International Solar Alliance Expert Training Course · Expert Training Course ... Session 2 (Intro...
Transcript of International Solar Alliance Expert Training Course · Expert Training Course ... Session 2 (Intro...
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International Solar Alliance Expert Training Course In partnership with the Clean Energy Solutions Center (CESC)
Dr. David Jacobs
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Session 4: Solar PV Grid Parity –Concepts and Implications
In partnership with the Clean Energy Solutions Center (CESC)
Dr. David Jacobs
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Supporters of this Expert Training Series
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IET – International Energy Transition GmbH
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Dr. David Jacobs o Founder and director of IET o Focus on sustainable energy policy
and market design o 15+ years experience in renewable
energy policieso 60+ publications on energy and
climate o 40+ countries work experience
(consulting and presentations)
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Training Course Material
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2. Policies for
Large-Scale PV
Eight Modules1.
Policies for Distributed
PV
3. The Future
of Solar Policy
Expert Content and Analysis
4. Technical
Integration of Solar
6. Socio-
Economic Aspects
Up-to-date Market Insights
5. Market
Integration
7. Off-grid
Solar
8. Solar
Heating & Cooling
This Training is part of Module 1, and focuses on grid parity
Related training units are:
Session 2 (Intro to solar policies) Session 6 (Net Metering) Session 7 (NET-FITs) Session 8 (Rate design)
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Overview of the Training Session
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1. Introduction: Learning Objective
2. Understanding the Simplistic and more Advanced Concept of Grid Parity
3. Further Reading
4. Knowledge Check: Multiple-Choice Questions
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Introduction:
Learning Objective
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Learning Objective
• Understand the (simplistic) concept of grid parity
• Understand the nuances of grid parity (including other cost competitiveness benchmarks, the components of the retail electricity market, rate design, etc.).
• Understand the “death spiral” argument
• Understand risk related to project finance via self-consumption
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Background: Decreasing Costs for Solar PV and Increasing Retail Prices
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Sharp cost decline for residential PV in the past 10 years
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Costs Declining in all Market Segments
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Source: https://www.nrel.gov/docs/fy17osti/68925.pdf
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Rapidly falling prices for PV and batteries
Source: IRENA 2017 (cost data)
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Further cost decline of PV is expected
• Ranging from 1.4 -2,1 €cent/kWh in 2050 (for utility scale systems)
13Source: Agora 2015
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Further cost decline of PV is expected
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• March 2016, Mexico: 1,853MW auctioned at USD 3.2 c/kWh (15 yr agreement)
• August 2016, Chile: 12,430GWh were auctioned at USD 2.91 c/kWh (20 yrs)
• March 2017, UAE: 350MW were auctioned at USD 2.42 c/kWh
• October 2017, Saudi Arabia: 300 MW were auctioned for USD 1.79 c/kWh (!!) (25 yrs)
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Increase in retail electricityprices
• Various reasons for the increase of retail electricity prices:– Elimination/reduction of subsidies
– Expansion of grid infrastructure
– Carbon pricing
– Higher capital costs for nuclear and coal (FINEX)
– Legacy costs of RE support mechanisms
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The (Over-Simplistic) Concept of Grid Parity/Socket Parity
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Simplistic illustration of grid parity
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Source: IET Years
Price per kWh
PV electricity cost (LCOE)
Retail Electricity PriceGrid Parity
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Simplistic grid parity and “self-consumption”
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Source: Eclareon 2013Years
EUR ct/ kWh
PV electricity cost (LCOE)
Grid Electricity Price
Grid Parity (+IRR expectation)
PV LCOE (+IRR expectation)
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Simplistic Claims related to Grid Parity
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„Once we reach gridparity, solar PV nolonger needssubsidies“.
„Solar PV will be cost-competitive“
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Simplistic Claims related to Grid Parity
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„Grid Parity is the final nail in the coffin of centralized electricity markets and utility businesses (and the victory of distributed generation)“
„After reaching Grid Parity, everyone will produce electricity on its own and no longer buy from the utility“.
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Grid Parity: A More Detailed Analysis
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Grid Parity and Customer Classes
• Grid Parity is NOT theonly benchmark forsolar competitiveness!
