According to the New Policies Scenario in the IEA’s recent World Energy Outlook , the solar energy revolution is almost finished before it really started. Following a period of more than 60 per cent average annual growth since 2005, IEA predicts almost no growth at all in the 23 years to come. The projected average yearly capacity addition is not more than 26GW of Solar PV, i.e. less than the industry installed in 2011 (27.4 GW). This is in sharp contrast to the McKinsey report (“Solar Power: Darkest before Dawn,” April 2012) and others who foresee rapid growth and massive uptake of distributed PV leading to disruptive changes to the regulated energy industry, due to the sharp fall in the costs of PV.
IEA does not publish the underlying data supporting the scenario projections, but let’s take a look at some of the assumptions that can be derived from the reading:
| Item | IEA assumption | Comment |
| Average installation costs 2012-2015 | 2.6 $/W (Figure 7.7) |
This is really far off. Already today leading turnkey-suppliers (including Scatec Solar) build ground-mounted PV 30-40 % cheaper than cited here, and costs will continue to fall until 2015 which this cost estimate cover. According to EPIA, the Industry’s own association, the average system cost for PV above 2.5 MW will drop from 1.55 $/W to 1.4 $/W, almost half the price cited by IEA. The IEA number is valid only for smaller residential roof-top installations of PV. |
| Average installation costs 2015-2035 | Gradual decline from 2.6$/W to 1.6 $/W | Even from this high level IEA projects a moderate 40 % cost reduction in the 20 year period from 2015 and 2035, in sharp contrast to the drastic dwindling of costs realized so far.Only the last two years the cost of installing PV fell by approximately 50 percent. McKinsey expects installation costs to fall 40-60 percent only in this decade, whereas EPIA projects the costs of installing PV to fall 25-30 percent the same decade. |
| Cost of PV in 2035 | 1.6 $/W | McKinsey’s analysis for the more expensive commercial roof-top market shows that prices will drop to 1.2 $/W in 2020. With further reductions, the cost of utility-scale PV should approach 0.5-0.6 $/W in 2035, almost one third of the cost cited by IEA |
| Net PV Capacity growth 2012-2035 | Ca. 600 GW
|
With such high cost estimates, it’s no surprise IEA market growth numbers are so timid. The main point is that the fall in costs already makes PV attractive in competition to fossil fuel-generated utility power, and residential and commercial tariffs. As a global developer, we see a number of «grid-parity» driven developments in the US, Sub-Saharan Africa, India, Middle-East and even Southern Europe. These developments represent limited volumes today, but will most certainly drive the demand the coming years.McKinsey expects these «non-subsidized demand» to represent 4-600 GW of solar PV the next 8 years, and grow even faster the subsequent decades as competitiveness of PV is further improved. By 2035, it seems more realistic to project global PV installations to reach 2 000 GW or three times the IEA forecast. |
| Retirements | IEA expects more than 130 GW PV to be «retired» by 2035 | There is no reason to believe the PV plants will «expire». Although the manufacturers performance guarantee is limited to 25 years, well-designed and maintained PV plants should have a life cycle of 30-40 years. (Some experts even assume the technical lifetime of PV systems to reach close to a hundred years.) |
| Country installation targets in 2035 | IEA cites a few: – US 68 GW- China 113 GW |
Only in the US, McKinsey optimistically estimates «unsubsidized demand» can grow to 5-700 GW by 2020. China has just started developing the market, but has recently revised its target to 40 GW by 2015. |
IEA is a highly respected organization, and its yearly World Energy Outlook is perhaps the most referenced work on energy market trends and policies. Therefore, I am perplexed to discover that the New Policies Scenarios published November 12 seem to miss the point so fundamentally when it comes to the market of which I have first-hand knowledge, which is the Solar PV market.
I ask myself why IEA is so demonstratively conservative when evaluating the potential for solar the next 23 years, and can only find two plausible reasons. Either the organization is too detached from the vibrant dynamics of the solar energy industry, relying instead heavily on the numerous research studies that are mostly obsolete when published. Or, more plausibly, IEA is so preoccupied with its main message – that governments must continue to support renewables – that it falls into the trap of underestimating the growth at hand.
*Thanks to my colleagues Ole Grimsrud, Sven Røst and Kristian Hall for valuable input and comments.
This article was originally published on Energi og Klima. Reproduced with permission.
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