Citigroup: Solar’s economics ensure it’s here to stay

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The “pure economics” of solar in relation to increasingly costly fossil fuels will ensure a central future role for the technology in the world energy mix, according to Citigroup.

In a report on disruptive energy technologies the influential banking firm said solar’s steadily decreasing cost, its adoption by utilities and increased access to low-cost finance all suggest a bright future for the technology.

The report, ‘Energy 2020: The Revolution Will not be Televised as Disruptors Multiply’, said although government spending on solar through support programmes would take a “backseat”, growth in the sector should continue.

This is because solar’s underlying economics, specifically an increasingly competitive levelised cost of electricity, make it more attractive as an alternative to sources such as natural gas.

Alongside this, Citigroup said the need for utilities to diversify their fuel mix as a bulwark against fluctuations in fossil fuel prices would prompt them to take more of an interest in solar rather than natural gas to meet peak demand.

“Besides pure economics, the need for utilities to diversify their fuel mix is crucial to insulating them from volatility and the likely upward movement in gas prices over the longer term,” said Citigroup.

The reported highlighted how this is already happening, for example in the United States, where utilities are beginning to build solar power plants rather than natural gas peaking plants.

Another factor underpinning Citigroup’s upbeat assessment of solar’s future growth is the sector’s ability to access low-cost capital.

This is reflected in the recent advent of ‘yield co’ investment vehicles, which have given the industry a new tax-efficient, investor-friendly source of finance for project development.

The final piece in the jigsaw Citi said was the prospect of further cost reductions in solar manufacturing.

Although it said the cost decline curve had been relatively constant in the past year following the rapid cuts achieved across the industry in the previous two years, the outlook for manufacturing now looked “attractive”.

“Many of the large solar developers and manufacturers are now expecting efficiencies to improve materially in the next few years as technology matures, investments in manufacturing continue and volume growth enables lower per unit costs,” Citi wrote.

In summary, Citi said: “We believe global solar growth will be driven by economics, fuel diversity and emerging financing vehicles as well as some country specific legislative overlay. Moreover, this growth looks set to continue for the long term, as solar takes an ever greater share of energy production.”

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