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Other Cost CompetitivenessBenmarks
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Cost Competitiveness Benchmark
Relevance for Solar PV
Retail parity ≈ Grid Parity Relevant for distributed generation, behind-the-meter
LCOE Parity Relevant for markets withintegrated, least-cost electricityplanning
Avoided Costs Parity Relevant for monopolistic markets
Wholesale Parity ≈ Generation parity (markets) = O&M costs offossil fuel based power generation
Relevant for fully liberalizedmarkets
Source: IET based on IEA-RETD 2016
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Other Cost Benmarks
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Limitations for Self-Consumption
• Not all solar PV isdeployed on roof-tops
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Uptake of Residential Solar PV in theEU
https://ec.europa.eu/commission/sites/beta-political/files/study-residential-prosumers-energy-union_en.pdf
Residential Solar PV is becoming a major source of new powergeneration
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Most solar PV deployment is related to large-scale systems
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Source: IEA RETD 2014
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Share of “residential” versus “utility-scale” depends on policy environment!
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Source: IEA RETD 2014
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Grid Parity and Self-Consumption Policies
• The full retail electricity price isnot the appropriatecompetitiveness benchmark
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Net Metering 1.0
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Source: https://www.nrel.gov/docs/fy18osti/68469.pdf
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Typical Retail Electricity Price (Residential)
20%
20%60%
Typical Composition of Residential Retail Electricity Prices
Distribution Transmission Generation
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Typical Retail Electricity Price (Residential)
20%
20%
40%
20%
Typical Composition of Residential Retail Electricity Prices
Distribution Transmission Generation Taxes and Levies
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The Value of Distributed Solar
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Features Design Options Value of Distributed Solar
• FIT levels
• Retail electricity
• Value of solar
• Avoided costs
• Wholesale electricity
• No compensation
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Net Metering 2.0 – Design Elements
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Policymakers assess the value of solar PV within the specificjurisdiction
The roll-over provision and the payment for access electricity areadjusted to the value of solar (usually between the retail electricityprice and the wholesale electricity price)
Prosumers are frequently forced into time-of-use tariffs (toincentivize more electricity system friendly behavior)
Prosumers need to pay non-bypassable charges which are part ofthe retail electricity price
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Grid Parity and Customer Classes
• Grid Parity differs fromone customer class tothe next
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Grid Parity and Customer Classes
• Typical customer classification:– Low-income residential customers (lifeline tariff)
– Residential customers
– Commercial customers
– Industrial customers
– Industrial customers (energy-intensive industry)
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Grid Parity and Customer Classes
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5
10
15
20
25
30
35
Lifeline Residential Commercial Industrial
Sample electricity price level in developing countries (€cent/kWh)
Sample electricity price level in developing countries (€cent/kWh)
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Grid Parity and Customer Classes
0
5
10
15
20
25
30
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Lifeline Residential Commercial Industrial
Sample electricity price level in developing countries (€cent/kWh)
Sample electricity price level in developing countries (€cent/kWh)
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LCOE of roof-top solar PV
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Grid Parity and Customer Classes
0
5
10
15
20
25
30
35
Residential Commercial Industrial Industrial (energy intensive)
Sample electricity price level in so-called developed countries (€cent/kWh)
Sample electricity price level in so-called developed countries (€cent/kWh)
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Grid Parity and Customer Classes
0
5
10
15
20
25
30
35
Residential Commercial Industrial Industrial (energy intensive)
Sample electricity price level in so-called developed countries (€cent/kWh)
Sample electricity price level in so-called developed countries (€cent/kWh)
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LCOE of roof-top solar PV
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Customer Classes and Payback Periods
• Different customers also have diverging expectations related to amortization periods (payback time):
– Residential (developed countries): 10-15 yrs
– Commercial (developed countries): 5-8 yrs
– Residential/commercial (developing countries: Less than 5 yrs.
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Customer Classes and IRR Expectations
• Different customers also have diverging IRR expectations:
– Residential (developed countries): • Relatively low IRR expectations (depending on alternative investment
opportunities)• Frequently not IRR drive: value of property can increase by having solar PV on
roof-top • Other motivation factors (e.g. status symbol)
– Commercial (developed countries): 8% or higher
– Residential/commercial (developing countries): 10-20%
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Grid Parity and Rate Structure
• Grid Parity differsdepending on the rate structure
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Rate Design for Residential Customers
Typical electricity bill (for residential customers) consist of two components:
• Volumetric charges:o Energy related costs (varying with the use
of energy)o Per unit of consumption (e.g. kWh)
• Fixed charges:o Customer related costs (cost for meters,
meter reading, billing, etc.). o Per billing period (e.g. once a month)
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90%
10%
Typical composition of residential bills
Volumetric chargesFixed charges
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Fixed Charges: Disadvantages
• Fixed charges delay grid parity.
