German Study details how solar power in many places globally by 2025 will be cheaper than power from coal or gas

CLEVELAND/ SYDNEY – 24 February 2015: The “Current and Future Cost of Photovoltaics” study by the Fraunhofer Institute for Solar Energy Systems, commissioned by Agora Energiewende, is further evidence of the critical role that solar energy will play in the global energy market transition over the short, medium and long term according to the Institute for Energy Economics and Financial Analysis (IEEFA).

“As we pointed out earlier this year in our ‘Global Energy Markets in Transition’, 2014 was a step-change year of the renewable energy installation juggernaut,” said Tim Buckley, Director of Energy Finance Studies, Australasia, for IEEFA.

“The rate of change around the cost of renewable energy power generation and innovation in the sector is staggering, but certainly not unexpected,” said Buckley.

“Quite simply, technical efficiency improvements, greater economies of scale, learning by doing and the rapidly transition of the global energy market will continue to drive the price of solar power generation to astounding new lows.

According to the Fraunhofer Institute study, global installs of solar capacity in 2014 rose more than 20 percent to a record 46-48 gigawatts (GW) – equivalent to around 16 million homes. New global wind installs grew 40 percent to 46 GW, led by China and America.

In ‘Global Energy Markets in Transition’ IEEFA examines major global electricity sector trends, focusing on the unprecedented take-up of renewable energy in 2014 and its broader impacts.

“With the notable exception of Australia where policy uncertainty served as an effective hand-brake, wherever you look around the globe, be it China, India, Europe, Japan, South Africa, Brazil or the US, the trend of a rapidly expanding renewable energy industry is the same.

“Importantly, this study highlights how financial and regulatory framework policy certainty are critical for the renewable energy sector.

“The signal out of key markets, such as India, China and Brazil, is that they have grasped this intrinsic fact and are working to deliver such a framework. Speeches at RE-Invest 2015 by the Indian Energy Minister Piyush Goyal and Prime Minister Modi in India are telling,” Buckley said.

“The deflationary nature of renewables is driving the kind of transition rarely seen in industry, similar to mobile phones, computers and the internet” said Buckley. “This study yet again reinforces that plummeting costs and continual technology improvements will dramatically push down the installed cost of solar energy. The impact of this on the electricity market cannot be overstated.”

One constraint regularly cited regarding solar is the balance of system (BOS) costs will not see the same rate of decline as solar module costs. The long term PV learning rate is 19-23%. This study highlights that as module efficiencies double over the next two decades, the number of panels required per unit of electricity will halve, thereby halving BOS installation costs, ignoring any other economies of scale or input material savings.

A second advantage driving increased installs is that record low 20-30 year term government bond rates (of 2-3% pa in both Europe and the US) have lowered the cost of servicing the higher upfront capital costs of solar, a key improvement in cost per unit of electricity relative to thermal plants.

“The effects of renewable growth are currently felt most keenly in the global coal sector, particularly in the structural decline of seaborne thermal coal. IEEFA anticipates that this will hasten, rather than abate into 2016” said Buckley.

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as MD, Head of Australasian Equity Research.

Mr Buckley has spent the past five years investigating the trends in global renewable energy and as a result questions viability of the Galilee developments. Tim has produced detailed reports on Adani and GVK, global electricity markets plus the Indian electricity sector: