Solar closing in on cost of coal-fired power – Deutsche Bank

Prices could fall by as much as 40% by 2020, say analysts, who say rising power prices will make solar more attractive

By Gerard Wynn

The cost of roof-top solar power is nearing that of coal-fired power, heralding growing competition with conventional energy utilities and commodities, according to Deutsche Bank analysts.

Residential solar power is already cheaper than residential power prices in many markets worldwide, and closing in on much lower wholesale power prices, they said.

The solar industry would grow 10-fold in the next 20 years, they forecast, and solar power would account for 30% of global power generation by 2050, from less than 1% now.

“Over the next 20 years, we expect over 100 million new customers to deploy solar and roughly $4 trillion of value to be created during this timeframe,” the analysts said, in their report, “Crossing the Chasm”.

“We expect nearly 10 percent of global electricity production to come from solar. Bottom line: we believe the solar industry is going through fundamental change and the opportunity is bigger than it has ever been before.”

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The cost of generating solar power has fallen sharply in recent years, especially as a result of falling solar module prices, and continuing cost reductions would more than offset the impact of lower oil prices, the report forecast.

Those cost reductions would increasingly come from more innovative financing structures, including so-called yieldcos which issue shares to institutional investors, and whose value is based on a long-term predictable income from multiple projects.

“We see total costs coming down 30-40% over the next several years,” the analysts predicted.

Even when roof-top solar power is cheaper than residential power prices, as it is already in many countries, it may still not make financial sense without subsidies, however.

The length of time it takes to recoup the upfront investment will depend on how much of the solar power is consumed, and how much surplus is fed back into the grid, for example at midday.

Many countries pay customers for those grid exports, at a subsidised rate set between the value of the wholesale and residential power price, through supportive policies including net metering and feed-in tariffs.

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Once the cost of generating roof-top solar power falls below wholesale power prices, however, it will be increasingly cost-competitive even without subsidies.

“In markets heavily dependent on coal for electricity generation, the ratio of coal-based wholesale electricity to solar electricity cost was 7:1 four years ago,” the Deutsche Bank report said.

“This ratio is now less than 2:1 and could likely approach 1:1 over the next 12-18 months.”

The Deutsche Bank analysts expected new, additional solar power demand created “based on economics, not subsidies”.

The economics of solar power would be further boosted by rising electricity prices, it said.

“We expect electricity prices worldwide to double over the next 10-15 years making the case for solar grid parity even stronger.”

Like many recent analyst reports, the study forecast that the prospect of cheaper battery storage could make solar power even more disruptive to global power markets, by allowing consumers to consume much less grid electricity, after sunset.

“Several companies are working on improving the cost of energy storage and we expect significant progress on this front over the next five years. Solar plus storage is the next killer app that could significantly accelerate global solar penetration in our view.”

“We believe reduction in solar storage costs could act as a significant catalyst for global solar adoption, particularly in high electricity markets such as Europe.”

Solar threatens severe disruption of the business model of conventional utilities which traditionally generate electricity from large, centralised gas and coal-fired power plants.

That is because solar power has almost zero operating costs: it reduces peak wholesale power prices in countries with high penetration levels, such as Germany, and also reduces the run-time of fossil fuel-fired power.

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