• Disincentive for new technologies: Unfairly penalize solar system owners (why not introduce a fixed charge for insulating your home, or efficient AC units?)
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Grid Parity for Time-of-Use Rates
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Source: Creara 2015
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“Grid Parity” in the Case of Subsidized Retail Electricity Prices (Residential)
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Source: Creara 2015
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Session 8: Rate Design
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Check out Session 8
(Rate Design)
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Barriers to roof-top PV uptake based on Grid Parity and Self-Consumption
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Limitations for Self-Consumption
• The available roof space can be a barrier to self-consumption
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Barriers to Self-Consumption:Roof-space
• GIS based analysis of available (stable) roof-space is required
• Roofs of low-income households are frequently not sufficiently stable (developing countries)
• Landlord-tenant problem: Who is the owner of the roof-space (share of rental property)?
• Incentives to use the entire roof-space for solar PV or maximization of self-consumption ratio?
• xxx 51
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Limitations for Self-Consumption
• Access to and cost ofcapital can be a barrierto self-consumption
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Barriers to Self-Consumption:Access to Capital
• Access to capital – especially for lower income households
• Disposable income (in developing countries)
• Economics (compared to other investment opportunities)
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Barriers to Self-Consumption:Risk and Access to Capital
• Very high risk for investment based on “self-consumption” alone:– Changes in own electricity demand (especially for commercial
prosumers)– Changes to rate design (e.g. introduction of fixed charges)– Introduction of other levies on solar customers (e.g. “solar tax”)– Changes in Net Metering or other self-consumption regulations– Changes in tax laws– Changes in electricity market design/regulation
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Barriers to Self-Consumption
• Lower risk jurisdictions with more stable policies tend to reach grid parity faster.
• Lower regulatory and market risk reduces the cost of capital
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Cost of Capital Across Europe (WACC) for onshore wind energy in Europe
Source: Diacore Project, 2016
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Cost of Capital Frequently more Important than Resource Quality
• The differences between financing costs in different countries (e.g. Germany vs. the Middle East) have a greater impact on LCOE than the differences in resource quality
• Lower FINEX (3.5– 4.5%) is why Germany can produce solar power for less than Greece (12%)
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Germany
Greece
https://www.sciencedirect.com/science/article/pii/S0960148114006806#!
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Excursion:
Grid Parity, Self-Consumption and the so-called “Death Spiral” (don’t use this terminology)
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Simplistic Claims related to Grid Parity
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„Grid Parity is the final nail in thecoffin of centralized electricitymarket and utility businesses(and the victory of destributedgeneration)“
„After reaching Grid Parity, everyone will costproduce electricity on ist own and no longer buyfrom the utility“.
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Excursion: The so-called Death Spiral
Source: IET
Network Costs
Non-prosumer Prosumer
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Excursion: The so-called Death Spiral
Source: IET
Network Costs
Non-prosumer
Prosumer
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Excursion: The so-called Death Spiral
Source: IET
Network Costs
Non-prosumer Prosumer
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Excursion: The so-called Death Spiral
Source: IET
Network Costs
Non-prosumer Prosumer
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Volumetric Rates: Network Costs and Prosumers
Source: IET
Network Costs
Prosumer Non-prosumer
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Volumetric Rates: Network Costs and Prosumers
Source: IET
Network Costs
Non-prosumer
Prosumer
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Excursion: The so-called Death Spiral
Source: IET
Network Costs
Non-prosumer
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The Death Spiral: Case Study Germany
• 2017: 1,688,000 PV systems!
• More than 1,5 million roof-mounted systems!!
• Retail electricity price is three times higher than the LCOE of roof-top solar!!!
• Attractive IRR and very short payback periods!
• Roof top potential: 182- 261 GW!!!
• The perfect “death spiral”??????
