Posted on 02/07/2015 8:13:41 PM PST by ckilmer
Just as shale extraction reconfigured oil and gas, no other technology is closer to transforming power markets than distributed and utility scale solar.
Since the late 2000s, a widespread collapse in the price of solar modules has altered the economics of solar energy, putting it in a strong position to compete with other forms of power in the United States.
With module costs at historic lows, increased efficiency has become the next frontier. Consequently, while higher efficiency solar technology may command a greater module price, capacity gains per square meter can make them more economic on a $/W basis.
With that said, savings will also be driven by changes outside of manufacturing. Non-module costs will increasingly depend on heightened downstream competition, market structuring and regulatory redesign.
As a result, large scale solar economics have already reached grid parity (exluding integration costs) – the point at which the levelised cost of solar is less than a gas combined cycle or combustion turbine - across multiple regions in the US.
This trend is set to go on as solar costs continue to come down while combined cycle costs rise. By 2020, we expect 19 states to be at grid parity, increasing to 38 by 2030.
While distributed solar economics (typically less than 1-2 MW) are more uncertain, grid parity has arguably already been reached in many states where they are driven by incentives and financial innovation.
During our analysis, we identified many evolutionary parallels to shale and believe that solar has the potential to make the same scale of impact across markets.
Our base case forecast assumes 26 GW of distributed solar and 45 GW of large scale solar by 2035, totalling above 71 GW.
However, current wholesale market structures are not designed to accommodate large amounts of solar penetration. Should solar market saturation rapidly increase, other forms of capacity will still be necessary to meet needs while today's energy and capacity market design and compensation mechanisms will need to evolve to maintain reliability.
Will solar power transform electricity markets as significantly as shale transformed oil and gas?
That is the question posed in a new study by Wood MacKenzie, an international energy research and consulting company.
“Just as shale extraction reconfigured oil and gas, no other technology is closer to transforming power markets than distributed and utility scale solar,” writes Prajit Ghosh, an energy analyst at Wood MacKenzie and the study’s primary author.
Based on the study’s persuasive analysis, it seems difficult to dispute that solar technology will transform – and in some states already is transforming – wholesale power markets.
But there is whopper of a caveat. The scope of the solar-induced transformation will depend on political decisions made in the future. The shale revolution also depended on political decisions. The vital difference is that the decisions that enabled the shale revolution mostly preceded the maturation of shale extraction technologies.
Paul Joskow, a professor of economics of the Massachusetts Institute of Technology and the President of the Sloan Foundation, has argued that regulatory and market reforms in the natural gas industry provided an essential economic platform for accelerating technological advances in shale extraction. In 2013, Joskow explained in an article published by the American Economic Review that:
The recent dramatic and largely unanticipated growth in the current and expected future production of shale gas . . . would not have been realized as quickly and efficiently absent deregulation of the wellhead price of natural gas, unbundling of gas supplies from pipeline transportation services, the associated development of efficient liquid markets for natural gas and reforms to the licensing and regulation of prices for gas pipelines charge to move gas from where it is produced to where it is consumed.
The solar-induced transformation described by Wood MacKenzie can largely be explained by the following two charts.
The first chart shows the results of a “net cost analysis” performed by Wood MacKenzie for utility-scale power plants constructed in California. Net cost is a metric for estimating the profitability of investing in a new power plant. It is the difference between a power plant’s total revenues (e.g., sales, capacity, incentives) and its total costs (e.g., construction, fuel).
Solar has been on the verge of transforming the world for at least 40 years now.
I ain’t holding my breath.
If solar collapses in price on a par with oil driven by shale in the past year I’ll jump on the solar bandwagon. I want to secure a stable cost for future energy requirements and neither major political party in this country appears willing to fight for that, call me what you want.
The chart projects the future profitability of investing in solar, wind and natural gas plants in California (CC = combined cycle and CT = combustion turbine).
Solar is hands-down the most profitable investment, but not necessarily for the reasons you would think. Yes, the cost of solar is declining, but that is only a small part of the story. Solar is capturing revenues that would have accrued to natural gas generators. “The more solar you build, the less attractive natural gas becomes,” said Ghosh. “This is not a forecast. It is already happening in California.”
