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Renew your energy: August 2012 Archives

Peak PV

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On May 26th, in sunny weather, Germany's 22GW of PV solar-generation capacity supplied 50% of the country's electricity, and around the world PV looks like it may become a major energy option in the years ahead, accelerating past 50GW of grid-linked capacity, with price parity with conventional sources not far away. Consultancy firm McKinsley says that PV prices will reach grid parity with coal and nuclear as soon as 2020. Its report, entitled 'Solar Power: Darkest before the Dawn', forecasts that solar PV costs will fall by an average of 10% per year through to 2020.

This, they say, is despite a dramatic fall in global subsidy levels, severe manufacturing overcapacity and a number of major industry bankruptcies. The recent Feed In Tariff (FiT) cuts in Spain, Germany, Italy, France and the UK, in part reflected the dramatically reducing costs of PV, and although the FiT cuts will have slowed deployment to some extent, McKinsey analysts conclude that the yearly economic potential of solar PV deployment could reach 600-1,000 GW by 2020.

While there has clearly been a shakeout of some of the large companies in the US and EU that had expanded during the initial FiT led boom, that's just the growing pains of a new, still-developing market. So McKinleys say: 'Those who believe the solar industry has run its course may be surprised. Solar companies that reduce their costs, develop value propositions to target the needs of particular segments, and strategically navigate the evolving regulatory landscape can position themselves to reap significant rewards in the coming years.'

They add 'underlying PV costs are likely to continue to drop as manufacturing capacity doubles over the next three to five years. Indeed, the cost of a typical commercial system could fall 40 percent by 2015 and an additional 30 percent by 2020, www.mckinsey.com/ClientService/Sustainability/Latestthinking/Solarpowersnext_shining

An even more upbeat prognosis was presented by Ruggero Schleicher-Tappeser in a paper in Energy Policy journal. He says that PV solar, onshore wind turbines, internet technologies, and storage technologies have the potential to fundamentally change electricity markets in the years ahead. He sees pv solar as the most 'disruptive' energy technology, in that it allows consumers of all sizes to produce power by themselves - 'new actors in the power market can begin operating with a new bottom-up control logic'. He calls them 'prosumers'.

He suggest that unsubsidised PV markets may start to take off in 2013, fuelling substantial growth where PV power is getting cheaper than grid or diesel backup electricity for commercial consumers. He adds 'Managing loads and achieving a good match between power consumption and weather-dependent power production will likely become a key issue. This consumption--production balance may trigger massive innovation and investment in energy management technologies involving different kinds of storage and controls'. Overall the 'increasing autonomy and flexibility of consumers challenges the top-down control logic of traditional power supply and pushes for a more decentralised and multi-layered system.' He says how rapidly and smoothly this transformation occurs 'depends to a large extent on the adaptation speed of the regulatory framework and on the ability of market players to develop appropriate business models.' See http://bit.ly/L27haO

Very little of the recent expansion has been due to new cell technology. It's mostly been due to improved system engineering, better module-assembly techniques, improved power handing technology and of course the stimulus of the FiT systems across the EU. A recent study of PV solar costs in the US by the University of California, Berkeley, found that the capacity-weighted average cost of PV solar there had fallen by 17% from 2009 (a $1.3/W year-over-year decline) and was 43% below 1998 levels. However it noted that 'Among small residential systems installed in 2010, average installed costs in the U.S ($6.9/W) were substantially greater than in Germany ($4.2/W), which may be partly attributable to differences in deployment scale'. Although there are a lot a caveats, it might be concluded that the German Feed-In Tariffs are more effective at building capacity fast, and so cutting costs, than the US market-based RPS system. See 'Tracking the Sun IV: An Historical Summary of the Installed Cost of Photovoltaics in the United States from 1998 to 2010.' http://eetd.lbl.gov/ea/emp/re-pubs.html

Further cost reductions are likely, with cell-technology improvements becoming more of a driving factor as PV moves down its learning curve. With the market blooming, there are certainly some novel high-performance cells being developed. For example, thin-film PV cells, based on flexible poly crystalline Cu(In,Ga)Se2 (CIGS) absorber layers, have yielded high conversion efficiency -18% plus.

However it may be that innovation is ancillary areas may be just as important as improving cell efficiency. Japanese company Kyocera is selling a system that pairs solar PV panels with lithium-ion batteries for the residential market. The battery storage is rated at 7.1kWh and weighs about 200 kgms. It's emerged, it seems, because of demand for residential backup power supply following the Fukushima nuclear disaster and to take advantage of the new PV feed-in tariff. But Li-ion batteries are still expensive, so without extra government incentives, residential energy storage isn't likely to take off quickly. And some would say having storage at the domestic level, it is not the best approach - it would be better to feed excess power out on the grid to balance power taken in when there is a shortfall. That, after all, is what FiTs are all about. If you need storage it should be done on a larger utility scale - via pumped hydro, compressed air, cryogenic air storage, vanadium flow batteries or whatever.

That said, there are seductive small-scale options emerging, like the Fronius Energy Cell system in which any excess electricity from a PV cell used to decompose water into oxygen and hydrogen by electrolysis. The hydrogen is then stored ready to be converted back into electricity in a fuel cell when it is needed. www.fronius.com/cps/rde/xchg/SID-2038DABF-BEA034DD/froniusinternational/hs.xsl/8318098ENGHTML.htm

Then again it might make more sense to set up a full hydrogen economy with excess power from PV and other renewables, large and small, feeding into large efficient high-temperature electrolysers, and hydrogen then being stored centrally and distributed via the gas grid. Or use the hydrogen to generate electricity in a large fuel cell, with full heat recovery - i,e for high-efficiency heat and power generation.

