Wednesday, June 13, 2012

In Australia, rooftop solar is cheaper than grid energy

Excerpt: "California’s energy regulator recently rejected a planned open-cycle gas plant in favour of a solar PV facility on the basis of cost."

Solar PV – it’s cheaper than you think

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Perhaps it’s time we should all stop kidding ourselves. So much of the political and economic debate around clean energy is framed through the idea that solar, in particular, is just too expensive, and will be for decades. But for the consumers who increasingly exercise the power of choice over the electricity they consume, this is just plain wrong.
The energy debate in Australia and overseas is framed around the wholesale cost of electricity – the price difference between cheap coal and new technologies such as solar, wind and geothermal. And even though coal and gas are unlikely to remain cheaper than solar or wind at utility scale in most markets beyond the end of the current decade, the point of choice is already made at the consumer level, where no one cares if it only costs Loy Yang A $2/MWh to produce electricity, they only worry about what’s on their bills. And at that level, solar on their rooftop is clearly a cheaper option.
This is one of the fundamental points made by a major new research paper released overnight byBloomberg New Energy Finance. It said that solar PV is much closer to price competitiveness with fossil fuel-generated electricity than many decision makers and investors realise, and policies have yet to catch up with the dramatic improvements in the economics of solar power, which has seen its cost drop 75 per cent in the last four years, and 45 per cent in the last 12 months alone.
“The perception persists that PV is prohibitively expensive, and still has not reached “competitiveness,” it says. But it  notes that the wrong metrics are used to compare the costs of different energy sources. The idea of the term “grid parity” is confusing and used to compare wholesale prices with retail, misleading and confusing not just consumers, but decision makers too, with major implications on policies. More accurate to reflect the market dynamics, at least in the retail market, would be a term such as socket parity.
“The PV industry has seen unprecedented declines in module prices since the second half of 2008, the paper notes. “Yet, awareness of the current economics of solar power lags among many commentators, policy makers, energy users and even utilities.” It cites a bunch of reasons, including the very rapid pace of PV price reductions, the persistence of out-of-date data in information still being disseminated (occasionally by those with an interest in clouding the discussion), and the misconceptions and ambiguity surrounding many of the metrics and concepts commonly used in the PV industry.
But before looking at that report in more detail, here are some graphs presented by one of the authors, Michael Liebreich, the CEO of BNEF, at the World Renewable Energy Forum in Denver overnight. Liebrich presented about a dozen graphs tacking the price parity of solar PV in key markets between 2010 and 2025. But here are the key ones – 2012, 2015, and 2025.
These graphs show the levellised cost of solar PV in the retail market, compared with the retail price of electricity, and ranks countries according to the amount of solar irradiation (right axis), size of PV market (circles). All countries above the blue line are at or better than price parity.
(The figures are based on 6 per cent cost of capital, 0.7 per cent a year module degradation, 1 per cent capex as O&M annually. $3.01/W capex assumed for 2012, $2.34 in 2015 $1.80/W in 2020 and $1.53/W in 2025.).
In 2010, only Hawaii was above the blue line, but in 2012, this is the situation, according to Liebriech.
This is what it will look like in 2015
…. in 2020 ….
and in 2025 ….
As you can see, Australian solar is already at parity, and will become an increasingly cheaper option – which means it is pretty much a no-brainer for retail consumers (who now have access to zero-down finance) and also for the commercial market, which pays higher tariffs. This is why commercial-scale rooftop PV is the hot new sector in Australia. Even US Energy Secretary Stephen Chu (according to my spies) made a point at the conference of noting that Australia was one of the first countries that have appeared above the line – it’s just a shame that Australia’s energy ministers (state and federal) don’t seem prepared to recognise this.
These arguments about parity have already been made by the International Energy Agency in their solar study last year, and more recently by McKinsey & Co, which made the point that solar PV is already competitive in four out of five key global energy market types, and by NRG CEO David Crane, who said this week that solar PV will do to electricity grids what mobiles did to fixed line telephony.
As the paper notes, changes to the economics of solar PV are happening so fast that it is hard to gain a coherent picture of the shifts occurring across the industry value chain around the world. But it does say that, despite efforts by the likes of Bjorn Lomborg and others to paint solar as “prohibitively expensive,” even on wholesale prices it is competing in some areas with coal and gas.
The US Department of Energy estimates the LCOE of PV at $0.10/kWh to $0.18/kWh for utility-scale, $0.16/kWh-$0.31/kWh for commercial systems and $0.16/kWh-$0.25/kWh for residential PV systems. Yet outdated numbers are still disseminated to governments and regulators (it might have made mention here of the Australian government’s appalling draft energy white paper, but didn’t).
It says the DOE is forecasting solar PV’s LCOE to $0.08-$0.10/kWh for residential, $0.06-$0.08/kWh for commercial and $0.05-$0.07/kWh for utility-scale solar PV. (That would make it cheaper than both coal and gas. Indeed, California’s energy regulator recently rejected a planned open-cycle gas plant in favour of a solar PV facility on the basis of cost).
The paper says “grid parity” is a curious and misleading term that applies to no other fuel source, except fuel cells. And it disguises the fact that many PV applications are not competing against wholesale generation but, instead, the delivered price of electricity through the grid.
Indeed, it even describes the graphs we published above as “busy‟ and “non-intuitive,” serving mainly to demonstrate how difficult a concept it is to communicate. “This places PV at a disadvantage at a time when the industry is seeking to send clear messages on competitiveness in its political communications and government affairs,” it notes.
*The paper, called, Re-Considering the Economics of Photovoltaic Power, was co-authored by representatives of UNSW, AGL Energy,  the United Nations Industrial Development Organisation, Austria International Institute for Applied Systems Analysis, KMR Infrastructure, International Renewable Energy Agency, the Joint Institute for Strategic Energy Analysis, and Suntech Power.
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Comments (31)

