£100 bet against solar power - who won?

cepheus

Hardly Surprising, grid parity has not been reached and will be unlikely to in the UK

Solar may be popular but environmentalists must be hard-headed about how to reduce CO2 in the cheapest way

Three years ago, in the course of our debate about the best means of generating electricity, I bet £100 against a claim made by Jeremy Leggett, chairman of the company SolarCentury. He had asserted that domestic solar power in Britain would achieve grid parity by 2013. This means that it would cost householders no more than conventional electricity.

"Grid parity for domestic scale solar power has not been reached. The feed-in tariff scheme currently provides generation tariff of 15.44p per kWh, plus an export tariff of 4.64p per kWh for domestic scale installations."
Here is the source (pdf) it gave me.

In other words, though the subsidy has come down sharply from 2010, which partly reflects a real decline in the price of solar power and partly reflects the extraordinary generosity of the initial tariff, we're a long way from grid parity.

http://www.guardian.co.uk/environment/georgemonbiot/2013/jun/21/solar-power-wind-nuclear-carbon-electricity

Martyn1981

Long answer.

Thought I’d have a go at this, but immediately hit the same problem, what does grid-parity mean? I like the definition given in the article:

"Grid parity can be defined as the point at which government support for a technology is no longer required."

But, the current domestic support doesn’t stop with south facing, southern based roofs. It extends to off-south, and northern based roofs. So I’m going to create my own definition:

“When the technology first becomes viable, in a semi-ideal situation, before expanding to encompass less ideal installs.” – Not sure if that is fair, but it seems to me the way any technology first begins to stand on its feet. I choose semi-ideal, rather than ideal, as ideal would cater for perfect locations, with perfect generation, and perhaps 100% consumption, and I don’t feel that would be a true breakthrough point.

Right, so here’s the situation, location southern, almost certainly south of the M4 corridor, with a 4kWp system facing due south, at a pitch of around 35 to 45 deg, generating 4,000kWh’s pa (1,000kWh’s/kWp) and costing £5,000. [I think £5k cost is on the low side, but not unreasonably low, and 4MWh’s pa high, but again, not unreasonable – again, looking for a good, but achievable situation]

Next tricky part, is the annual cost and incomes. I’m not entirely sure I’m calculating this correctly, but for annual costs I’m thinking of depreciating the system over 20 years, and charging a cost of capital @ 3%, so I get the following:

£5,000 / 20 years = £250pa + £5,000 @ 3% = £150pa = Total £400pa
£400 / 4,000kWh’s = 10p/kWh

[I’m thinking that as the depreciation cuts the outlay by £250pa, then the cost of capital falls by an equal percentage, thus off-setting panel degradation losses and a replacement inverter – but I’m not sure if this is the correct way to calculate this?]

Next, we need a price comparison, and I’ve chosen EBICO’s price as it’s a ‘petrol forecourt’ price. In other words it is all in. This varies from region to region, from around 15.5p to 17.5p, so I think 16p is not unreasonable.

Clearly 10p is cheaper than 16p ….. but this is not entirely fair, since I said earlier that 100% consumption was not a reasonable assumption (fair for some commercial installs, such as a supermarket, but not for a residential install), so I’m going to go for a reasonable 35% consumption / 65% export. So that gives us weighted values and annual totals as follows:

Import savings 16p @ 35% = 5.6p 5.6p * 4,000 = £224pa
Export earnings 4.64p @ 65% = 3p 3.0p * 4,000 = £121pa
Totals: average price 8.6p and £345pa

Both the unit value, and the annual total fall short of the necessary 10p & £400. So at this stage I would say that domestic PV in the UK has not yet begun to hit parity. However, it doesn’t end there. If we take a 25 year view, then the figures become:

£5,000 / 25 years = £200pa + £5,000 @ 3% = £150pa = Total £350pa
£350 / 4,000kWh’s = 8.75p/kWh

