Solar’s stunning win in Europe: Even with storage it beats spot prices

The levellised cost of solar PV has fallen so far that all across Europe it is now beating spot wholesale electricity prices, and even with the addition of two hours’ storage it is still beating spot prices in some countries.

Those are two of the findings of a new report from Christian Breyer, professor of solar economy at Finland’s Lappeenranta University of Technology, who has wrapped up new data and forecasts and reinforced the view that solar PV is by far the cheapest form of bulk energy in many parts of the world, and is still competing with the addition of storage.

(You can listen to a recent interview with Breyer on this Energy Insiders podcast: How to electrify the world with renewables)

The title of his paper “Impact of weighted average cost of capital, capital expenditure, and other parameters on future utility‐scale PV levelised cost of electricity” is unwieldy, but makes two essential points – one is about the plunging cost of solar, and with it storage, and the second is about the speed of these cost reductions, which are leaving most established energy institutions and policy makers floundering in its wake.

The first observation centres around the levellised cost of electricity from solar, and the rather astonishing conclusion that the LCOE of solar PV – even with a heavy weighted average cost of capital of 7 per cent – ranges from €24/MWh in Malaga (Spain) to €42/MWh in Helsinki (Finland).

This graph above shows how the LCOE in various countries (it varies according to solar resource, local costs, etc) beats the average spot price across the continent, and by a considerable margin in sunny countries like Italy and Spain.

It even beats the spot price in Germany, which – thanks to its more than 40 per cent share of renewables – has the lowest spot price of any major market, including nuclear France.

And having already produced a 90 per cent reduction in costs over the last decade, the study predicts more cost reductions to come, with the range falling to  €14-24/MWh in 2030 and €9-15/MWh in 2050. Again, the actual number would depend on the weighted cost of capital, and increasing the nominal WACC from 2 to 10% doubles the LCOE.

The truly stunning results, however, comes from Breyer’s estimates that solar PV plus two hours storage ranges from €39/MWh in Malaga to €69/MWh in Helsinki with 1 kWh/kWp storage and from €54-95/MWh with two hours storage.

That means that solar with two hours storage would already be competitive, now, with the average spot market electricity price in Rome and Malaga. Even more surprising, solar PV with one hour storage will become competitive in 2020 in London and Toulouse and by 2025 in Helsinki and Munich – cities hardly known for their strong solar resources.

(In the graph above, the blue line shows the current and future costs of a 50MW solar farm, the red line the cost of adding one hour storage (50MWh), and the green line the cost of adding a second hour of storage – 100MWh).

Breyer notes that market prices of PV modules and systems have developed so fast that it is difficult to keep up. And that means that policy makers are making decisions without being properly informed about the potential of these technologies.

“This is of utmost importance since the debate on how to react to the ongoing climate crisis and the necessary transformation of the energy system towards 100% renewable sources demand urgent measures and political decisions based on realistic information on the potential of different technologies,” Breyer writes.

“The societal tipping point for tackling the climate crisis may have been passed right now due to the global Fridays for Future movement of the youth all around the world with support by scientists, so that it can be hoped that fast and massive measures will be encouraged in the short term to midterm. This should be done on a best possible data basis.”

A couple of interesting observations come from Breyer’s analysis.

One is the expected life time of the solar plants – 30 years. The second is the relatively small amount of degradation. Most module manufacturers guarantee 80% of nominal power after 25 years, suggesting maximum average degradation of 0.9% per year.

In reality, Breyer says, most systems in Europe degrade far less and an average degradation of 0.2% per year has been reported for German rooftop systems.

Here’s one more interesting graph, highlighting the fact that finance is such a key component of solar PV costs, and the actual modules themselves will account for just 7 per cent of costs into the future.

“It is of utmost importance for the solar PV industry to convince the financial community that utility-scale PV is a safe and profitable investment,” Breyer writes.

“Policy makers need to be informed that PV is the cheapest form of electricity, especially if its inherent low economic, technical, and environmental risks are taken into account.”