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Energy analysts at Deutsche Bank are predicting a huge surge
in the uptake of distributed solar PV in the United States, the world’s biggest
economy and electricity market, saying solar PV installations could rise 7-fold
in coming years and lift overall solar PV capacity to nearly 50GW by 2016.
The expected boom in distributed solar – installations
placed on homes and commercial businesses – is based on predictions that solar
PV module prices will continue to fall, grid prices will continue rise, and
innovative financing options will provide ample and cheap capital.
The US solar market has been dominated by utility scale
installations to date, with comparatively little rooftop solar. But
Deutsche Bank estimates that in 2015 and 2016, annual installation rates will
jump to 12GW and 16GW, meaning it will likely overtake China, Japan and Germany
for the most annual installations.
It says total capacity will grow to 50GW under this scenario
(Germany is currently 35GW but slowing, while China aims for 35GW by 2015) and
it says up to 30GW of this installed solar capacity will come from distributed
generation.
“We believe 2015 will be a key inflection point for solar
power in the United States,” the Deutsche Bank analysts say. “The economics are
already compelling in 20-30 per cent of US states and we expect this to improve
as soft costs (balance of systems) come down and potential customer awareness
begins to ramp.”
The Deutsche Bank scenario suggests the US will become the
biggest solar market in the world. And while 50GW will only represent 2% of the
country’s total generation by 2016, its impact on the incumbent electricity
market could be considerable, as former Energy Secretary Stephen
Chu, NRG CEO David Crane,
Duke Energy boss Jim Rogers and Jon
Wellinghoff, the chairman of the Federal Energy Regulatory Commission
– among many otherr – have predicted.
“We see solar becoming increasingly mainstream as it passes
cost competitiveness with traditional forms of generation,” the Deutsche Bank
analysts write.
“While we will likely see some utilities fight at every step
of the way (because it threatens their business model), we expect system
economics will ultimately win in the longer run and yearly installations will
continue the general upward trajectory.”
Deutsche Bank estimates that solar PV is at grid parity in
10 states in the US without additional subsidies. The key to this is the
falling price of modules, and the growth of financing options, which
benefit from a 30 per cent investment tax credit in the US.
It estimates that the long term cost of electricity(LCOE)
for rooftop solar is currently at 11-15c/kWh in the 10 states at grid parity,
which compares to a retail price of 11c-37c/kWh.
If, as it expects, solar module prices continue to fall to
around $2.50 a watt from $3/watt now, then the LCOE in the grid parity states
(mostly states with the best solar resource) will fall to 8c-14c/kWh, and
another 12 states will come into grid parity.
It notes that economies of scale make modules for commercial
and industrial systems even cheaper, with systems estimates at $US2.50/watt for
commercial and $2.25/watt for industrial. Both prices are before the benefit of
the investment tax credit.
By 2016, the number of US states at grid parity for
distributed solar would be 36, if the investment tax credit was reduced to 10
per cent, or 47, if the ITC remained at 30 per cent. It says that uncertainty
over the extension of that credit could cause a boom in solar investment before
the deadline expires in 2016.
Deutsche Bank’s focus on the cost of financing is the key,
as it plays a critical role in which technologies will be “investable” in
future years, as Bloomberg New Energy Finance pointed out in its assessment of
the cost of renewables versus fossil fuels earlier this year.
Deutsche
Bank says the growth and popularity of “yieldco” type structures – and the fact
that they make a lot of money for their investors – means that solar financing
costs by will fall by 200-300 basis points, and would boost liquidity.
It says that every 100 basis point reduction in
financing costs results in 1 c/kWh reduction of LCOE .
“We believe solar LCOE could potentially decrease from 10-16
c/kWh to 8-14 c/kWh as a result of wider acceptance of yieldco type
structures,” the analysts say. “Wider availability of financing options could
provide project developers some cushion in a rising interest rate environment.”
Another big factor is the increasing price of fossil fuels.
Deutsche Bank estimates that 50GW of coal-fired capacity will be removed in
coming years due to pollution and emission laws.
Some new power stations may be built to guarantee supply,
but this would force the regulated price of electricity higher, and make solar
even more competitive. “We view this as a positive,” it says.
Finally, the bank says the price path is already proven by
what has happened in Germany, which until a few years ago was the biggest solar
PV market in the world, and still holds the most by aggregate with more than
35MW installed.
“We have seen dramatic reductions in system costs over the
last decade and expect this to continue in the US.
“We believe we can see 10-15 per cent annual reductions in
system cost/watt over the next several years, which should drive pure LCOE down
to the 9-14 c/kwh range for potential grid parity states.
“Historically, we have seen this play out, although we note
that much of the reduction going forward will come from non-panel costs.”
It says trends in German installation costs (shown above)
show a clear down trend in a more mature industry. “We believe the US can
continue its downward trend as systems become larger and soft costs couple with
industry efforts towards standardization and efficiency gains to reduce the
cost per watt peak before the ITC is reduced.”
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