The latent threat to the growth of solar energy

A few lonely academics having warned for years that solar energy faces a fundamental challenge that could halt the industry’s meteoric growth. Simply put: the more solar energy you add to the network, the less valuable it is.

The problem is that solar panels generate a lot of electricity in the middle of sunny days, often more than what is needed, pushing prices down, sometimes even into negative territory.

Unlike a natural gas power plant, solar power plant operators cannot easily scale up and down electricity as needed, or the generation of space during the day, night and dark winter. It is available when it is available, that is, when the sun is shining. And that’s when all the other solar power plants also produce electricity at maximum levels.

A new report finds that California, which produces one of the largest shares of solar energy in the world, is already experiencing this phenomenon, known as solar value deflation, in an acute way.

The state’s average wholesale solar energy prices have fallen 37% from average electricity prices for other sources since 2014, according to Breakthrough Institute analysis, which will be released on July 14. . In other words, utilities are increasingly paying solar power plants less than others. global sources, due to their fluctuating generation patterns.

Wholesale prices are basically the amount that utilities pay power plants for the electricity they supply to households and businesses. They change throughout the day and year, going back for solar operators in the morning, afternoon and other times when there is no oversupply. But as more solar power plants come on stream, the periods of excess supply that drive these costs down will become more frequent and more pronounced.

Lower prices may seem attractive to consumers. But this has troubling implications for the world’s hopes to rapidly increase solar capacity and meet climate goals.

It could become difficult to convince developers and investors to keep building ever more solar power plants if they risked making less money or even losing it. In fact, California construction has already been stable since 2018, the study notes. But the state will need industry to dramatically accelerate its development if it hopes to meet its ambitious clean energy goals.

It may soon become a bigger issue as well.

“California is a small glimpse of what lies ahead for the rest of the world as we dramatically increase solar power,” says Zeke Hausfather, director of climate and energy at the Breakthrough Institute and author of the report.

Indeed, while solar energy accounts for about 19% of the electricity produced by California, other regions are also quickly installing photovoltaic panels. In Nevada and Hawaii, for example, the share of solar generation was around 13% in 2019, according to the study. The levels in Italy, Greece and Germany were 8.6%, 7.9% and 7.8% respectively.

The race

So far, heavy solar subsidies and the rapidly falling cost of solar power have offset the declining value of solar power in California. As long as it becomes cheaper and cheaper to build and operate solar power plants, deflation in value is less of a problem.

But it is likely that it will become increasingly difficult to pull off this trick, as the state’s share in solar production continues to increase. If the costs of building and installing solar panels decline, solar deflation in California could lead the race against falling costs as early as 2022 and climb from there, according to the report. At this point, wholesale prices would be lower than the subsidized costs of solar power in California, undermining the pure economic rationale for building more power plants, Hausfather notes.

The states SB 100 law, passed in 2018, requires all California electricity to come from “renewable and zero-carbon resources” by 2045. At this point, about 60% of the state’s electricity could come from solar power, on the base of a California Energy Board Model.

The Breakthrough study estimates that the value of solar power – or the average wholesale price compared to other sources – will drop 85% at this point, decimating the economy of solar farms, at least like the California grid. exists today.

How can we solve this problem?

There are a variety of ways to lessen this effect, although none are likely to be a cure-all.

The solar industry can continue to try to find ways to bring down the costs of solar energy, but some researchers have supported this may require switching to new materials and technologies to achieve the cheap levels needed to overcome deflation in value.

Grid operators can add more energy storage, although this approach becomes extremely expensive once renewables provide the vast majority of electricity on the grid, study after study find. States or nations could also increase subsidies for solar energy; add more long distance transmission lines to allow regions to exchange clean electricity as needed; or encourage customers to shift energy consumption to times of the day that better correspond to periods of high production.

The good news is that each of these will help ease the transition to clean electricity sources in other ways as well, but they will all also take a lot of time and money to get started.

The California solar market is a reminder that the climate clock is ticking.

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