Deutsche Bank Predicting Huge Distributed Solar PV Uptake

This post originally published on RenewEconomy by Giles Parkinson

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 in the US by 2016.

U.S. solar installations through 2016. Image courtesy of Deutsche Bank.
U.S. solar installations through 2016. Image courtesy of Deutsche Bank.

The expected boom in ‘distributed solar’ [which are those installations that are placed on homes and commercial businesses] is based on predictions that 1) solar PV module prices will continue to fall, 2) grid prices will continue rise, and 3) 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 in the US will jump to 12GW and 16GW, meaning it will likely overtake China, Japan and Germany for the most annual installations.

It says total US solar capacity will grow to 50GW under this scenario (Germany is currently at 35GW but slowing, while China aims for 35GW by 2015) and Deutsche Bank says up to 30GW of US installed solar capacity will come from distributed generation.

We believe 2015 will be a key inflection point for solar power in the United States,” Deutsche Bank analysts say.

The economics are already compelling in 20-30 percent 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 [of solar] will only represent 2% of the country’s total power 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 others — have predicted.

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U.S. solar installations through 2016. Image courtesy of Deutsche Bank.

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 it 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 [already] at grid parity in the 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 percent 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. (See graph below).

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States already at Grid Parity and states poised to hit Grid Parity. Image courtesy of Deutsche Bank.

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 percent — or 47 if the ITC remained at 30 percent. 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.

Shift in the Levelized Cost of Electricity. Image courtesy of Deutsche Bank.
Shift in the Levelized Cost of Electricity. Image courtesy of Deutsche Bank.

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 (see graph).

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 the US, 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.

Cost of photovoltaics (PV) in Germany compared to the cost of PV in the U.S.A. Image courtesy of Deutsche Bank.
Cost of photovoltaics (PV) in Germany compared to the cost of PV in the U.S.A. Image courtesy of Deutsche Bank.

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 percent 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.

This article, Deutsche Bank Predicting Huge Distributed Solar PV Uptake, is syndicated from Clean Technica and is posted here with permission.

About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia’s energy grid with great interest.

Deutsche Bank Views Chile As Subsidy-free Solar Market

By Giles Parkinson  — Special to JBS News

Originally published on RenewEconomy
by Sophie Vorrath

Despite having no feed-in tariffs or subsidies to speak of, the Chilean solar market is among the first in the world to prove self-sustaining, with new projects able to be produced at or below grid parity, according to new research by Deutsche Bank.

With only three solar plants connected to the grid – constituting a total capacity of 3.5 MW – and around 70 MW under construction, Chile had already achieved grid parity for solar PV in some parts of the country by midway through last year.

In June 2012, Spanish-based Solarpack revealed their 1MW grid-connected PV plant in Chile was able to generate and sell energy at market prices without any public subsidies. The project was funded entirely by the developer.

In Deutsche Bank’s new report; Chilean Market: At Grid Parity, But Not Without Challenges (a follow up to its global assessment of solar markets, which concluded many were near a major inflection point) – it says that the Chilean market is exciting primarily because solar development in the region does not require any government incentive.

Deutsche says high power prices coupled with high solar penetration levels in the north of the country are enabling grid parity and fueling a robust pipeline of projects.

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The investment bank estimates that fully equity-funded Chile solar installations will be able to generate electricity at an LCOE of $0.12-0.18/kWh, making solar cost competitive with traditional forms of generation, which costs between $0.15-0.25/kWh.

Despite this potential, the report warns that the solar market in Chile “will favor experienced players with patience,” with its ~3.1GW backlog facing various difficult challenges. “We expect extensive permitting and offtake needs will translate into a reduced funnel of viable projects as pipelines move forward,” says the report.

Deutsche says the Chilean electricity market is characterised by high prices, near total private ownership, and extensive industrial sector demand particularly from the mining sector. Currently, around 18.3GW of installed capacity is dominated by natural gas, hydro and coal generation.

In this environment, says the report, there could be some difficulty in bringing new capacity to market, with the necessary additional transmission and distribution assets likely to be slow to develop.

Deutsche says it expects the majority of Chile’s near-term solar installations to be located in the Sistema Interconectado Del Norte Grande (SING) – the biggest of Chile’s four electricity networks, located in the drier north of the country – which may lead to difficulties in implementation and integration into the grid.

SING has a current capacity of 4.6GW, says the report, with only 1.4MW of installed solar. “It is not currently connected by any major transmission lines and it will be years before this happens, which leads to further integration difficulty.”

But, as has been predicted for Australia, it could be Chile’s mining sector that comes to the rescue of the fledgling solar market. As the Deutsche report notes, poor grid reliability and rising electricity costs are driving companies in the world’s largest copper producer to consider self generation or collaboration on solar projects.

The report notes that self-generation projects like this not only appear attractive for mining companies in need of reliable low-cost generation, but are also separate from the grid and therefore represent additional upside of reduced permitting requirements.

“While the pipeline of solar projects in Chile may face some regulatory and logistic hurdles, we expect strategic partnerships with mining companies to be a good source of growth for solar companies.

Mining companies appear to be among first movers helping to bring projects to completion as they seek to shore up their long-term electricity needs and improve their environmental image. Long term PPA’s have been signed in the $100-120/MWh range which is competitive with gas (~$120s/MWh) and coal (~$80s/MWh), with no commodity risk.

Furthermore, solar generation built for an industrial mining complex or otherwise not feeding directly into the grid will not count towards the renewable generation mandated by law. We, therefore, expect the mining sector to represent an additional attractive source of demand.” — Report

About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia’s energy grid with great interest.

This article, Deutsche Bank Views Chile As Subsidy-free Solar Market, is syndicated from Clean Technica and is posted here with permission.