Clearly, there is a range of possibilities and, as Ruggero Schleicher-Tappeser pointed out, PV and the energy options that emerge along with it are likely to be disruptive, not just of markets but also of the existing technological status quo.

Supporting renewables

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The UK government's long-awaited revision of support level under the Renewables Obligation (RO) was delayed by, it seems, battles between the Department of Energy and Climate Change (DECC), who wanted a 10% cut in support for on-land wind, and the Treasury, who it was said wanted a 25% cut. But with even the CBI complaining about the cost of what it called the 'political deadlock', DECC evidently won out and, just after Scotland unilaterally announced a 10% cut, it also opted for 10% .

So, on-land wind support will be cut to 0.9 ROCs/MWh, guaranteed until at least March 2014, although DECC will review it early in 2013, and change the ROC level in 2014 if costs have fallen significantly.

The wind lobby had said that, while a 10% cut was reasonable, given the improvement in perfomance, cuts beyond 10% would destroy the industry. It was also pointed out that, if costs were the issue, it was odd to attack on-land wind, which was cheaper than offshore wind. Then again, the offshore wind resource is much larger, with much less potential for environmental objections. A DECC public-opinion survey found that, 76% of those asked backed offshore wind projects, while 66% were in favour of onshore wind farms.

In the RO revisions, support for offshore wind has been left at 2 ROCs/MWh for 2014-15, but reduced to 1.9 ROCs in 2015-16 and to 1.8 ROCs 2016-17. DECC says 'This is consistent with our consultation proposals, and reflects our expectation that the costs of offshore wind will fall as mass deployment takes place and industry innovates'.

DECC was clearly worried about increased fuel bills - consumers pay the extra cost of the RO. The wind cuts, and other smaller cuts in the ROC system, will lower bills by £6 p.a in 2013/14, $5 pa in 2014.15, but DECC says costs will rise after, by about £3 pa., as new projects emerge.

In addition to the RO re-banding, DECC issued details of the mechanism for avoiding overspend on the new Renewable Heat Incentive. It will introduce a flexible price degression-based system, with quarterly tests to see whether cuts were needed. They clearly are still smarting from the problems they had with the PV solar Feed In tariff.

The non-domestic strand of the RHI was launched in Nov 2011, to help meet the '15% by 2020' renewable energy target. DECC says that renewable heat will contribute about a third of this overall energy target, so that around 12% of total heat demand in 2020 will have to come from renewables, up from under 2% now. The interim demo scheme apart, the full domestic strand doesn't start until next summer.

DECC has also announced details of the new Feed In Tariff (FiT) levels for electricity micro generation, in the final stage of a review of the scheme, begun in Feb 2011, covering support for anaerobic digestion (AD), hydro, wind and micro combined heat and power (micro CHP). They will come into force in December. This follows on from the controversial cuts in the solar PV FiT, which are now in place.

For the other FiTs, DECC says 'having reviewed the consultation responses and further industry data, the final tariffs will in most cases be implemented as proposed in the consultation'. These include cuts in wind tariffs and a small rise for micro CHP, reflecting its very low uptake to date.

As with solar PV, cost control will be achieved by price degression at fixed annual time points from April 2014, with a baseline (i.e. expected) degression of 5% each year, but adjusted according to deployment in the previous year, with a minimum reduction of 2.5% annually in the event of very low deployment, and a maximum of 20% for very high deployment.

DECC also offered some backing for community projects, but no new separate Tariff. It said 'Although we do not believe it is justifiable to offer a separate tariff level to such projects at the moment, we are clarifying that this would be technically possible in future, if we find that to be justified'.

Meanwhile though, FiT-backed solar PV on schools and community energy projects on non-domestic buildings will be exempt from the current energy-efficiency requirements 'as long as they produce a valid Energy Performance Certificate (at any level).' DECC says 'This exemption for schools is in recognition of the role that the microgeneration can play in educating young people about climate change and energy issues. To allow for the additional time needed by community organisations in setting up projects, we will also introduce a tariff guarantee system for community solar PV projects under 50kW on non-domestic buildings.' More generally they say they will also 'continue to work closely with the community energy sector where possible' to help with finance and other barriers that are separate from FITs'.

However they add 'we will not be implementing the proposal for the solar PV multi- installation tariff to be reduced to the stand-alone level for commercial aggregators. There is no evidence to support any financial difference between social housing PV projects and commercial "rent-a-roof" projects.' Fair enough (some see the latter as a rip off), but shouldn't co-ops and community groups etc get more?

Thankfully, given the likelihood of it being a major uptake hurdle, there will be no energy efficiency requirements for technologies other than solar PV, although DECC says 'we will consider the introduction of minimum energy efficiency standards for buildings with other technologies'. But they will raise the export tariff from 3.2p to 4.5p/kWh for new installations from the time of the tariff changes. That will be welcome.

All in all, despite its parallel commitment to high-cost nuclear arguably making it hard, DECC do seem to be trying to respond to the various pressures on them, not least from the Treasury. The nicely timed pre-emptive action by Alex Salmond no doubt helped tip the balance: if DECC had opted for a 25% cut while Scotland went for 10%, that would probably have meant the end to new on-land wind projects in England and Wales. However DECC clearly wanted 10%, and most of the other final ROC allocations (e.g. for marine renewables), like those for the RHI and FiTs, have ended up being pretty much what was proposed in the consultation documents.

Much of the debate over support levels reflects uncertainties about how the technologies will progress in the years ahead. In my next few blogs I will be looking at what the prospects for each of them might be, starting with PV solar - after a short break!

DECC announcements: www.decc.gov.uk/en/content/cms/meetingenergy/renewableener/renewobs/renewobs.aspx