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Bright forecast ahead for solar energy?

Solar costs continue to fall, recently hitting less than 3 cents/kWh in some parts of the world. But the scaling back of incentives and constraints of the existing electricity infrastructure could hinder future expansion

While photovoltaic (PV) solar power only generated about 1% of the total electricity produced globally in 2015, it represented about 20% of new capacity additions. Growth has been impressive and looks likely to continue. The International Solar Alliance has set a target of at least 3000 gigawatts (GW), or three terawatts (TW) of additional solar power capacity by 2030, up from the current installed capacity of around 300 GW.

Yet some experts believe even the most optimistic projections have under-estimated the actual deployment of PV over the last decade, and say the annual potential of solar energy far exceeds the world's energy consumption.

In mid-April, scientists from the US Department of Energy's National Renewable Energy Laboratory (NREL), their counterparts from similar institutes in Japan and Germany, along with academic and industry researchers, assessed the recent trajectory of PV and outlined a potential worldwide pathway to produce a significant portion of the world's electricity from solar power. In a new science paperTerawatt-Scale Photovoltaics: Trajectories and Challenges, published by the Global Alliance of Solar Energy Research Institutes (GA-SRI)they said 5-10 TW of PV capacity by 2030 is realistic.

Solar threats

While solar has a bright future, there are several threats to its development and a number of challenges to overcome if it is ever to reach its full deployment potential.

The World Energy Council launched its World Energy Resource (WER) study last year. Stating some findings in the specific report on solar, it noted that government incentives for the sector are being gradually scaled back in mature markets, and that there is a need for a new electricity market design and novel methods of project financing in the absence of government support.

Zulandi Van der Westhuizen, Director of Scenarios & Resources at the World Energy Council, says that the impact of reduced government incentives was most evident in markets in Europe and some states in the US.

"The scaling back started several years ago in countries like Spain, Italy, the UK and Germany, with some reducing incentives and others cutting subsidies and government spending," she says.

While this is a positive signal, since it shows that solar is capable of standing on its own feet, at the same time it discourages investment. According to REN21, a group of government and industry organisations that tracks the industry, investment in renewable energy (wind and solar) in Europe fell from $120.7 bn in 2011 to $57.5 billion in 2014.

"There was about a 65% reduction in government incentives paid to UK householders," notes Van der Westhuizen. "But the most harmful thing was the short timeframe between the announcement of the cuts and the implementation. This created market instability and sent a negative signal [to investors], especially since the nature of energy investment is long term."

Markets will consequently have to look for methods of financing that are not government-led. In mature countries, market-based models become more significant. In developing countries and rural households, things like consumer finance, leasing and energy service companies are needed.

"Institutional funding from development banks such as the IMF and World Bank has been around for a long time but will become more important as governments pull back, as will multi-lateral agencies and private finance," adds Van der Westhuizen. "But stable policy is needed to lower investment risk."

Infrastructure needed

WER Solar 2016 also stated that existing electricity infrastructure, particularly in countries with young markets, could further hinder the expansion of solar capacity.

Existing grid infrastructures have neither the capacity nor the flexibility to handle the growing influx of variable renewables such a wind and solar. Germany is a prime example, where heavy energy consuming industries in the south risk shortages since there is insufficient network capacity to transmit wind power from the north.

"Firstly, the grid cannot accommodate additional capacity or loads coming from 10 or 20 different sites at the same time, and secondly, it cannot handle the instability," explained Van der Westhuizen.

This means that in most cases, the grid has to be assessed with a view to increasing capacity and to make sure there is back-up support from sources such as gas-fired generation or pumped hydro. Notably, the drive toward greater market integration across countries in Europe will help to promote the sharing of renewable power generation by using grids more effectively.

As markets move into a new area of energy bidding, ancillary services, transmission system access and congestion management, the operation of regional interconnectors becomes crucial.

Reducing grid constraints, says Van der Westhuizen, will also enable more equitable allocation of investment between generation, networks and demand resources.

There has, however, been intense debate over who should be responsible for grid upgrades and expansion. Van der Westhuizen stresses that a way has to be found to enhance the relationship between various system operators. "With all new technologies, the regulatory framework lags behind and is a hindrance," she says.

Future outlook

The challenges that threaten the expansion of solar will mean that predicting where it will be in the next decade or so will be difficult. Certainly, growth will vary from region to region.

"The more mature marketswhere subsidies and incentives are being cut and grids are constrainedwill still grow but more slowly," says Van der Westhuizen. "In developing countries, we might see more utility-scale and bigger projects. Public and new buildings will definitely be growth sectors. Also a lot of big companies are going off-grid, so the market can't do anything else but grow."

With many of these off-grid solutions being linked to storage, the rate of solar deployment will also depend on the development of battery storage.

The major opportunities will be in Africa, China, India, parts of Latin America and of course the Middle East. Regarding the Middle East, Van der Westhuizen says: "They have everything that's needed, and now they also have the appetite for it."

The technology that is expected to see most growth will continue to be PV, as opposed to concentrated solar power (CSP).

"PV will see the biggest growth, simply because it is available in so many applications," says Van der Westhuizen. "CSP is starting to come back, slowly but surely. The problem is, it needs more land space and is therefore more expensive. But the advantage is, its utility scale and, with molten salt storage, has much higher efficiencies."

Last year was a record for renewable capacity increases. The most recent data from the International Renewable Energy Agency (Irena) shows that Asia saw the highest growth in solar capacity, reaching 139 GW (+50 GW). Almost half of all new solar capacity was installed in China in 2016 (+34 GW). Other countries with significant expansion included: US (+11 GW); Japan (+8 GW) and India (+4 GW). Capacity in Europe expanded by 5 GW to reach 104 GW, with most increases in Germany and the UK.

No doubt solar will continue to see many more years of record growth as costs continue to fall. A project in Abu Dhabi recently bid a record low price of 2.42 cents/kWh for solar electricity. But how much lower they can go is hard to predict.

"Costs have fallen significantly over the last couple of years, mainly due to economies of scale, cheaper materials, etc. Obviously there's a limit to how much those types of costs can reduce," says Van der Westhuizen. "What we have to do now is to look at the balance of the costs-the structural system, electrical system and the 'soft costs' of system development. These include things like the cost of acquiring customers, permits, labour installation, etc. This is where costs can be cut going forward.

"There is still room for significant reduction in costs but I don't think it will be quite as exponential as the last 4-5 years."

The World Energy Resources report 24th edition covers more than 180 countries and includes 13 individual resources from fossil fuels to renewables and cross cutting technologies with data and analysis.

This article appears in the latest issue of World Energy Focus, the magazine of the World Energy Council, with content produced by Petroleum Economist. For more information and to register, visit the site worldenergyfocus.org.

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