The trouble is that solar is eating into the revenue of natural gas plants while only partially displacing them. Even with seven gigawatts of installed solar capacity, California’s electric system still needs gas-fired generators to provide a backstop for when solar is unavailable.
To understand why this matters, consider the second chart included below shows how. It is known in California as the “duck curve” or the “duck of doom.”
Historically, the wholesale price of electricity has tracked total system demand, which is also called “load” in the power industry. When lots of solar power capacity is installed, wholesale power prices follow the effective load, which is the load at a given hour minus solar (and wind) generation. The size of the duck’s belly is the generation no longer supplied by fossil fuel plants.
“The bigger the duck’s belly becomes, the worse it gets for fossil fuels,” said Ghosh. “There is a circular logic: the more solar you build, the worse you make fossil fuels. Adding more solar will ultimately hurt solar too, but it hurts gas more.”
A generator’s revenues is the price multiplied by the quantity of power they sell. A gas plant that would have run for 500 hours every year without high levels of installed solar capacity may run only 100 hours every year with high levels of installed solar capacity.
“Solar reduces both the price and the quantity of power sold by gas generators,” said Ghosh. “So it has a double whammy effect on fossil fuel plants.”
In my view, the duck curve shows why the future predicted in the first chart is not likely to materialize. If gas generators become too unprofitable, the electric system will collapse.
“The risk is that gas plants – once they become uneconomic – will not be there as a backstop,” said Ghosh.
That risk is not likely to be tolerated for very long if at all. Most people remember what happened to former Governor Gray Davis when inadequate generating capacity caused rolling blackouts in California in 2001. Something will need to give.
“Keeping backup capacity on the grid becomes increasingly difficult as solar energy lowers power prices and worsens the economics of other technologies,” writes Wood MacKenzie. “Should solar market saturation rapidly increase, today’s market . . . compensation mechanisms will need to evolve to maintain reliability.”
“Solar reduces both the price and the quantity of power sold by gas generators,” said Ghosh. “So it has a double whammy effect on fossil fuel plants.”
In my view, the duck curve shows why the future predicted in the first chart is not likely to materialize. If gas generators become too unprofitable, the electric system will collapse.
“The risk is that gas plants – once they become uneconomic – will not be there as a backstop,” said Ghosh.
That risk is not likely to be tolerated for very long if at all. Most people remember what happened to former Governor Gray Davis when inadequate generating capacity caused rolling blackouts in California in 2001. Something will need to give.
“Keeping backup capacity on the grid becomes increasingly difficult as solar energy lowers power prices and worsens the economics of other technologies,” writes Wood MacKenzie. “Should solar market saturation rapidly increase, today’s market . . . compensation mechanisms will need to evolve to maintain reliability.”
Do you understand this argument well enough to agree/disagree with it?
Keep gummint’s nose out of it, and technology will eventually bring solar generation to a cost-effective level. Without doubt.
Is there a reason you’re arguing against your own post?
Follow up question, how much are you getting paid to shill for this bull?
Same as for Tesla?
Is financial innovation another term for soaking the taxpayer?
Fusion ... Solar .... Vaporware.
“large scale solar economics have already reached grid parity:”
Except at night.
Or in the low sun wintertime.
Or areas where it rains and/or is cloudy much of the time.
Or areas where it frequently hails large hailstones.
Or where the population is so built up, there’s no place to site giant solar farms.
Other than that, yeah, solar is great!
Eliminate all the government subsidies and the solar crap will disapear!!!
no
People miss the huge benefits of cheap solar:
Giant toxic lakes in china unnoticed by supposedly environmentally sensitive folks
Super cheap labor in China undercutting American manufacturing
Chinese govt price supports distorting the price cost ratios of solar
Solar is really good.
Power companies are REQUIRED to purchase the solar.
Other forms of electric generation must subsidize the solar- so become less viable.
This is all a natural result of government “renewable energy mandates”. These costly mandates are becoming very unpopular so don’t bet any money on them continuing.
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