Analyst interview: The rise of distributed solar

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Last week, Bloomberg New Energy Finance (BNEF) delivered its 2014 clean technology financial results. The analysts found that solar was the biggest single contributor towards clean technology investment for the year. And within this, it was clear that distributed solar was the big winner. Jenny Chase, head of solar analysis with BNEF, discusses why this was the case.

Solar seemed to grab the headline from BNEF’s 2014 global clean technology figures, released last week. To what do you attribute to solar’s continued strength among renewable energy sources and clean technologies?

Jenny Chase: The big drivers for solar are Japan and China. Within that are a lot of projects that are in what we call ‘small-scale distributed capacity.’ So that means projects that are not large PV power plants connected to the grid, but rather distributed generation (DG).

China’s DG subsidy has driven quite a lot of 20 MW projects, and sometimes even smaller ones. Japan also has a lot of sub-2 MW projects. Those smaller projects comprised almost half of the solar capacity added in 2014 – although those numbers are not final.

But there is still considerable activity in the large-scale sector, in both of those countries. Do you see that declining in 2015?

I think it [utility-scale solar] will continue to be extremely strong in 2015 for both countries. China is particularly uncertain because the only official target that China has, as far as we can see, is to install 35 GW of solar by the end of 2015. And China has more than 30 GW of PV installed capacity already. So if that goal is hit [without a new, higher target being set] then it will result in a massive slowdown. In saying that, we expect the government to come out with a new plan for 2015 at some point in Q1.

And what would be the primary driver of a new China solar target?

I think it’s partly the increasing demand for electricity in China and also that the government doesn’t want to slam on the brakes just as Chinese solar manufacturers and developers are starting to get into gear.

Looking towards Japan, there have been reports that some 17 GW of PV projects approved by METI under the FIT may not be realized due to grid constraints. Do you see this as a major threat to the market in the near term?

In 2015 grid constraints won’t have a major effect on the market. In 2016 this is also probably true. By 2017 we will start to see this having an impact. METI has approved more than 70 GW of projects and Japan just cannot have that amount of projects scattered around the country.

Japan is a system of scattered grids and where there is land available [for PV projects] is often not where power is needed. Fundamentally, a lot of that 70 GW approved was never viable. On the other hand, there is still plenty of grid capacity in some parts of the Japanese grid, particularly around Tokyo, and I think what we’re going to see is selection of projects for feasibility.

And along with that will there be an increasing trend towards DG in Japan?

I wouldn’t say increasing, because there is already a lot of DG in the Japanese market, partly because you need to get fewer permits for a system below 50 kW.

What sort of impact do you think ´the METI storage initiative, reported by BNEF last week, will have in terms of strengthening grids and allowing for deeper renewable penetration?

In terms of MW of solar projects, it will be negligible. Compared to the massive uncertainties in sticking solar where there just isn’t grid capacity, it is not really significant.

The headline from BNEF that solar made up for half of clean energy investment in 2014 is certainly a high point for the PV industry. Do you see that changing in 2015?

I think solar will probably make up for more than half of clean technology investment in 2015.

Do you have a figure?

No we do not.

Can you give us a ballpark?

I think there will be around 56 GW of installations. But the way we calculate these figures is quite sophisticated, so I don’t want to guess.

The strong performance of solar as DG across a lot of markets internationally is clearly a big trend in 2014. Why is that the case?

First of all, very centralized solar PV is, in many places, an artifact of subsidy programs. The reason that Germany, the U.K., Italy and Spain have large projects at all is that the governments screwed up the subsidy regime and ended up subsidizing more large projects than they meant to.

The places where really big remote PV projects do make sense is in locations where it’s really sunny and there is a huge demand for any kind of power, and where there are deserts relatively close to major towns. This includes places like the Middle East and in Chile. So the rise of somewhat smaller projects that are co-located with demand, which is the closest I can come to DG that holds water, is partly due to the individual drivers in places like Japan and China.

In China the government has said that it doesn’t want to have to invest in transmission if it can help it. It instead wants to incentivize projects that are co-located with demand and are within the distribution grid, rather than the transmission grid.

Meanwhile in Europe, the solar market is declining and what is mostly left is residential and commercial solar that is put in to replace power that would have been bought by the grid. And in Japan it simply isn’t that easy to get permits for large PV projects.

In a sense could you say that solar is perhaps ‘growing into its boots’ in terms of DG. That it is now being rolled out in projects in which the FIT, with its competitive advantage – that being DG – is most apparent?

Absolutely. Although we shouldn’t imagine that all of these distributed projects are little tiny panels on rooftops. In China DG can mean quite big projects.

Interview by Jonathan Gifford.

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