  1. Warwick says:
    Great news. Now that PV is cheaper at the “socket” than the retail price it means that solar can stand on its own feet without the need for subsidies such as a Feed-In-Tariff priced above the fair value of energy.
    • Chris Fraser says:
      Agreed, Warwick. Although fair value for PV energy is a somewhat qualitative measure. Considering that storage capacity is likely to increase sharply, is it still OK to get 35c/kWh for any export ?
    • DCollis says:
      Why do you obsess over subsidies for renewables when polluting fossils and nuclear receive far more – and have done for many decades?
      • Warwick says:
        An inefficient subsidy is a poor policy regardless of whether the technology is renewable or not. We in the renewables industry have a responsibility to be honest with the public about the costs of renewables as well as highlight the extern of pollution of fossil fuels. Ultimately, the renewables industry goal should be to reduce emissions at least cost to the community.
        • Adam says:
          If this is the case, surely we can check the numbers on a residential scenario with an off the shelf system?
          What does the commercial energy market look like now anyway? I heard it’s cooled off (in energy demand and not just RECs) – there won’t be big investment in commercial space even if there is price parity as there isn’t need for new gen capacity.
          I wonder what assumptions the modelling makes of power purchasing/storage.
    • Gillian says:
      Let’s remove the subsidies to coal as well. NSW govt subsidises coal for electricity generators to the tune of $2.7 billion a year, at 2011 prices.
  2. keith williams says:
    ditto for fossil fuel subsidies which dwarf renewables subsidies. How obscene is it that fossil fuel companies with huge profits still take home huge subsidies?
  3. Rick says:
    I agree with Warwick. Why does it matter that Australian governments don’t acknowledge that rooftop solar PV has reached price parity? Its now for business to just get on with it!
    • Jonathan Maddox says:
      It matters because in most states, it’s not private business which generates electricity. In NSW the new government has decided to open a new state-owned coal mine to provide the incumbent (and amortised) state-owned coal-fired power stations with coal at a fraction of the export price (indeed below cost price!), because the existing privately-owned mines refused to continue to do so beyond the expiry of current long-term contracts. A similar but less-well-documented situation exists in Queensland I believe.
    • Jonathan Maddox says:
      “To continue to meet energy demands in NSW and Australia generally, NSW electricity generators need a reliable local source of coal. Otherwise, generators will be increasingly exposed to international coal prices which have risen sharply.” — Steve Ireland, Cobbora Holding Company
      It seems the original plans for the mine have been somewhat scaled down, but it’s still happening :
  4. Colesy says:
    There’s the market showing the Govt. they should get out of the way to enable more efficient generation/ distribution of energy. (and that they should get their advice from people other than the existing energy infrastructure/ suppliers!)
  5. Robert Sczech says:
    The retail cost of electricity is not only the cost of its generation. There are additional costs of transmission, maintenance etc. (Taxes are also not negligible). In the case of solar panels, there is the additional cost of storing the excess electricity (either in form of a battery or in the grid) since the sun is shining only during the day, but of the electricity is needed at night.
  6. Owen says:
    The idea of ‘socket parity’ and payback time presented for Australia are optimistic. Because most owners of PV systems do not use all of their generation and surplus power to the grid earns 7c/kWh (in Perth). So unless your able to use all of your generation or have a feed in tariff is at wholesale price then the economics will be less rosy than those presented in the article.
  7. Richard Simpson says:
    Can someone tell me what the subsidies are for coal fired or gas fired genertation?
  8. Scott says:
    Agree with comments above.
    Solar PV can stand on its own merits now, so no need for any new FIT. Solar PV is a much more powerful and persuasive argument when you can reduce the dependence on FIT.
    Longer term, one wonders what will happen to the grid ?
    Will we see defections to offgrid systems if the price of storage systems also reduce ?
  9. Tim says:
    Giles, they don’t seemed to have increased the retail power price over future years. Do you know if they have accounted for that in another way?
    • Giles Parkinson says:
      No, but I think you can assume that the grid-based retail price is going up, wherever you are, which would make the graph more compelling. Perhaps too many variables too include/
