Subsidy-Free Solar Becomes a Reality

With solar technology prices on the decline the industry is developing without subsidies or feed-in tariffs.
Published: Tue 25 Feb 2014

Solar power has had a rocky journey. In Spain generous subsidies created a booming market in 2008 which came to a screeching halt during the global economic crisis. This has left many small-scale solar producers reliant on these subsidies in a precarious situation.

But, it appears that the industry is reviving itself without subsidies and feed-in tariffs. A new utility-scale solar plant in Seville is proving that it can be done.

No need for economic support

Jose Luis Garcia, who focuses on climate and energy for Greenpeace Spain points out that solar energy, is running through its learning curve a lot faster than anyone could have anticipated. As a result, the need for economic support for new plants has decreased.

Today a solar panel costs about 80% less than five years ago and it yields the same amount of power. In addition to this, costs are projected to be dive another 50% by the end of this decade.

According to Red Electrica de Espana, there was 4,681MW of solar PV capacity in Spain by the end of 2013 which generated 8,937GWh of electricity or 3% of Spain’s total electrical demand. Another 2,300 MW of solar thermal provided 4,554 GWh, or almost 2% of the total demand. Wind made up almost 21% of the country’s total demand. Therefore, a boost in solar PV can assist Spain to balance its renewable portfolio.

The 2.5MW Seville plant is big but not huge. But the company behind the plant, Enerpro, is planning a number of 1MW plants which will total another 12MW. This excludes its other more ambitious projects planned for the future.

Currently, the Spanish grid operator has 40,000 MW of planned PV plants that await grid integration while their investors are valuing the fact that electricity from the new PV plants can now compete in the market without any support system to make the investment financially viable.

A revolution

The revolution in energy markets, caused by the growing impact of rooftop solar PV, is about to take a huge leap forward.

According to analysts from UBS a global investment bank, the arrival of socket parity – where the cost of installing solar is cheaper than grid-sourced supplies – is about to cause major growth in un-subsidized solar installation in Europe.

In response to the significant decrease in European electricity prices, a team of energy analysts from UBS, has drawn up a report entitled “The unsubsidized solar revolution.” The report suggests that investing in solar will become a “no brainer” for households in several European countries. The report also points out that this revolution will also have profound implications for the incumbent energy industry.

“Solar has turned from a heavily-subsidized marginal technology into a mainstream source of power generation,” the UBS analysts write. ” “Thanks to significant cost reductions and rising retail tariffs, households and commercial users are set to install solar systems to reduce electricity bills – without any subsidies.”

Utility competitors

In the long run, an increasing number of customers will effectively become utility competitors. It is estimated that in Germany alone, there could be an installation of 80GW of unsubsidized solar. This is added to the 32GW already installed through subsidized installation, and the 52GW cap put on subsidized installations.

By 2020, up to 43GW of unsubsidized solar could be installed in Germany, Italy and Spain, replacing up to 9% of electricity demand.

“We are at the beginning of a new era in power markets,” the UBS analysts write. ”Purely based on economics, we believe almost every family home and every commercial rooftop in Germany, Italy and Spain should be equipped with a solar system by the end of this decade.”

UBS points out that there is no immediate prospect of unsubsidized solar in other European countries, either because retail tariffs are lower (France), or because of little sun (northern Europe). But, it definitely has implications for other countries, particularly Australia, which has high retail tariffs and excellent solar resources, and which already has a near 10% penetration rate of rooftop solar on available households.

Storage

The emergence of cost-effective battery storage will allow consumers to become even more energy independent as peak pricing is removed. Without peaks, the profit margin of generators is removed. Even bigger savings for the consumer is expected as PV with battery storage, while more costly now, is expected to cross over in 2014.

The only challenge for unsubsidized solar is that its development can be stopped by regulation, or fixed tariffs. However, given the rising costs of fossil fuels, this would be a PR nightmare for the generation industry.