Solar Energy’s Inevitable Disruption

Posted on Posted in Blog, Renewables, Solar


392138-solar-photovoltaic-panelsLike a meteorite falling to earth, the price of solar energy continues to drop dramatically. In the last few months the renewable energy industry has been buzzing with news from all around the world of solar power being on par or even cheaper than fossil fuel based energy generation. Is global Grid Parity closer than we think?

When basic economics takes hold and the need for subsidies disintegrates, the disruptive potential of renewable alternatives to the existing energy industry will be realised. Opportunities are emerging all along the value stream for innovative models that capitalise on the significant volume growth of the sector that is already beginning. Get your business plans ready…..

Big Solar, Low Prices – news from around the globe 

In just under a year and a half, the wholesale price of solar has dropped by 50%, and in several examples around the world, subsidy free pricing of solar power is now beating out conventional fossil fuel sources.

Last year in the US, utility scale solar averaged around the USD 5 cents / kWh (based on tendered purchase power agreement [PPA] figures).  While this national average is supported by the diverse mix of subsidies in the US, the declining costs are expected to continue even as incentives are phased out. In the very sunny state of Nevada, First Solar agreed to provide electricity at 3.87 cents / kWh, which at the time, was the cheapest utility solar deal in the States.

Further south, in Mexico, contracts have been finalised to develop approximately 1 GW of new solar installations for around USD 4.5 cents / kWh, as a result of some of the first power auctions in the country held in March this year. Global investors are drawn to the region’s growing energy market, low labour costs and the stability of a government backed utility supporting the PPA.  

In late April, India’s Energy Minister Piyush Goyal said that despite storage and load demand concerns, Solar Energy in India is a more cost effective investment that coal, and that the country’s vision to have 100GW of solar power by 2022 is on track. This optimistic outlook is in part due to the recent price parity achieved in India for USD 6 cents / kWH for solar (compared to USD 3-5 cents / kWH for coal).

Earlier this month, the Dubai Electricity and Water Authority (DEWA) announced that they had received a bid for USD 2.99 cents per kilowatt hour to build an 800MW facility from Spanish developer FRV, shattering all previous standards and establishing a global low record for cost.  

While there some questions regarding the true nature of investment capital (in Dubai, sourced in part from the king), the competing bids in the tender processes indicate that perhaps the time has finally come that pure economics is the primary driver for renewable technology deployment.

Equipment prices have dropped significantly over the past year, advancing technology brings improved efficiency, large scale installations allow for greater economies of scale, and overall understanding and familiarity of the industry has reduced investor risk perceptions and consequently lowered financing costs.

Here in Australia, Origin Energy just signed a deal for a 15 year PPA to buy solar energy from the newly commissioned Moree Solar Farm in NSW. While the specific details were not publicly disclosed, it nevertheless signals improvements in cost effectiveness for the solar industry. (Find a more in depth analysis here.)

Rooftop – Small Scale, Big Market 

What about rooftop solar? It is a bit more complicated to compare rooftop PV on cost due to the larger number of variables involved. Location, solar exposure, local energy rates, storage configurations, expected payback, etc, all vary and thus affect the net cost of the installation.

Thanks to generous feed-in tariffs here in Australia, rooftop solar has been widely adopted as it has been cheaper to generate you own electricity than buying power from the grid.   Even without feed-in tariffs, a combination of rising electricity prices and the falling cost of solar PV systems mean the business case for rooftop solar remains compelling.

In South Australia, an interesting trial has just been announced by SA Power Networks to explore the viability of “distributed generation” technologies – the network of small scale rooftop solar installations – in order to avoid the need to build additional network infrastructure, and thus saving customers money.

Innovation and Opportunity

All of this represents an unstoppable march toward universal grid parity, where disruption to existing markets will be profound, and opportunities abound for entrepreneurs to find value in a tumultuous landscape.

New financing models, specifically focused downstream on the chain will capture value as the necessity for institutional investment erodes. New models represent a growing trend that will see solar installations boosted by financial innovation as much as technology innovation.

Distributed generation is poised to disrupt the entire model of the energy industry as storage solutions become increasingly more viable. “Behind the meter” energy options are increasing, not just in terms of generation but also management, as technologic solutions and the Internet of Things allow consumers more choice in how, when and where to use their energy.

Consequently, companies established in this space will be well positioned to capitalise on the market shift. In Australia, start-ups such as WattWatchers and Solar Analytics are leading the way as the role of data becomes an integral element in the management of energy.

As solar becomes integrated with energy-efficiency solutions, data analytics, and other technologies, it will become an increasingly important element in the next generation of resource related services. Innovative partnerships that engage with a range of players from other industries will benefit as the energy industry evolves beyond just the technology.

Meanwhile, more traditional firms who have already found a foothold in the renewable market need to prepare themselves for the changes that will come in purely market driven industry. Many business models have been built on taking advantage of subsidies and incentives designed to encourage the uptake of renewable technology. Grid parity will eliminate the need for these drivers to be in place.

Will we seize the opportunity?

Despite these obvious signs and the building momentum, it seems that utility, oil and coal companies, as well as policy makers are failing to recognise the speed and inevitability at which this disruption to the traditional energy model is occurring. Incumbent players may be able to slow the changing tide to a marginal extent by lobbying policy makers to make regulatory interventions in the name of market stability; however there will ultimately no stopping pure economic forces in the long run.

In Australia, policy uncertainty could undermine investment and development of 5GW to 6GW of new solar to meet the renewable energy targets of 2020. Australia has an opportunity to translate global optimism and desire for investment into significant benefit to the solar industry and indeed the economy as a whole. A recent report by Ernst and Young ranks Australia as one of the top sectors for renewable investment attractiveness, but warns that policy roadblocks could be “holding back mountains of cash.”

The topic seems to be noticeably absent in the conversation during this current election and climate and energy concerns seem to have diminished amongst the general Australian populous as well. Time will soon tell how the market will respond, however, irrespective of political and public sentiments.  

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