There was a huge response to our article on
Wednesday, summarising the UBS report on how a boom in un-subsidised solar panel installations would cause a
revolution in energy markets. Most people wanted more details of how UBS
arrived at their calculations, so we’ve decided to share more of their report on what makes solar panel PV – and battery storage – such a compelling
proposition to households and businesses, even without subsidies.
There are two principal pieces to the
equation – the falling cost of solar panel and battery manufacturing on one side, and the
rising cost of grid tie inverter -based electricity on the other. UBS estimates
the total cost of installed solar panel PV (including inverters and balance of systems
costs) has fallen by well over half in the last few years, and will continue to
do so, while grid tie inverter prices
(ironically including the cost of renewable subsidies) have risen and will
continue to do so.
“In combination,
we see this as a game-changer for the competitiveness of solar panel systems,” the UBS energy team writes. “Private
households and commercial users will be able to save on their electricity bills
if they install a solar panel system –
without any benefits from subsidies.” As we noted yesterday, just on economics,
it said every household in Germany,
Italy and Spain should have a solar panel system by the end of the decade.
UBS says unsubsidised solar panel systems are now at break-even but, on its
estimates, the payback time of unsubsidised solar panel systems will shrink to some five years for
commercial installations and some 10 years for residential rooftops by 2020. It
says the economics work in Germany,
Italy and Spain, even if
financing might be a problem for the latter economy.
As an example, UBS gave the cost of a
family-home rooftop solar panel system
(4kWp) in Germany
at today’s prices (€7,400 fully installed) – which amortised over 20 years
equated to €450 a year.
Without subsidies, a solar panel system’s profitability depends almost entirely
on the amount of solar panel power inverter directly consumed by its owner
(rather than sold back into the grid tie inverter with a feed in tariff).
UBS estimates a 4,500kWh household with a
4kWp PV system should be able to reduce its electricity purchases from a
utility by 30 per cent without significantly changing its consumption habits.
In southern Germany,
such a household would save around €380 on its electricity bill, which would
otherwise amount to some €1,260. Another €80 of income results from the sale of
excess electricity if a price of 25 €/MWh is assumed. In the example above, it
would already be worth installing a PV system, as the combined cost would be
slightly smaller. It says solar panel PV systems will become even more attractive
as retail tariffs continue to rise, and solar panel costs continue to fall.
As well, the increase in unsubsidised solar
panel PV capacity will ultimately lead
to higher electricity prices, because the demand reduction will force utilities
to spread the grid tie inverter investments and cost of the renewable
subsidies over a smaller base. But as grid tie inverter prices rise, households will respond by
increasing their self-consumption rate.
They could do this by co-ordinating the
timing of energy-intensive processes, aiming at increasing the self-
consumption rate of a PV system, in the same way utilities offer time-of use
meters. Solar panel developers are
already offering such technology. And/or they could add a battery storage
system, which UBS describes as the other big game changer in the energy game.
UBS says storage technologies allow the
owner of a solar panel PV system to
further cut electricity purchases from utilities: either because they can store
solar panel PV power inverter not immediately consumed, or they could charge
the battery on low rates overnight for use in the morning or at other time.
UBS notes that According to different field tests suggest a
battery with a capacity of 3kWh allows a 4,500kWh household with a 4kWp PV
system to lower its electricity consumed from the grid tie inverter by 50-60%. (Note that this graph below is for Germany).
Note that the cost of these technologies
will be lower in southern Germany,
primarily because of the better solar panel resources. UBS notes that in Spain, a 3.5kWp solar panel PV system could deliver the same output as a
5.5kWp system in Germany,
which would make that attractive even though retail prices in Spain are not as high as in Germany.
UBS says solar panel PV without subsidies will also be very
attractive to commercial groups – particularly stores, supermarkets and
offices, but also to most manufacturing enterprises that operate during daytime, because they can consume
virtually all of the electricity they produce, and because some could use cheaper ground mounted systems rather
than roof mounted modules.
A 130kWp solar panel PV system could deliver a self consumption
rate of around 70 per cent for a German manufacturing company with an
electricity consumption of 200MWh per year. A 200kWp system could deliver more solar
panel power inverter , but at the same
time more energy would be either wasted or sold back into the grid tie inverter
for little added benefit to justify the
extra cost.
