Is the IEA still underestimating the potential of photovoltaics?

Photovoltaics (PV) has become the cheapest source of electricity in many countries. Is it likely that the impressive growth observed over the last decade – every two years, capacity roughly doubled – will be sustained, and is there a limit to the growth of PV? In a recently published article (Creutzig et al 2017), we tackle this question by first scrutinizing why past scenarios have consistently underestimated real-world PV deployment, analyzing future challenges to PV growth, and developing improved scenarios. We find that if stringent global climate policy is enacted and potential barriers to deployment are addressed, PV could cost-competitively supply 30-50% of global electricity by 2050.

A history of underestimation

Any energy researcher knows that projecting energy use and technology deployment is notoriously challenging, and the results are never right. Still, the consistent underestimation of PV deployment across the different publications by various research groups and NGOs is striking. As an example, real-world PV capacity in 2015 was a factor 10 higher than projected by the IEA just 9 years before (IEA, 2006).

A main reason for this underestimation is strong technological learning in combination with support policies. PV showed a remarkable learning curve over the last twenty years: On average, each

doubling of cumulative PV capacity lead to a system price decrease of roughly 20%. With substantial support policies such as feed-in-tariffs in many countries including Germany, Spain and China, or tax credits in the USA, the learning curve was realized much faster than expected, which in turn triggered larger deployments. These factors together have led to an average annual global PV growth rate of 48% between 2006 and 2016.

Can continued fast growth of PV be taken as a given? We think not. Two potential barriers could hinder continued growth along the lines seen over the last decade, if they are not addressed properly: integration challenges, and the cost of financing.

Integration challenge: Many options exist

Output from PV plants is variable, and thus different from the dispatchable output from gas or coal power plants. However, power systems have always had to deal with variability, as electricity demand is highly variable. Thus, a certain amount of additional variability can be added to a power system without requiring huge changes, as examples like Denmark, Ireland, Spain, Lithuania or New Zealand show: In these countries wind and solar power generates more than 20% of total electricity, while maintaining a high quality of power supply (IEA, 2017).

Under certain conditions wind and solar can even increase system stability. In fact, the size of the integration challenge largely depends on how well the generation pattern from renewable plants matches the load curve. Accordingly, in regions with high use of air conditioning such as Spain or the Middle East, adding PV can benefit the grid: On sunny summer afternoons when electricity demand from air conditioning is high, electricity generation from PV is also high.

As the share of solar and wind increases beyond 20-30%, the challenges increase. Still, there are many options for addressing these challenges, including institutional options like grid code reforms or changes to power market designs in order to remove barriers that limit the provision of flexibility, as well as technical options like transmission grid expansion or deployment of short-term  storage (IEA, 2014a). None of these options is a silver bullet, and each has a different relevance in different countries, but together they can enable high generation shares from photovoltaics and wind of 50% and beyond.

Financing costs: international cooperation needed

Many developing countries have a very good solar resource and would benefit strongly from using PV to produce the electricity needed for development. However, because of (perceived) political and exchange rate risks as well as uncertain financial and regulatory conditions, financing costs in most developing countries are above 10% p.a., sometimes even substantially higher.

Why does this high financing cost matter for PV deployment? One of the main differences between a PV plant and a gas power plant is the ratio of up-front investment costs to costs incurred during the lifetime, such as fuel costs or operation and maintenance costs. For a gas power plant, the up-front investment makes up less than 15% of the total (undiscounted) cost, while for a PV plant, it represents more than 70%. Thus, high financing costs are a much stronger barrier for PV – the IEA calculated that even at only 9% interest rate, half of the money for PV electricity is going into interest payments (IEA, 2014b)!

Clearly, reducing the financing costs is a major lever to enable PV growth in developing countries. Financial guarantees from international organizations such as the Green Climate Fund, the World Bank or the Asian Infrastructure Investment bank could unlock huge amounts of private capital at substantially lower interest rates.

Such action could help to leapfrog the coal-intensive development path seen, e.g., in the EU, US, China or India. Replacing coal with PV would alleviate air pollution, which is a major concern in many countries today – in India alone, outdoor air pollution causes more than 600,000 premature deaths per year (IEA, 2016a).

Substantial future PV growth possible if policies are set right

How will future PV deployment unfold if measures to overcome the potential barriers integration and financing are implemented? To answer this question, we use the energy-economy-climate model REMIND and feed it with up-to-date information on technology costs, integration challenges and technology policies. The scenarios show that under a stringent climate policy in line with the 2°C target, PV will become the main pillar of electricity generation in many countries.

energy-economy-climate model REMIND

We find a complete transformation of the power system: Depending on how long the technological learning curve observed over the past decades will continue in the future, the cost-competitive share of PV in 2050 global electricity production would be 30-50%! Our scenarios show that the IEA is still underestimating PV. The capacity we calculate for 2040 is a factor of 3-6 higher than the most optimistic scenario in the 2016 World Energy Outlook (IEA, 2016b).

