Solar PV will continue its rapid spread across the globe over the next decade, but a lack of foresight means grid integration issues will increasingly hold back the industry, according to research firm Wood Mackenzie.
“Investors are held back by two key things: a lack of investment in grid infrastructure, and insufficient clarity on supportive policy and regulation,” said Tom Heggarty, Wood Mackenzie principal analyst, in a release this week.
Solar investment is certainly boosted whenever PV deployment becomes realistic without the need for subsidies in any given market, but the rise of PV installations has often not been matched by the necessary investment in grids, potentially crippling growth.
For example, optimism about the boom in Indian solar has for years been checked by analysts claiming that the country has its “head in the sand” over impending grid issues.
“Large pipelines of projects [globally] are sitting undeveloped or in grid connection queues,” said Heggarty. “Investment will also be required to increase the resiliency of grids to cope with variable renewable power supply.”
These problems are, the analyst added, exacerbated in emerging markets or islanded grids; even low levels of renewables penetration can be problematic in these areas, he said.
The analyst concerns are coming to the fore as emerging PV markets look set to mature very soon, with a growing number poised to surpass the gigawatt deployment mark. According to Wood Mackenzie, outside of the OECD there are auctions planned in 44 countries, and a project pipeline of 180GW in almost 120 states.
Lack of foresight with grid planning is just one of many areas where Wood Mackenzie believes policymaking has disappointed, despite clear “proof” that money flows into PV the most when investors are given certainty.
“In Italy, for example, the government is targeting 30GW of additional solar PV by 2030 but it has designed an auction that puts solar PV at a significant disadvantage to onshore wind,” Heggarty said.
“Other countries have launched one-off auction rounds without providing the industry with clarity around if, or when, further awards will take place. Such short-termism prevents the development of self-sustaining and mature PV markets,” he added.
Low tariffs vs investment
As Wood Mackenzie noted, the global momentum to tackle the climate crisis is set to accelerate investment in solar PV. Investors, the firm cautioned, could however be driven away by the ultra-low solar tariffs currently emerging in some countries.
According to analyst Heggarty, the rising number of sub-US$20/MWh PV auction contracts is seen as a “success story” but question marks continue to loom over the sustainability of such prices.
“Assumptions around post-contract merchant revenue can make or break project economics and it will be a long time before we know if some of these bets are going to pay off,” said Heggarty. “But extremely low bid prices threaten to drive away companies with deep pockets but higher return expectations.”
Heggarty even mused that price raises could be in solar's interests in the long run, asking: “Do we need to see solar bid prices go up for the long-term sustainability of the market?”
The doubleheader of grid constraints and low prices is impacting the Spanish solar market, as PV Tech reported at Solar Media’s Solar Finance & Investment Europe event earlier this month. A rush by foreign players is said to be threatening to overload the grid, while some fear Spain may wish to copy the auction model driving ultra-low tariffs in neighbour Portugal.
Consolidation suits big oil
As big oil and gas players increasingly dive into the global renewables market, a few factors are swinging in their favour. Firstly, as more solar markets go merchant, power trading and power purchase agreement (PPA) origination capabilities – usually the preserve of large utilities – will become more important.
Secondly, a trend of market consolidation suits new entrant oil and gas majors able to use their trading expertise and risk appetite, Heggarty said.
Despite its current boom, the solar industry has yet to address the waste streams left behind by its various components, Wood Mackenzie said. US thin-film solar specialist First Solar already has a strong recycling capability, but most other manufacturers are banking on recycling techniques being discovered in time.
Wood Mackenzie noted that towards the end of this decade, the first wave of PV installations will begin reaching their end-of-life point. Almost 4GW of PV was installed between 2001 and 2005, a fleet featuring 18 million individual modules. The fate of these components once installations are dismantled remains an “unanswered question”, analyst Heggarty said.
“In the EU, OEMs supplying the market have been responsible for collecting and recycling old modules since 2012,” Heggarty added. “Older modules will not fall under this regulation, however, and several OEMs from the time are no longer in business.”
The industry may also see a trend of asset owners deciding to repower sites with newer, more efficient modules. Questions around waste and repowering will come to the fore as the industry moves towards 2030, said Heggarty.