Will campaigning deliver the transition to carbon neutrality? Or the governments that still can’t agree to a replacement treaty to Kyoto? Or a change of heart by energy-using corporations like WalMart? Or some miracle new technology like fusion? Hum.
We don’ t deserve this, but there’s now a partial answer. We now have definite predictions from the PV solar industry that grid parity will be reached within the next 5 years.
- Mark M. Little, the global research director for GE :15c a kw/hr in 3-5 years.
- Rob Gillette, the CEO of First Solar: 10-12c per kw/hr in California in 2014.
- Thomas Dinwoodie, founder of SunPower Corp.: solar already competitive with gas and coal.
- More on the same lines from McKinsey.
According to MM Breyer and Gerlach, engineers for German company Q-cells, a grid parity wave will wash over much of the world by 2017. Pdf paper, apparently dated 2010. Breyer & Gerlach offer a systematic and properly sourced inside view, so I’ll mainly use that. Their work deserves a wider audience and scrutiny. A summary of their grid-parity predictions for the next 5 years at the end. They claim that residential PV is already competitive in Brazil, so we should see lots of panels falling off the backs of lorries on to favela rooftops in Rio very soon. [Update: their model is based on German costs as a benchmark for everybody else, an important qualification; see comments.]
Should we trust these insiders, or discount their claims for boosterism?
One, in revolutions insiders really do have a privileged perspective. Intel, TI, and ARM engineers have a better handle on whether Moore’s Law will hold up than even very knowledgeable outsiders. Second, there’s no obvious commercial advantage in predicting a rapid fall in prices, rather the reverse. Third, and most important, these predictions are entirely in line with past experience. Here’s Breyer & Gerlach’s experience curve for PV modules:
The percentage number is the learning rate, the reduction in unit cost for each doubling of cumulative production. In case you are worried about the 2002-2009 deviation from the trend due to shortages of silicon feedstock, just add the missing 2011 data point: prices have fallen more than 20% in the last year, and more or less returned to trend.
The historic growth rate in volume is 45% per annum, corresponding to a doubling in 2 years and an annual reduction in unit price of 10%. Balance-of-system costs have historically tracked PV module ones, though they vary a lot between large- and small-scale installations.
One quibble with Breyer and Gerlach is that the cost-of-capital discount rate they plug into the formula for a levelised cost of electricity (LCOE) is only 6.5%. This may be fair enough for German solar investors in a benign environment. These Australian analysts use 8.5%, which looks more plausible for other advanced countries. If you want to work through the sensitivity of the LCOE of different electricity sources to the discount rate, see Chapter 5 in this IEA study. Raising the discount rate would at first sight only make a year’s difference to the arrival of grid parity, which will in any case be staggered by many other noisy factors – subsidy régime if any, regulatory hurdles, relative insolation.
Interestingly, most insiders can’t bring themselves to believe that this explosive rate will continue:
Annual growth trend for the last 15 years has been 45% (Figure 1). Nevertheless, consensus of scientific researchers and financial analysts is a growth rate of about 30%.[1,73,28,29,31,74-76] However, it has been very common to underestimate both near and long term growth rates of PV.
Their Figure 1 actually shows that the growth rate of 45% holds all the way back to the invention of the solar cell in 1955, so it’s a 57-year trend not a 15-year one. Are there any reasons apart from herd caution to think the trend will not continue? Breyer and Gerlach:
Leading PV experts estimate the achievable longterm cost potential for PV module technology and respective industry below 0.30 USD/Wp  and Pietzcker et al expect PV system floor cost, i.e. long-term cost level, of 0.60 USD/Wp .
The remaining doubts must lie on the demand side, for example with the recent cuts in subsidies in Spain and Germany. But German installations have not stalled, and the number of markets is increasing, making for a steadily more regular pattern. Any near-term supply glut would drive prices below trend. In fact, as we reach the discontinuity of grid parity, you would a priori expect demand to accelerate.
So the egg has hatched and PV-rex is upon us. Apart from offering a hearty welcome to the toothy little carbon-neutral darling, what can we expect from it? I have no expertise to add on when grid parity arrives. But it’s possible to make some predictions on what will happen after it does.
1. No new or replacement coal power plants will be built in OECD countries, and a rapidly declining number in Asia. The economics are marginal and the downside regulatory risks enormous, over the long planning horizon of a new plant. Coal is unsuited to be the balancing power for a renewable-heavy generating portfolio. Carbon capture won’t be ready in time to offer resistance to PV-rex.
The phasing out of old, and fully amortised, coal generating plants depends on the regulatory environment. But with the writing on the wall, and coal companies and utilities looking at exit strategies, it’s hard to see a successful resistance to internalising health and climate costs. There’s a good chance PV-rex will eat up coal within 10 years.
2. Breyer and Gerlach say that grid parity will arrive in some countries first on residential and commercial rooftops, in others as large utility-scale power plants, depending on the retail price of electricity. We should think of two categories of investors.
