Interesting article on the economics of solar energy from The MIT Technology Review.
Falling solar prices on sunny days undermine the economic arguments for building more solar parks – and endanger the climate targets.
by James Temple July 14, 2021
Some lonely academics have warned for years that solar power is facing a fundamental challenge that could halt the industry’s breakneck growth. Put simply, the more solar you add to the grid, the less valuable it becomes.
The problem is that solar panels generate a lot of electricity in the middle of sunny days, often more than required, which drives prices down – sometimes even negative.
In contrast to a natural gas system, operators of solar systems cannot easily throttle the electricity up and down as required or outsource the generation of space during the day, night and dark winters. It is available when it is available, that is, when the sun is shining. And then all the other solar systems turn up to their maximum output.
After that introduction, the article goes into what’s going on in Cali. happens
A new report finds that California, which produces one of the largest proportions of solar power in the world, is already acutely experiencing this phenomenon known as solar value deflation.
According to the Breakthrough Institute analysis released July 14, average solar wholesale prices in the state have fallen 37% since 2014 compared to average electricity prices for other sources due to their fluctuating generation patterns.
Wholesale prices are essentially the amount that utilities pay power plants for the electricity they supply to homes and businesses. They shift over the course of the day and the year and move up again for solar operators in the morning, in the afternoon and at other times when there is no oversupply. But the more solar systems are connected to the grid, the more frequent and more pronounced the times of oversupply become, which reduce these costs.
Lower prices may sound good to consumers. But it is having a troubling impact on the world’s hopes of rapidly expanding solar capacity and meeting climate goals.
It could be difficult to convince developers and investors to keep building more solar systems when they are making less money or even losing money. In fact, the California building has been flat since 2018, the study found. But the state will need industry to accelerate development significantly if it hopes to achieve its ambitious clean energy goals.
The rapidly falling prices for solar power have changed the way we think about clean energy. But it still has to get a lot cheaper.
This could also soon become a broader problem.
“California is a little taste of the rest of the world if we expand solar power dramatically,” said Zeke Hausfather, director of climate and energy at the Breakthrough Institute and author of the report.
That’s because while solar power accounts for about 19% of California’s electricity, other regions are also quickly installing photovoltaic modules. In Nevada and Hawaii, for example, the share of solar power generation was around 13% in 2019, according to the study. In Italy, Greece and Germany the values were 8.6%, 7.9% and 7.8%, respectively.
So far, high solar subsidies and the rapidly falling cost of solar power have offset the declining value of solar energy in California. As long as it becomes cheaper to build and operate solar power plants, value deflation is less of a problem.
But it is likely to get harder and harder to do this trick as the state’s share of solar production continues to grow. Should declines in the cost of building and installing solar panels subside, California’s solar deflation could advance in the race against falling costs as early as 2022 and rise from there, the report said. At that point, wholesale prices would be below the subsidized cost of solar power in California, undermining the purely economic rationale for building more facilities, Hausfather notes.
The state’s SB 100 law, passed in 2018, requires that all California electricity be sourced from “renewable and carbon-free resources” by 2045. By then, about 60% of the state’s electricity could come from solar energy, based on a California energy commission model.
The Breakthrough Study estimates that the value of solar energy – or the average wholesale price compared to other sources – will drop 85% by this point, decimating the economics of solar farms, at least since California’s power grid exists today.
Read the full article here.