Solar
power has become cheaper than grid electricity across China, a
development that could boost the prospects of industrial and commercial
solar, according to a new study.
Projects in every city analysed
by the researchers could be built today without subsidy, at lower prices
than those supplied by the grid, and around a fifth could also compete
with the nation’s coal electricity prices.
They say grid parity
– the “tipping point” at which solar generation costs the same as
electricity from the grid – represents a key stage in the expansion of
renewable energy sources.
While previous studies of nations such as Germany
and the US have concluded that solar could achieve grid parity by 2020
in most developed countries, some have suggested China would have to wait decades.
However, the new paper published in Nature Energy
concludes a combination of technological advances, cost declines and
government support has helped make grid parity a reality in Chinese
today.
Despite these results, grid parity may not drive a surge in the uptake of solar, a leading analyst tells Carbon Brief.
Competitive Pricing
China’s solar industry has rapidly expanded from a small, rural programme in the 1990s to the largest in the world. It is both the biggest generator of solar power and the biggest installer of solar panels.
The installed capacity of solar panels in China in 2018 amounted to more than a thirdof the global total, with the country accounting for half the world’s solar additions that year.
Since
2000, the Chinese government has unveiled over 100 policies supporting
the PV industry, and technological progress has helped make solar power
less expensive. This has led to the cost of electricity from solar power
dropping, as demonstrated in the chart below. Chart showing the historical levelised cost of electricity (LCOE) from solar power in China. Source: Yan et al. (2019).In their paper, Prof Jinyue Yan of Sweden’s Royal Institute of Technology
and his colleagues explain that this “stunning” performance has been
accelerated by government subsidies, but has also seen China
overinvesting in “redundant construction and overcapacity”. The authors
write:
“Recently,
the Chinese government has been trying to lead the PV industry onto a
more sustainable and efficient development track by tightening incentive
policies with China’s 531 New Policy.”
The
researchers say the subsidy cuts under this policy in 2018 were a
signal that the government wanted to make the industry less dependent on
state support and shift its focus from scale to quality.
This,
they say, has “brought the industry to a crossroads”, with discussions
taking place in China about when solar electricity generation could
achieve grid parity.
In their analysis, Yan and his team examined
the prospects for building industrial and commercial solar projects
without state support in 344 cities across China, attempting to gauge
where or whether grid parity could be achieved.
The team estimated
the total lifetime price of solar energy systems in all of these
cities, taking into account net costs and profits, including project
investments, electricity output and trading prices.
Besides
establishing that installations in every city tested could supply
cheaper electricity than the grid, they also compared solar to the price
of coal-generated power. They found that 22% of the cities could build
solar systems capable of producing electricity at cheaper prices than
coal.
Embracing Solar
Declining costs
of solar technology, particularly crystalline silicon modules, mean the
trend in China is also playing out around the world. In May, the International Renewable Energy Agency (IRENA) said that by the beginning of next year, grid parity could become the global norm for the solar industry. Kingsmill Bond, an energy strategist at Carbon Tracker,
says this is the first in-depth study he has seen looking at city-level
solar costs in China, and is encouraged by this indication of solar
becoming ever-more competitive. He tells Carbon Brief:
“The
conclusion that industrial and commercial solar is cheaper than grid
electricity means that the workshop of the world can embrace solar.
Without subsidy and its distorting impacts, and driven by commercial
gain.”
On the other hand, Jenny Chase, head of solar analysis at BloombergNEF,
says the findings revealed by Yan and his team are “fairly old news” as
the competitive price of rooftop solar in China has been known about
for at least a year.
She notes that this does not mean there has
been a huge accompanying rollout of industrial and commercial solar, and
says this is partly because of the long-term thinking required for
investment to be seen as worthwhile. Workers
install solar panels on the rooftop of a textile factory in Nantong,
China. Credit: Imaginechina Limited / Alamy Stock Photo.The
lifetime of a PV system tends to be around two decades, whereas the
average lifespan of a Chinese company is only around eight years,
according to Chase. Furthermore, there is an even simpler explanation,
as she explains to Carbon Brief:
“There’s also the
fact that companies just can’t be bothered a lot of the time – there are
roofs all over Europe where solar could probably save money, but people
are not jumping to do it.”
According to Chase, a “much more exciting” development came earlier this year, when the Chinese government developed a policy for “subsidy-free solar”.
This involved guaranteeing the current coal-fired power price to solar plants for 20 years, creating what is essentially a low feed-in tariff and leading to what she describes as “a lot of nice, low-risk projects”.
As
for the beneficial effects of grid parity, based on how things have
played out in countries where it has already been achieved, Chase says
it does not necessarily mean a significant uptake of solar power will
follow:
“Grid parity solar is never as popular as
subsidised solar, and ironically you don’t generally have a rush to
build grid parity solar because you may as well wait until next year and
get cheaper solar.”
Policy Proposals
In
their paper, Yan and his team lay out policy changes they think would
help provide an economic incentive, in combination with grid parity, to
encourage the uptake of solar power systems.
Technology costs may
have fallen for smaller solar projects of the type being deployed on the
rooftops of businesses, but they note that the so-called “soft costs” –
including installation and maintenance – tend to be “very impactful”.
Specifically,
they say aspects such as financing, land acquisition and grid
accommodation, which make up over half the total cost, could be cut
down:
“Labour costs are not significant [in China]
because of the relatively low wages of direct labour and related
installation overhead. Customer acquisition has largely been achieved in
China by the mature market, with customers’ familiarity with PV
systems, and with the perception that PV systems are a reliable
technology. However, policymakers should consider strengthening the
targeted policies on the following soft costs.”
Among the measures
they suggest are new financing schemes, an effort to “streamline” the
complicated procedures and taxes involved, and more geographically
targeted government policies.
As their analysis showed the price
of solar electricity had fallen further in some cities than others, the
researchers recommend targeting future subsidies at the cities that are
performing less well – keeping costs to a minimum while still providing
support when it is most needed.
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