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The Death Spiral: Case Study Germany
• 1,688,000 PV systems account for only 8% of electricity demand !• 2.5 TWh self-consumed PV (6.2% of total PV generation)
Source: https://www.erneuerbare-energien.de/EE/Redaktion/DE/Downloads/bmwi_de/bericht-eeg-4-solar.pdf?__blob=publicationFile&v=4
Self-consumption (green) as a share of total PV electricity• 0.5% of total electricity demand is PV self-consumption!
• PV self-consumption will increase in the future
• But certainly below 10%
• This is a small total market share !
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Summary
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Summary
• Grid parity is an important milestone for distributed generation – but not the last nail in the coffin of utility businesses
• Grid parity is relatively complex:– Other cost competitiveness benchmarks– Customer classes: Not all customers will move towards self-
consumption simultaneously– Rate design: Fixed charges and other modifications can delay grid
parity • There are additional risk for solar PV self-consumption
which effectively slow down market growth
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Further Reading/List of References
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Further Reading on Grid Parity
• Bode, S. and Helmuth-M.Groscurth (2013). Grid Parity of PV-Installations: A Full Comparison Considering All Taxes and Levies on the Power Consumption of Private Households in Germany, Discussion Paper Hamburg arrhenius Institut für Energie- und Klimapolitik
• Breyer, C. and A. Gerlach (2013). "Global overview on grid-parity." Progress in Photovoltaics: Research and Applications 1(21): 121–136.
• CREARA (2015). PV grid parity monitor - Residential Sector, 3rd issue. Madrid, CREARA Energy Experts
• Morris, C. (2009). "Grid parity, net metering and feed-in rates." PV Magazine 03(2008): 16-19.
• Ondraczek, J., et al. (2015). "WACC the dog: The effect of financing costs on the levelized cost of solar PV power." Renewable Energy 75: 888-898.
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Further Reading on PV Policies
• IEA-RETD (2016). Commercial Prosumers - Developments and Policy Options. Paris IEA-RETD. Available from: http://iea-retd.org/wp-content/uploads/2016/04/RE-COM-PROSUMERS-Report.pdf
• IEA-RETD (2016). RE TRANSITION – Transitioning to Policy Frameworks for Cost-Competitive Renewables, [Jacobs et al., IET – International Energy Transition GmbH]. Utrecht, IEA Technology Collaboration Programme for Renewable Energy Technology Deployment (IEA-RETD). Available from http://iea-retd.org/wp-content/uploads/2016/03/IEA-RETD_RE-TRANSITION.pdf
• Couture, T. D., et al. (2015). The next generation of renewable electricity policy: How rapid change is breaking down conventional policy categories. Golden, CA, National Renewable Energy Laboratory (NREL). Available from https://www.nrel.gov/docs/fy15osti/63149.pdf
• IRENA, IEA and REN21 (2018). Renewable Energy Policies in a Time of Transition. IRENA, OECD/ IEA and REN21. Available at: http://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Apr/IRENA_IEA_REN21_Policies_2018.pdf
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Further Reading on Net Metering
• CPUC (2016). Net Energy Metering (NEM) Successor Tariff, Available at http://www.cpuc.ca.gov/General.aspx?id=3934.
• Sioshansi, F. (2013). The Giant Headache That Is Net Energy Metering. The Electricity Journal 26(6): 1-7. Available at: https://www.sciencedirect.com/science/article/pii/S1040619013001528
• Rickerson, W., Koo, J., Crowe, J., Couture, T., (2016). “Tapping the Potential of Commercial Prosumers: Drivers and Policy Options,” IEA-RETD, Paris. Available at: http://iea-retd.org/wp-content/uploads/2016/04/RE-COM-PROSUMERS-Report.pdf
• Petrick, K., Couture, T. D., Rickerson, W., (2015). “Remote Prosumers: Preparing for Deployment: Roof-top Solar PV Prosumers in Remote Areas and Islands,” (REMOTE-PROSUMERS), IEA-RETD, Available at: http://iea-retd.org/wp-content/uploads/2015/08/IEA-RETD-REMOTE-PROSUMERS-20150703v3.pdf
• Rickerson, W., Couture, T., Barbose, G., Jacobs, D., Parkinson, G., Belden, A., Becker-Birck, C., Chessin, E., (2014). “RE-PROSUMERS”, IEA-RETD: Paris, France. Available at: http://iea-retd.org/wp-content/uploads/2014/06/RE-PROSUMERS_IEA-RETD_2014.pdf
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6. Knowledge Checkpoint:Multiple Choice Questions