Article / 28 Jan, 2016
Stars Aligning for Solar Energy Following COP21

In the wake of the UN Climate Change Conference in Paris (COP21) that ended with a new, global agreement to tackle climate change, the future of solar power shines even more brightly with many analysts predicting at least a doubling and redoubling in the next 15 years.

The main objective for the industry now, however, must be to harness the political and economic promise and potential of the Paris agreement, bringing governments, companies and investors together even more closely to ensure policy, incentives and returns meet the real needs that will lead to the predicted boom. 

The focus must be on stable policy incentives that will change as the market becomes increasingly independent to the point where it is self sustaining. Solar price points are already the most competitive in some parts of the world. The mistake to avoid, say analysts, is to destabilize growing investment by making changes which are too abrupt for investors to handle.  

In particular, development of energy storage and greater access to affordable finance remain important challenges for both develped and developing country solar industries that must be tackled now for the sector to grow faster, with the right policy support.

National Climate Action Will Accelerate Solar

Based on calculations made by the Massachusetts Institute of Technology (MIT), the national climate action plans (known as “Intended Nationally Determined Contributions”, or “INDCs”) submitted to the UN Framework Convention on Climate Change in the run-up to COP21 have the potential to multiply global solar capacity almost five times from now to 2030, making a significant dent in global greenhouse gas emissions.

At the same time, think tanks such as Greentech Media say demand for solar energy still depends to a large extent on government incentives. Global installed capacity hit 256 gigawatts in 2015. Greentech expects a leap to 700 GW by 2020. By that point, China will consume 25% of this energy. Europe’s share has already fallen from 80% to 22% since 2010.

Bloomberg New Energy Finance estimates that 54% of power capacity in the OECD will be renewable by 2040. 882 gigawatts of solar power will be added over the next 25 years and small-scale panel installations will dominate. Developing countries will require three times more capacity than their developed counterparts and at least half of this power will be renewable.

The key is to balance the need for continued policy and other government incentives to keep momentum at the same time as the marketplace becomes increasingly capable of supporting the solar industry, explains Adam James, former analyst at Greentech Media and now ‎Deputy Director, Global Strategy and Policy at SolarCity. "It is not a pipe dream but reality. The transition is under way towards market based programmes in the UK and Germany."

There is certainly ample room for growth, according to the Crossing the Chasm report published by Deutsche Bank. Global electricity consumption stood at 6000 gigawatts last year and solar accounted for only 1%.

Examples of Supportive Policy

Many countries have already made solar a key component of their energy mix.

India is set to install 8.5 gigawatts of solar capacity by the end of 2016 and the country’s central government foresees investments of around USD 100 billion in renewables in the next five years to reach its goal of a 75% national electrification rate. Local states need to supply land and buy 20% of the power generated. Grants will cover 30% of installation costs. Solar mini-grids outside of traditional grids can also be the answer. Such grids are set to reach 90 megawatts by 2019, according to a study by The Climate Group and Goldman Sachs.

Countries that support solar panel installations for households are tabling long-term purchasing contracts, including 20-year deals in Germany and Japan, for power to flow to the grid. They offer preferential feed-in tariffs for the producers of solar energy.

Favourable Economics

Its low price is increasingly becoming the main advantage of solar energy because costs have been tumbling for years. Deutsche Bank says that unsubsidized rooftop power now costs 8 to 13 cents per kWh on average, 30 to 40% below the retail price of electricity in many markets. MIT notes that prices for solar are on average dropping by around 10% per year.

Solar costs 12 cents per kWh in India, against 10 cents for coal. The coal-to-solar ratio, that used to be 7:1 four years ago, could reach 1:1 within 18 months. Over half of the 60 countries reviewed by the bank have reached parity today.

The trend is not about to stop, predicts Jenny Chase, Manager of Solar Insight at Bloomberg New Energy Finance. “Prices will come down. Chile already has plants without subsidies,” she says.

Vishal Shah, Research Analyst at Deutsche Bank, thinks that other market forces will favour solar. "We expect electricity prices worldwide to double over the next 10 to 15 years, making the case for solar grid parity even stronger."

His report details how the costs of Chinese modules have come down from USD 1.31 per watt to 53 cents per watt between 2011 and 2014. TheSunEdison company targets 40 cents in the future.

This bodes well for households that wish to put panels on their roofs.

"A typical residential US-based system costs around $25,000 to $35,000 today, but we believe that comparable residential systems could easily dip into the 10K to 15K range over the next five years if market forces driving cost reduction are allowed to progress".

Securing low interest rates on loansis also required to boost deployment.

States can do much to help, says Adam James. "Governments can play a role by providing a stable regulatory environment."

Policy Uncertainty Still an Obstacle

Many countries are, however, making important policy ajdustments which do not always work in favour of accelerated solar deployment. Germany, which draws almost 6% of its electricity from solar, reformed its Renewable Energy Act in 2014. The law imposes a levy that will reach 40% for self consumed electricity by 2017. This has acted as a dampener on the number of new installations.

The United Kingdom has, for its part, announced a 65% cut to its feed-in tariff.

In 2013, the European Union attempted to regulate solar panel imports from China by setting a minimum price and imposing tariffs. The commercial dispute was settled in July of that year, with an agreed price of 56 cents per watt. Europe also allowed the Chinese to meet half of its demand before tariffs kick in, according to Reuters.

Commercial rows also hang over future development, remarks Vishal Shah. "Adverse trade policies certainly pose the risk of slowing down growth in important solar markets, especially in light of the recent gas price weakness."

“This is an example of a conflict between climate goals and local production, says Adam James. “Manufacturing jobs are attractive but, on the other hand, we do want to decarbonize [the economy].”

Improving Energy Storage Essential

Another major challenge is storage. Solar power is produced during the day and households consume it mostly in the evening.  Tesla Powerwall, a home battery that charges using electricity generated from solar panels and can also be stacked for use by utilities, currently costs $3000 for 7kWh.

Prices will improve with time, says Vishal Shah. "We expect utilities worldwide to buy batteries on a large scale as costs drop over the next several years and renewable and intermittent generation deployments increase."

The IHS consultancy expects the cost of storage to drop by 90% for the period covering 2000 to 2025.

Although beneficial for small-scale producers, such policies and the intermittent nature of renewables are a challenge to the existing energy order, says Jenny Chase. “Utilities are expected to provide power on a cold winter night. They are expected to act as a battery without charging too much.”

Adnan Z. Amin, Director General of the Renewable Energy Agency however argues that utilities can draw on solar energy without losing sleep. He says that “storage needs are minimal until renewables reach a very high share of the total amount of electricity generated. In the case of Germany, which has an interconnected system, a share of 90 per cent was achieved in some studies before storage solutions were needed.”

Furthermore, a study published by Nature Climate Change shows that better power lines can move clean energy without large investments in storage.

This, in addition to better prices, makes solar an attractive solution for governments and companies to invest in, for the present and the future.

Photo credit : BlackRockSolar (Flickr)