UBS: Boom in unsubsidised solar PV flags energy revolution
By Giles Parkinson on 23 January 2013
The revolution in energy markets caused by the growing impact of rooftop solar PV is about to take a dramatic leap in scale.According to analysts from the global investment banking giant UBS, the arrival of socket parity – where the cost of installing solar is cheaper than grid-sourced supplies – is about to cause a boom in un-subsidised solar installation in Europe, and the energy market may never be quite the same again.Such forecasts have long been the province of environmentalists, climate activists, university researchers, and the occasional industry leader, such as David Crane, the head of NRG, the largest generator of electricity in the US.
Now, the team of energy analysts from UBS, writing in response to plunging power prices in Europe, has issued a stunning report entitled “The unsubsidised solar revolution” – suggesting that investing in solar will become a “no brainer” for households in several European countries, and will have profound implications for the incumbent energy industry.“Solar has turned from a heavily-subsidised marginal technology into a mainstream source of power generation,” the UBS analysts write. ” “Thanks to significant cost reductions and rising retail tariffs, households and commercial users are set to install solar systems to reduce electricity bills – without any subsidies.”
But PV with battery storage, while more expensive now, will cross over in 2014 and ultimately deliver the biggest savings.UBS says this means utility customers will effectively become utility competitors. It estimates there could be 80GW of unsubsidised solar installed in Germany alone.This is on top of the 32GW already installed through subsidised installation, and the 52GW cap put on subsidised installations.
“We are at the beginning of a new era in power markets,” the UBS analysts write. ”Purely based on economics, we believe almost every family home and every commercial rooftop in Germany, Italy and Spain should be equipped with a solar system by the end of this decade.” It says up to 18% of electricity demand could be replaced by self-produced solar power in these markets, at the expense of centralised generation. Even as soon as 2020, up to 43GW of unsubsidised solar could be installed in Germany, Italy and Spain, replacing up to 9 per cent of electricity demand. This is on top of reduction in demand caused by energy efficiency measures and weak GDP growth.
The impact on utilities will be profound, and will be made worse by the emergence of cheap battery storage, which would allow households – and businesses – to consumer more of their own energy, and effectively remove the morning and evening peak in pricing, as well as the midday peaks, as we revealed in a dramatic graph in our article last May of Why generators are terrified of solar. Without any peaks, the profit margin of generators is removed. UBS calculates the EBITDA profit pool of the conventional generators will shrink by around 50 per cent. “Households will be able to use the electricity stored in batteries during the evening, which means pressure on spot prices during the evening hours. So far, solar has only been shaving the midday peak. Even worse, batteries installed in family homes or commercial buildings could also reduce the morning peak as they could be charged with low-cost electricity from the grid during night hours,” UBS notes.
It says residential customers, on average, could provide 29 per cent of their own energy needs by 2020. Individually, a house with a 3kWh battery and a 4kW PV system could to lower its electricity consumed from the grid by 50-60 per cent. Commercial businesses could cut even greater amounts, and even a car manufacturing giant like BMW could produce 490MWh of solar electricity per year using its own land, or 29 per cent of the group-wide electricity demand. The impact on the generation industry will be severe. Here’s what UBS estimates the combination of solar PV and battery storage will do to the tariff curve by 2020 – the full impact of their predictions will result in an even greater flattening of the curve. (Please click on graph if it is not totally visible).
UBS predicts that by 2020, power prices will fall another 10 per cent, and coal-fired generators, once the major providers of baseload power, will be reduced to the role of filling the gaps between renewable. UBS estimates that the load factor of lignite (brown coal) plants in Germany drops from 72% to 59%, while the load factor of hard coal plants drops from 47% to 31% by 2020. That will give them a lower load factor than many wind or solar farms.
UBS says that the explosion of solar will have a cascading effect – as noted by AGL Energy in Australia, and the local utility in Hawaii. AGL used the circle of death as an argument to reduce feed in tariffs. But the significance of unsubsidised solar is that the proliferation of solar is unstoppable – unless, of course, it is halted by regulation, or fixed tariffs. Given the rising costs of fossil fuels, this would be a PR nightmare for the generation industry, but UBS raises the possibility, echoing our story last year about how electricity business models and markets are effectively broken. “At some point, we think this will trigger a political debate about how the grid fees and renewables subsidies should be paid for. It could lead to a flat-fee pricing model,” the UBS analysts write.
The UBS analysis does not extend beyond Europe. It says there is no immediate prospect of unsubsidised solar in other European countries, either because retail tariffs are lower (France), or because of lousy sun (northern Europe). But it clearly has implications for other countries, particularly Australia, which has high retail tariffs and excellent solar resources, and which already has a near 10 per cent penetration rate of rooftop solar on available households.
Great article. With CSIQ's acquisition or JV with SkyPower therein lies some great opportunities in developing serious assets that are under some great FIT programs that are far and away higher power sale rates. Canada and Ecuador have tariffs in the .40 KWh range. CSIQ gets to supply the hardware and engineering and take a percentage of the sale of the power producing asset once it is COD. Given these rates were set a few years ago and the tremendous drop in solar prices translates into incredible ROI's for developers such as the SkyPower CSIQ alliance.
sc, was reading this article on another site and the writer said that UBS; "issued a stunning report entitled “The unsubsidized solar revolution”"
But wait, didn't Photon issue this same "stunning" report predicting this for 2013 over a year ago? (just replace "unsubsidized solar revolution" with "next wave"). I know I saw this coming over a year ago (just look at all my posts since the beginning of 2012).
So why is this so "stunning" now? Because solars are soaring on very good global news, and drawing a lot of investor attention. This has caused the investment firms to switch from their doom & gloom strategy to it's all coming up roses strategy. Just watch how these firms try to leapfrog each other in their predictions on this upcoming solar boom.
For those of us who got on board early because we knew this was coming, this is a very very bullish sign, since fear is now turning to greed, but there's still a pretty big wall of worry to climb (Gordon and the boys at Raymond James aren't going down w/o a fight).
For those STEO guys who kept saying owning any solars is just plain ....., and just wait until late 2013 or 2014 when the fundamentals say it's all clear...well they're not too happy about all this, because those STEO guys are forgetting that the market tends to be 6-months forward looking. So while they're busy worrying about what last quarters earnings may be, they're missing out on an opportunity of a lifetime (still plenty of time to get in...this is just the beginning of a multi-year run with CSIQ and the other top solar survivors, but every month that goes by the stocks will get more expensive to purchase).
One big potential speed-bump this year though will be the EU decision, which could make for some good trading opportunities. Many possible outcomes, and we'll just have to see how hard to bears attack the uncertainty part, or how hard the new-found bulls defend it. But based on some comments recently, it looks like the outcome will overall have a muted effect at best on the Tier-1 Chinese-based solars (a surprise early agreement between EU & China is also very possible), and once that final uncertainty is washed away then "the sky's the limit"...
All IMHO of course...
Why is it that even on Solarpvinvestor people like to follow you and pump SOL while questioning CSIQ. He is picking at one or two points where you are giving a overview or a big picture of 2013/14/15. I caught that today! LOL. I read some of this person's posts and he/she does seem knowledgeable about solar, but as you nicely put it....discuss SOL on the SOL thread. I think many top solars will have good second halves of 2013....of course I think CSIQ may have the best!