We conclude that realizing such growth would require policy makers and business to overcome organizational and financial challenges, but would offer the most-affordable clean energy solution for many. As long as important actors underestimate the potential contribution of photovoltaics to climate change mitigation, investments will be misdirected and business opportunities missed. To achieve a stable power system with 20-30% solar electricity in 15 years, the right actions need to be initiated now.

References:

Creutzig, F., Agoston, P., Goldschmidt, J.C., Luderer, G., Nemet, G., Pietzcker, R.C., 2017. The underestimated potential of solar energy to mitigate climate change. Nature Energy 2, nenergy2017140. doi:10.1038/nenergy.2017.140. https://www.nature.com/articles/nenergy2017140

IEA, 2017. Getting  Wind  and  Sun  onto the Grid. OECD, Paris, France.

IEA, 2016a. World Energy Outlook Special Report 2016: Energy and Air Pollution. OECD, Paris, France.

IEA, 2016b. WEO – World Energy Outlook 2016. OECD/IEA, Paris, France.

IEA, 2014a. The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems. OECD, Paris, France.

IEA, 2014b. Technology Roadmap: Solar photovoltaic energy. OECD/IEA.

IEA, 2006. World Energy Outlook 2006. IEA/OECD, Paris, France.

Author

By Dr. Robert Pietzcker,  Post-doctoral researcher, Potsdam Institute for Climate Impact Research (PIK)

Job vacancy: Postdoctoral Research Associate in Energy Policy

The University of Cambridge invite applications for a postdoctoral Research Associate in Energy Policy to support the INNOPATHS project.  The Research Associate will work on the theme of energy technology, economics, and policy. The appointment is fixed-term and will be for 12 months in the first instance with the possibility of extension until 31 August 2019.

Directed by Prof. Laura Diaz Anadon, the Research Associate will conduct research on the role of different policies promoting different types of technology innovation outcomes in energy, the role of technology spillovers, and managing technology and other uncertainties. The role will involve taking initiative in shaping this research, and working with and coordinating different INNOPATHS project partners.

Closing date: 11 September 2017

Further information available here

The EU energy system towards 2050: The case of scenarios using the PRIMES model

By P. Capros, M. Kannavou, S. Evangelopoulou, A. Petropolos, P. Siskos, N. Tasios, G. Zazias and A. DeVita

Introduction

In November 2016, the European Commission presented the ‘Clean Energy for all Europeans’, (i.e. ‘Winter package’), a set of measures to keep the European Union competitive as the clean energy transition is changing global energy markets. The package proposes policies in line with the 2030 targets agreed by the European Council in 2014 regarding GHG emissions reduction, renewable energy and energy efficiency.

The PRIMES model, developed by E3M, has been used to build the EU Reference Scenario 2016 and support the Impact Assessment studies that accompany the Winter Package [1-4]. Figure 1 shows schematically that individual parts of the Winter Package where the PRIMES model has been used and the various scenarios considered. In addition to the proposals included in the Winter Package, additional framework related to the decarbonisation of transport and the effort sharing amongst Member States towards the reduction of GHG emissions has also been proposed in the context of the targets set by the European Council. PRIMES was also used in those assessments.

PRIMES is a partial equilibrium modelling system that simulates an energy market equilibrium in the European Union and in each of its Member States. The model includes consistent EU carbon price trajectories. It proceeds in five-year steps and uses Eurostat data.

Scenario description

Several scenarios were considered.  The main scenario, EUCO27 is in line 2014 European Council. It considers at least 40% cuts in greenhouse gas emissions (from 1990 levels), at least 27% share for renewable energy and at least 27% improvement in energy efficiency. Four variants to the EUCO27, considering different levels of energy efficiency improvements (30, 33, 35 and 40%) were also considered to assess the impact of the proposed legal framework on energy efficiency. Other scenarios related to the integration of Renewable Energy Sources (RES) and the functioning of the internal energy market were also developed and used to assess the various implications of the winter package.

All EUCO scenarios are decarbonisation scenarios, i.e. they are compatible with a 2oC trajectory and the EU INDC [5] submitted following the COP21 meeting in Paris in 2015. They achieve above 80% GHG emissions reduction in 2050 compared to 1990 levels, in line with the European Commission ‘Energy Roadmap 2050’.

Figure 1: Illustration of European Commission studies which used the EUCO scenarios

The main elements of the EUCO27 and EUCO20 scenarios are shown in Figure 2:

Figure 2: Climate and energy targets used for the EUCO scenarios

Table 1 shows the main policies used for delivering the climate and energy targets in all scenarios.

Policies ETS Increase of ETS linear factor to 2.2% for 2021-30 (2015/148 (COD)
Market Stability Reserve (2014/0011/COD)
Policies RES RES-E policies: new guidelines for auctions
Policies promoting the use of biofuels
Support of RES in heating
Policies efficiency Energy efficiency of buildings: new EED, enhancement of article 7
More stringent eco-design
Support of heat pumps
Best available techniques in industry
Policies transport CO2 car standards (70-75gCO2/km in 2030, 25 in 2050) and for Vans (120 in 2030, 60 in 2050)
Efficiency standards (1.5% increase per year) for trucks
Measures improving the efficiency of the transport system

Key findings

The projections obtained through the various scenarios reveal the following:

(A) Impacts on GHG Emissions (EUCO27)

The energy related CO2 emissions decrease primarily in the energy supply sectors, notably in the power sector, but also in the demand sectors.

