By Drs. Robert & Sonia Vogl
President and Vice President, Illinois Renewable Energy Association
A series of reports hail the emergence of unsubsidized solar markets in a number of countries, including parts of the United States. A report by Deutsche Bank indicates the price of solar electricity has reached grid parity where electricity prices are around 12 cents per kilowatt and high levels of solar irradiation exist. In Italy, solar electricity is price competitive with grid supplies for small commerical establishments. In Germany, commercial business interests are finding solar prices attractive.
In his article, “The price of solar power,” research engineer Luis de Sousa provides an interesting perspective on the impact of solar power on grid prices. As feed-in tariffs and subsidies are being cut or eliminated in Europe, de Sousa believes the cuts are not cost-driven, as officials declare. The remainder of the column presents our summary of his post.
The Spanish Parliament cut subsidIes for alternative energy and placed a tax on power generation, which wiped out profits for solar and wind technologies. Yet, investors have offered to build solar manufacturing facilities in Spain to provide electricity at prices below grid power.
He traces the problem to deregulation and privatization efforts implemented more than a decade ago and the establishment of feed-in tariffs and subsidies for renewable energy sources. These actions created a new market with multiple companies trading electricity in the short-term or spot-market and the long-term futures market.
As renewable installations increased, they disrupted the electrical market. Renewables have no fuel costs, as opposed to the volatile prices of fossil and nuclear fuel. Fuel-based power plants require large staff to operate and maintain, while renewable systems have far fewer staff and lower maintenance costs.
Electrons from renewables and fuel-based generators are identical in the grid. Without an ability to differentiate between electrons, the long-term price of electricity will approach the marginal costs of renewable energy, adversely affecting the profits of fuel-based electrical generation.
On a sunny afternoon in Germany, with 25 gigawatts of solar capacity, the spot market for electricity approaches zero, and suppliers using fossil fuel or nuclear power lose money.
Government actions blocking renewables in the grid are seen as protecting important companies and the ideological preference for markets. As excess power enters the grid, voltage can rise and threaten to crash the system. Grid expansion is needed to ship excess electricity to other consumers. Experts in business and politics believe Germany would be better off nationalizing the grid, as private interests have failed to upgrade it.
If governments end feed-in tarrifs, investors will go off grid. With solar electric prices half that of grid electricity, investors could buy storage capacity, rather than waste electricity.
As off-grid solar electric production increases, the demand for grid electricity falls, leading grid producers to reduce their output or close plants. Central production facilities are still necessary, but de Sousa believes they should refocus their operations to storage and load balancing activities.
As prices for PV systems continue to fall, a transition to solar seems inevitable, unless governments ban their use. The technology is ready, but powerful social and economic resistance remains.
Drs. Robert and Sonia Vogl are founders and officers of the Illinois Renewable Energy Association (IREA) and coordinate the annual Renewable Energy and Sustainable Lifestyle Fair. E-mail email@example.com.
From the March 20-26, 2013, issue