addressable market of 1,600GW for the solar industry.

    Shah puts the cost of diesel power at around US40c/kWk”.
    I am not sure if, of how much, this effect is separate from the base case. My impression is that Diesel substitution has been going on for some time, and its drivers are distinct from grid party considerations.

    • john

      Diesel is used when the price is high so they can gain.

    • juxx0r

      Diesel in Australia is about AUD$0.25/kWh for 24/7 continuous load. Which means that there are a lot of people who would benefit from cutting the cable and running diesel, no matter how frightful that idea is.

  • Luca bianco prevot

    I google to find the Vishal report but the only one I can find is the 2015. Is that one you refer to in the article?