The remaining non-abated emissions by 2050 are by order of magnitude due to  the non-CO2 GHG, the residual use of oil in transport and various small scale uses of gas in the domestic sector and industry

The reductions of emissions in the sectors that participate in the Emissions Trading System (ETS)  exceed those in the non-ETS sectors

The ETS drives strong emission reductions in the power sector and promotes the development of RES which benefit from learning-by-doing requiring low or no out-of-the-market support.

 

(B) RES penetration

Variable renewables (e.g. wind and solar)_ are expected to dominate the power generation sector. The projection shows variable RES capacity to more than double in 2030, from 2015 levels, and quadruple by 2050.

RES in heating and cooling also develop, albeit at a slower pace, driven by heat pumps and RES-based production of heat.

The biofuels in transport constitute the main growing market for bioenergy, as biofuels are essential for reducing emissions in non-electrified transport segments (the RES-T includes for electricity used in transport the RES used in power sector).

(C) Electricity supply mix

Due to the increased penetration of intermittent RES, gas-firing capacities acquire a strategic role for balancing and reserve, a role increasingly performed by storage technologies in the long term. Nuclear plant retrofitting is essential to maintain total nuclear capacity, as investment in new nuclear plants suffers from limitations (sites, financing, etc.).

Coal-firing generation is under strong decline with CCS not becoming a major option.

The model results confirm the importance of sharing balancing and reserve resources across the EU countries and the advantages of market coupling in the day-ahead, intra-day and real-time balancing. The scenarios assume minimization of costs over the pan-European market, which in the mid-term becomes fully integrated.

(D) Energy Efficiency

(E)    Renovation of houses and buildings, the Eco-design regulation, the application of the Best Available Technologies (BAT) in the industry are significant enablers to energy efficiency.

(F)     Electricity consumption hardly increases until 2030.  The energy efficiency improvement drives electricity savings in the short/medium term, and energy savings overall.   Transport electrification and increased use of electricity for heat purposes add significant load, but only after 2030.

 

 

(G) Developments in the transport sector

Advanced car technologies (mainly plug-in hybrids and battery electric vehicles) dominate the car market as a result of the CO2 car standards, which continuously tighten.

The biofuels, mostly advanced lignocellulose-based fungible biofuels in the long term, get a significant market share in the non-electrified segments of the transport sector (trucks, ships, aircrafts).

(H) Investments and electricity prices

Investment expenditures are likely to rise considerably in the decade 2020-2030 and beyond.

The projections do not see significant pressures on electricity prices in the medium term, but prices are likely to considerably increase in the long term, mainly due to increasing costs of grids and system services.

Moderate increase in total costs relative to the Reference in EUCO27 and EUCO30. There’s considerable increase in investment in the demand sectors when the energy efficiency ambition increases.  The induced technology progress can offset the increase in the energy costs in the long term. The investment expenditures are likely to rise considerably in the decade 2020-30, a crucial decade for the energy transition, also because of the necessity to extend power grids, upgrade power distribution, build vehicle recharging infrastructure and develop advanced biofuels.

The investment requirements in gas-fired plants are significant after 2025 and until 2050, in contrast to the continuous decrease in the rate of use. The investment in nuclear both for extension of lifetime and new plants is also significant.  The investment outlook is dominated by the massive development of variable RES, notably wind and solar.

On average, the prices of electricity in the EUCO scenarios do not increase in 2030 compared to the Reference projection.  The projections do not see significant pressures on electricity prices in the medium term. The electricity sector restructuring, the sharing of resources in the integrated EU market and the technology learning offset the impacts of ETS. The projection of rising electricity prices in the long term is mainly due to the increasing costs of grids, smart systems and system services. However, the prices increase significantly after 2030.

More information on the winter package scenarios is available online at https://ec.europa.eu/energy/en/data-analysis/energy-modelling

By Pantelis Capros, Professor in the School of Electrical and Computer Engineering, National Technical University of Athens and Director of the E3Mlab/ ICCS.

References

[1] European Commission (2016). http://eur-lex.europa.eu/resource.html?uri=cellar:923ae85f-5018-11e6-89bd-01aa75ed71a1.0002.02/DOC_1&format=PDF

[2] European Commission, COM(2016) 767 final/2, 0382 (COD) (2017) 1–116.

[3] European Commission, COM(2016) 761 final. http://ec.europa.eu/energy/sites/ener/files/documents/1_en_act_part1_v16.pdf.

[4] European Commission, Impact assessment on the revised rules for the electricity market, risk preparedness and ACER, Eur. Comm. Winter Packag. 5 (2016).

[5] The EU’s Intended Nationally Determined Contribution to the UNFCCC.