Professionals have spreadsheets, LCOE formulae, and access to long-term capital: utilities, corporations like WalMart, universities. Their behaviour should reflect quite precise cost tipping points. Utilities in particular will want to invest, or buy in, up the point where the system costs of covering solar variability (ignored by the LCOE formula) become large. This will depend on the mix of other sources (wind, hydro, despatchable gas, geothermal) installed or available, and won’t be uniform. Let’s make a pure guess and say the limit will be a third of total demand.
The second group are Joe and Jane Average, without benefit of spreadsheets. As the price carries on dropping, at some uncertain point (50c/w a module, $1/w all-in?) residential solar becomes a no-brainer and demand explodes. NIMBY planning restrictions will collapse, as everybody wants a panel.
Joe and Jane don’t care about system balancing costs. It will pay them to install panels up to the peak daytime load in their house, probably air-conditioning. The utilities are stuck with the variability costs of all these extra panels, whether or not they are connected to the grid. They still have a duty to “keep the lights on”, but daytime demand and revenue has cratered. Utilities will have to raise residential tariffs, reinforcing the attraction of home installation.
Interesting conflicts are in store, which homeowners will presumably win through the ballot box.
4. Will PV-rex go on to eat up the oil industry? Sadly, not so fast. The hurdle here is the capital cost of car and truck powertrain batteries; per mile, electric cars already run a lot cheaper than gasoline ones. Cheap solar electricity doesn’t change this equation much. However, it will steadily widen the running cost gap, and enable probable improvements in batteries to drive a massive shift to electric vehicles. Solar electricity will only be one of several killers of Big Oil, like the conspirators against Caesar.
5. Similarly, he won’t quite destroy the gas industry by himself. For now, gas remains indispensable to electricity generation as the main despatchable source to fill gaps in supply created from the variability of wind and solar. For an indication of the magnitudes here, see these simulations (page 40) for two historical weeks in Minnesota – the scenario is for a fully renewable supply, so the gap-filling is marked as storage (eyeballing, less than 10%). The full replacement of gas from electricity generation does indeed require storage or hydro or geothermal. This looks like something that can wait a decade for better technologies.
6. Cheap solar power will change geopolitics, mainly in good ways. The solar resource isn’t concentrated in a few nasty Middle Eastern autocracies and is very widely spread across the globe. One entire pillar of US foreign policy, ensuring access to Middle Eastern oil, will crumble into insignificance. PV-rex will help poor and sunny African countries. It’s hard to see how any replacement monopoly in the PV supply chain is feasible, or political leverage with boycotts. Within countries, PV doesn’t lend itself to kleptocratic rent-seeking either. Any landowner can put up panels.
7. The other benefit is of course the end to the power and influence of the oil companies. They won’t be replaced by any Seven Sisters of PV; this is a manufacturing rather than a resource extraction industry, and there are few barriers to entry.
Kochs, BP, Chavez, Ahmadinejad, King Abdullah, Vladimir Putin: go, Towser! Tasty nibbles!
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Selected data from Table 3 in their appendix, which gives the assumptions.
R = residential, I =industrial installations. The date given is the first grid parity event; the other follows within a year or two. (IMHO, the former is disruptive and likely to be followed by policy changes which will anyway invalidate the assumptions of the predictive model).
China, India and the USA are divided into large regions.
Burkina Faso IR, Cambodia I, Chad IR, Cyprus IR, Dominican Republic I, Fiji I, Gambia I, Grenada IR, Guyana IR, Haiti I, Jamaica IR, Liberia IR, Madagascar, Mali I, Senegal I, Seychelles I, Uganda R
Afghanistan IR, Brazil R, Cuba R, Denmark R, Malta R, Palestine I, Portugal R, Spain R
Austria R, Belize I, Burundi I, Central African Republic R, Chile R, China West I, Cote d’Ivoire R, El Salvador I, Guatemala I, Germany R, Italy I, Japan R, Philippines IR, Suriname IR, Uruguay R, Togo I
Belgium R, Benin R, Cameroon I, Gambia R, Ghana I, Guinea I, Hungary R, Israel R, Kenya R, Luxembourg R, Mauritius I, Mexico I, Morocco IR, Namibia R, Netherlands R, New Zealand R, Nicaragua R, Pakistan I, Panama IR, Peru R, Puerto Rico R, Rwanda I, Turkey IR
Australia R, Burma I, China East I, Croatia R, Greece R, Honduras I, India West I, Ireland R, Jordan R, Lebanon R, Malawi I, Namibia I, Nicaragua I, Niger R, Slovakia IR, Slovenia R, Sri Lanka I, Sweden R, Syria R
Argentina R, Bangladesh R, Brunei IR, China Central I, Colombia I, Congo DR I, Czech Republic R, Finland R, France R, India East I, Israel I, Mozambique R, Norway R, Poland R, Romania R, South Korea R, Sudan R, Switzerland R, Tanzania I, United Kingdom R, United States East R, Vietnam I
Bulgaria R, Costa Rica I, Ecuador R, Gabon R, India East R, Latvia R, Nigeria I, Thailand I, Tunisia IR, United States NW R
Bolivia R, Botswana R, Estonia R, Honduras R, Indonesia I, Lao PDR I, Lithuania R, Malaysia I, United States SW IR