  10. Richard Simpson says:
    Keith, we all know about that, it is an aberration.It is one power station.
    I would like to know what subsidies relate to the overall picture.
    • Giles Parkinson says:
      Actually Richard, i believe the NSW government intends for Cobbora to supply all NSW power stations whose alternative contracts expire in coming years.
  11. Richard Simpson says:
    That would be an impossible scenario, both from a logistics and contractural sense
    Besides NSW is not all of Autsralia.
    What subsidies, Australia wide, both gas and coal generation apply?
    There are no papers addressing the facts,that I can find, so if anyone can enlighten me I would appreciate that.
  12. keith williams says:
    There are endless exceptions e.g. paying to close down coal plants !!! (they don’t do that in the US) and on and on it goes.
    I think the figure for fossil fuel subsidies worldwide last year is around $630 billion.
    • Richard Simpson says:
      Kieth, closing down a coal plant is not a subsidy for fossil fuels, but one to make alternatives viable.
      What do we do on an ongoing basis to subsidise fossil fuels, coal and gas?Not talking about transport, another subject.
  13. Pat says:
    Do you think that once PV rooftop reaches full scale “socket” parity the price would really trend further downwards, or just remain slightly under the competitive price and increase profitabibility of the solar sector.
    Also, assuming large scale storage is not developed, what do you think the net effect of the night time retail price. Given you still need the same MW capacity, would the wholsesale unit cost of this capacity increase due to reduced daytime capacity factor?
  14. keith williams says:
    Setting up energy systems costs in the beginning. There has been huge investment to get coal, gas in place. I am at a loss to understand why this shouldn’t be done for renewables.
    I don’t get why we keep supporting coal, gas when they are contributing to impending climate disaster. The NSW Cobbora coal supply agreement is perhaps the most blatant, but it is built into the fabric of fossil fuel based power (both electricity and transport).
    There are signs in the rest of the world that the party might slow with G8 discussions about removing fossil fuel subsidies, but don’t underestimate the wealth and tenacity of the massively profitable fossil fuel lobbies.
    The draft white paper here in Australia is testament to the power of the fossil fuel lobbies which sought to completely neuter solar in the white paper by using ridiculous numbers for solar costings. It will be interesting to see what happens now that the costs have so dramatically come down. Dare they still try to use fiction to get rid of solar??
    • Richard Simpson says:
      You are correct regarding Cobbora, however that is only a fraction of Australia’s production of coal for power generation. Estimates are now 12 million tons a year. However, which Government proposed same? Not the current one. Coal generation in NSW uses 40 million tons plus a year.
      It is extremely unlikely that it will ever go ahead, as cost of production will be at least $24 a ton above the sale price. The NSW Government is broke.
      The lost income from export as well is not to be missed. Water requirements in t region are also a problem, as are the logistics and previous contractual arrangements by the generators.
      I agree it does not make sense. Let them pay market rates for coal.
      However regarding subsidies for coal and gas generation in Australia there is a dearth of information. Most profiles transport.
      Even through my Uni Library I can count the number of academic studies on one hand. Most are from interest groups on both sides.
      Nearly all that claim subsidisation quote, infrastructure, such as power distribution (needed in any case) and items such as ports and rail/road. Not correct because all return a net income, contribute to exports. Aluminium, again subsidised but returns more in taxes, employment etc .
      Another subsidy is for pensioners, now that is a social decision.
      Cross subsidies to rural areas, the same.
      So I can find no real information proving that coal and gas are subsidised.
      What I can find from the productivity Commission is only this:
      Renewable Energy Target $356 million
      Feed in Tariffs $96 million
      Qld Gas Scheme $38 million
      Greenhouse Gas Reduction Scheme $3 million
      Total $494 to $694 million(low to high)
      The subsidisation has nothing to do with coal and gas.
  15. Julien says:
    why is the retail price of electricity dropping over the years?
    • Michael says:
      Retial prices dropping? Mine are continuing to go up year after year. An even accounting for inflation there is still a slight upward movement. They certainly haven’t been going down in real or adjusted terms.


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