“From a
managerial point of view, the installation of an unsubsidised PV system is
nothing but a one-time investment that leads to a sustainable cost reduction
and constitutes a partial hedge against increasing energy prices or general
cost inflation over a 20-year period,” UBS notes. “However, an enterprise will
only make the investment decision if the expected cost savings exceed the
company’s internal required rate of return – ie, the PV installation competes
with other investment projects. In this regard, we note that any cost savings
that exceed the depreciable investment costs are treated as taxable earnings.”
What does all this mean for the utilities
themselves? As we noted in our report yesterday, it’s bad news. UBS estimates
that unsubsidised solar panel in Germany
alone could amount to 80GW, and cut up to 14 per cent from demand from the grid
tie inverter . The addition of battery storage would lower the peaks in the
morning, midday and evening (up to 11pm), and the profit pool for utilities
could be slashed by half. As much as 55 per cent of demand from the grid tie
inverter by family homes could be
reduced by solar panel , and 18 per cent of demand from commercial businesses,
and 60 per cent from agriculture. In Spain, the total reduction in
demand from the grid tie inverter could
be 18 per cent.
The consequence of this is the closure of
both coal and gas-fired generation. As if on cue, RWE announced on Wednesday
that it may mothball some gas fired plants, because they are operating 1,500
hours a year instead of planned 3,000 to 3,500 hours a year, while Jochen
Homann, head of federal grid tie inverter regulator Bundesnetzagentur, predicted a “a
string of closure announcements,” of fossil fuel plants because they are now
losing money. He said Germany
needed “intelligent reform of market design.”
Companies most affected by the predicted
boom in unsubsidised solar panel – and
UBS nominates RWE, E.ON, CEZ and Verbund, along with Italy’s Enel and Spain’s
Iberdrola – will be arguing strongly for this. But don’t expect this to slow
down the pace of renewables significantly, as the Opposition parties, the SDP
and the Greens, which won power inverter in Lower Saxony
over the weekend, are even more pro-green energy than the Merkel government.
And as UBS notes, “we think the awareness of ‘green’ investments is higher in
markets like Germany.”
One final graph, a breakdown of where
self-consumption solar panel could
replace demand in Germany,
by industry segment.
On battery storage technology, UBS notes
that traditional battery technologies from the vehicle sector, such as
lead-acid batteries, have mainly been used as back-up solution for blackouts.
While low cost (50-800 €/kWh), their
lifetime is limited to 2-6 years, and give a maximum of up to 2,000 cycles.
Other technologies, such as lithium-ion batteries, are more promising, given
deep-cycle resistance, a long lifetime, and higher cost-reduction potential in
the near future.
UBS says although the products already
available come at an end-customer cost of €1,500-2,500 per kWh of usable
storage capacity – and a battery management system is also needed, which adds
another 500-1,000 €/kWh to the costs for small-scale PV systems – these
products are the first of their kind and are not yet produced at large scale,
and they contain high margins for sales agents (up to 30%).
“We expect the
end-customer cost of lithium-ion technology applied in the PV sector to decline
significantly over the next few years. We do not attribute this to any
technological leaps, but rather to the start of industrial manufacturing, which
should lead to lower unit costs; higher production volumes should improve
components purchase conditions, and a more widespread application should
decrease margins for sales agents,” UBS says. And because the characteristics required by batteries used to
store solar panel power inverter are similar to those for batteries used in
e-vehicles, progress in the production of batteries for e-vehicles should
directly benefit solutions in the field of solar panel power inverter storage.
“We also
highlight that the current cost of an e-vehicle battery pack based on the
lithium-ion technology and manufactured at low volumes ranges from 800 to 900
€/kWh, while in the area of consumer electronics, the battery cost ranges from
200 to 300 €/kWh. In our analysis, we assume that a complete battery solution
for storing PV power inverter currently
comes at a total cost of 2,500-3,000 €/kWh and will decline by 10% per year.”
The first graph below compares the current
retail price of electricity in Germany
with the cost of PV and battery at different battery technology costs. It
assumes that the price of solar panel PV
is constant (which it is not).
