Friday, June 20, 2014

Solar to be Cheaper than Coal in 3-4 years?

Japan's new "strategic energy plan" adopted in April 2014 is notable for its relative lack of discussion of the role for large-scale solar power.  

According to METI Japan implemented over 7GW of new solar power generation during the fiscal year from April 2013 to March 2014 -- with 5.73GW of large scale and over 1.35GW of residential installations.  This is a massive boost from 1.66GW total installations the first 9 months of the feed-in tariff during the prior year, and a demonstration of the success of the feed-in tariff regime at transforming Japan's solar market.  

This is a huge success story.

But instead of trumpeting the success, the government seems almost embarrassed.  METI worries that this "high cost", "intermittent" energy source will saddle Japan's consumers with high electricity rates in future years.  

They look at Germany where a massive installation of solar and wind (at this point well over 30GWp each of solar and wind), most of it at high feed-in tariff rates based upon much higher historical equipment costs, and a lack of grid capacity and storage, have resulted in too much capacity during sunny or windy days.  And instead of shutting down the older, dirtier coal plants, utilities have shut down higher cost, but lower CO2 producing gas fired generation.

The strategic energy plan notes that additional measures are needed for wind and geothermal.  Solar is mentioned only in the section on distributed generation, noting that PV can be useful for medium/small scale distributed installations, "of small burden on grids and of capability for usage as emergency power source.  The popularization of photovltaic generation proceeds in regions as such as idle lands, roofs of schools and factories, and the government continues to support such measures."

So in Japan solar will be supported, but it is not a focus of the national strategy.

Contrast this with the policies in the U.S. and China.  To quote an article in a trade press online publication,

"Both the U.S. and China have a stated goal of reducing the cost of solar generated electricity to [the level of coal-generated electricity], and quickly."

The U.S. has its DOE "sunshot" R&D initiative, with an express goal of "grid parity" for solar this decade in large parts of the USA.

In contrast, and given its different economic structure and vestiges of central planning, and its more urgent energy and environmental needs, China has thrown massive amounts of funds at the solar industry to double capacity again and again, and has driven down the price of equipment as a result -- a semi-conductor industry-like cost curve that any MBA student should recognize.  Double production and cost goes down 20%.  Do it again, and again.  And by 2016-17, solar is predicted to be as cheap as coal generation!   The result has been massive trade friction and Chinese dominance of the solar panel industry.  But also an incredible "gift" to the world in terms of lower cost renewables on the horizon.

In both cases, however, there is a clear national policy to reach grid parity, and a path to do so.  

In Japan, what is the predicted cost of solar PV in 5 years?  In 10 years?  Is there an expectation for future cost decreases?  And how would this lower cost compete with nuclear?  With coal?  With imported LNG (which also could come WAY down in price if Japan plays its cards right over the next decade)?

Of course, all the cheaper Chinese and other US (First Solar) and Asian (Sunpower, REC, LG, even Panasonic Malaysia and Sharp OEM etc.) modules and other equipment need to go somewhere, and Japan's FIT (and massive solar installations in the U.S.) has allowed it to join China and the U.S. as one the top 3 solar PV markets in the world.

 If equipment prices continue to come down over the next 5 years, we could be entering a golden age of solar PV and clean energy generally.   Let us hope that Japan leads this wave, rather than being dragged along kicking and screaming, a captive of legacy investment and interests.

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