Global energy consultants Pöyry have this week published a report suggesting that the cost of solar and wind power may soon drop to the same level as fossil fuels within a decade, bringing to an end renewable subsidies in Europe.
The consultants’ latest Point of View report asks: "Is the end in sight for renewable subsidies?" and goes on to model future grid parity scenarios using its state-of-the-art electricity model BID3.
Pöyry’s report suggest that Spain could lead the way in achieving wholesale grid parity in solar power as early as 2021, with Portugal following a year later and Italy achieving that Holy Grail by 2025. Turkey could even see solar and wind strike grid parity as soon as 2018 due largely to the higher wholesale electricity prices that currently exist in the country.
Many other southern European countries will achieve wholesale grid parity during the 2020s, including Croatia (2024-2025), Greece (2026-2027), Bulgaria (2024-2025) and Romania (2025-2026), the report suggests.
Europe-wide, according to Pöyry’s BID3 modeling, solar PV achieves wholesale grid parity ahead of onshore wind, with neither offshore wind nor solar CSP achieving grid parity during the analysis period spanning 2014-2040.
Grid parity implications for solar PV
With solar PV at grid parity across many parts of Europe, the sector will begin to compete with conventional energy generation technologies such as coal and gas-fired power stations, said the report. Such competition will likely lead to accelerated deployment of solar PV provided there are, at that time, few restraints on supply chain, policy or investment.
Pöyry’s analysis suggests that an additional 220 GW of solar PV capacity can be added in Europe alone (mostly across Southern European states) once grid parity has been reached. Uncertainties and constraints that could derail this ideal scenario include cost of carbon prices (which although volatile could become cheaper, rather than more expensive, over the next ten years), and the issue of revenue cannibalization: when the share of renewables increases, it exerts downward pressure on wholesale electricity prices, effectively kicking grid parity further down the road.
The report warns that large amounts of solar PV can depress prices during the midday peak so that they fall below night-time prices. The most extreme scenario, says the report, "is that the wholesale price drops to zero during the day the strongest possible signal that no further solar is required on the system".
However, if solar enjoys a larger share of penetration it can curtail surplus solar energy when the sum of intermittent generation in the system exceeds concurrent demand. When that happens, solar’s achievable load factor could reduce, alongside loss of revenues. With a high load factor of solar, combined with the high penetration of renewables pushing wholesale electricy prices downwards, a threshold level will be reached beyond which, the report concludes, further addition of solar capacity (and wind) will not allow adequate revenues to self-sustain.
"Unless there is a further shift in capital or deployment costs [of solar and wind]," the report adds, "most large-scale renewables deployment in the next 20 years will remain subsidized." Pöyry argue that the capture price effect building more wind and solar reduces prices and thus they become uneconomic could ultimately prove a cap on the deployment of renewable energy.
To speed up the transition and avoid such a scenario, Pöyry senior consultant Anser Shakoor told Bloomberg New Energy Finance (BNEF) that a "breakthrough in the cost and efficiency of storing energy and a rapid drop in the expense of building clean-power plants" would expedite a trend that would see renewables compete, subsidy-free, with conventional generation technologies.