Solar power has already become the cheapest form of new electricity generation in many regions of the world. It has also become the lowest cost renewable technology and more interesting it has reached this level despite ten-years low oil, coal and naturals gas prices.
As we predicted in this blog last year, 2015 has been a great year for solar. Global solar installations increased 34% over 2014 numbers, reaching almost 60GW of new capacity. In fact it has been such a good year, that we have seen the cheapest solar auctions ever; ranging from € 4ct/ kWh in sunny Austin (Texas) to € 8ct/ kWh in cloudy Germany. And the estimates for the next years are even better as the total installation cost of utility scale PV are expected to decrease by a further 20% over the next three years; thanks to technology innovation in inverters as well as continuous prices reductions at the module level not to mention more efficient balance of system costs integration. Another important standpoint is that some governments are extending their support mechanism for cleaner power after the Paris Climate Agreement, especially the US which has decided to extend the 30% investment tax credit (ITC) for 5 years.
Solar generation cost has still room for improvement. Financing and regulatory environments have been key to reducing the cost of solar in 2015. Further improvements in reducing capital costs and increasing the creditworthiness of the power purchase agreement (PPA) off takers are keys barriers to further growth. Other aspects such as import taxes (EU parliament are you listening?), local content and political stupidity are still hindering the wider adoption and are unnecessarily increasing the cost of solar to the end consumer. The sooner we get rid of these barriers, the better; for the sake of all of us.
A shot in the waterline of renewable opponents
One of the most interesting consequences of the cost reduction and global solar deployment has been the shift from support mechanisms to solar auctions. Solar auctions are now the de facto mechanism to attract investment, secure installations and let the global market compete at the same time. To give an example, the Finnish utility Fortum Oyj recently won a solar auction in India, where they agreed to provide solar energy (PPA) at a price of € 5.2 ct/ kWh. These prices match the cost of fossil fuels. And they provide the buyer with fixed price power without the risk of fossil fuel price increases. It shows that PPAs are the way forward for solar.
The second coming of Spanish solar?
Spain used to be a global leader in renewable installations but a series of retroactive cuts in supports as well as mixed signals from the Spanish government have scared away investors. Last year was so bad that the country installed zero wind and less than a 100MW of new solar. This is the lowest level in twenty years. But somehow we think this year is going to be a good year for Spanish solar and that despite the fact that there are no support mechanisms in place for solar with no solar auctions in sight.
What is interesting is that there are actually over 50 GW of requested solar connections to the Spanish grid operator. Of that some 2.3GW have submitted a 2% financial guarantee and have received the required environmental impact approval. Some of these developers are willing to take power price risk meaning that they will sell the power into the Spanish power market (between €45-60MWh); but most of them are looking to sign long terms PPAs with utilities, communities and industrial and commercial power users. This would mean that Spain becomes the first non-subsidy, non-support based solar market in Europe.
The end result for all of us is that 2016 is going to be a really interesting and exciting year in solar.