This time we are pretty much there. But let’s delve a little deeper. Is the price we pay for our leccy (in our bills) the full price we pay for our leccy? Our bills don’t reflect nuclear costs, which are ‘hidden’ in general taxation, so we pay for it elsewhere. I’ve never been able to find a definite figure for nuclear generation subsidies, but many guesstimates are 5p/kWh (nuclear only generation). This is remarkably similar to the recent guestimates that new nuclear will receive 5.5p subsidy for 40 years. So divided into total generation that is about 1p/kWh. Next if you divide the budget for nuclear decommissioning (£2.3bn) by total generation, you get (approximately) another 1p/kWh of total generation. Popping that 2p into the calculation gives us:

Import savings 18p @ 35% = 6.3p 6.3p * 4,000 = £252pa
Export earnings 6.64p @ 65% = 4.3p 4.3p * 4,000 = £172pa
Totals: average price 10.6p and £424pa

So this time round, we appear to be hitting the 20 year calculations.

But, let’s delve even deeper, our current pricing doesn’t take account of carbon costs. Now, not everyone will agree with this part, but in fairness, if there isn’t a carbon issue, then there is no need for an early move to renewables (and no need to read any further, perhaps!). So carbon costs, again I’m not very sure on the exact method(s) of calculating these, but I believe estimates of cost/impact are around £45/tonne, which would appear to equate to around 2p/kWh with current carbon intensity of our grid (very rough estimation, not sure I have this bit right). Inserting this ‘missing’ 2p into the calculation, now gives us:

Import savings 20p @ 35% = 7.0p 7.0p * 4,000 = £280pa
Export earnings 8.64p @ 65% = 5.6p 5.6p * 4,000 = £224pa
Totals: average price 12.6p and £504pa

I’ve no idea if these numbers stand up to scrutiny, and I’m sure many people will challenge a lot of the assumptions I have made, but at least I’ve given it a go!

Short answer.

A FIT rate of 7p for domestic installs in the south west, with suitable south facing roofs works today, in that it gives an acceptable rate of return. 7p is less than current off-shore wind subsidies, and the proposed nuclear subsidies. Mr Monbiot (reluctantly) supports these technologies, saying:

“It was this process which, after my initial enthusiasm, turned me away from solar power in the UK and led to my reluctant endorsement of large-scale wind and (later) nuclear power as the UK's most viable sources of low-carbon electricity.”

If PV can undercut the technologies he supports on a cost/kWh basis …… then …..

Mart.

malc_b

Cost wise you have no allowance for repairs in the 20yrs or degradation of the output. You can design kit to last 20yrs but you still get random failures and I doubt PV kit is designed for 20yrs more likely 5yrs life, perhaps 10 if you're very lucky, before electrolytics dry out.

Also, for such a long term investment should you not compare against the stock market rather than cash savings rate?

Martyn1981

malc_b wrote: »

Cost wise you have no allowance for repairs in the 20yrs or degradation of the output. You can design kit to last 20yrs but you still get random failures and I doubt PV kit is designed for 20yrs more likely 5yrs life, perhaps 10 if you're very lucky, before electrolytics dry out.

Also, for such a long term investment should you not compare against the stock market rather than cash savings rate?

Hiya malc, as I said, lots of assumptions. Tried to cover degradation and inverter in this bit:

[I’m thinking that as the depreciation cuts the outlay by £250pa, then the cost of capital falls by an equal percentage, thus off-setting panel degradation losses and a replacement inverter – but I’m not sure if this is the correct way to calculate this?]

but I'm not sure if this is a correct approach or not. Hopefully an accountant (or mathematician) can concur.

I can't remember if it was SMA or Aurora, but one of them is estimating (hoping?) that their inverters will actually last 10 to 20 years now. But I don't know if that is true. However, one of my inverters has a standard 12 year warranty, with a 20 year upgrade for about £300 (I think). But my older inverters are admittedly only 5yr standard warranties.

Regarding cost of capital, I genuinely don't know the right approach. I've read that companies consider it to be about 7%, but householders 2 to 3%. Going back 3 years or so, when a PV system cost £15k to £20k I suppose comparisons with long term investments would be more appropriate. My thinking here, is that £5k is more the amount that some lucky people will have in an ISA, not sure what to do with, but there just in case - but not a smaller rainy day fund (1%?), or larger longer investment (5%?).

As explained, none of the calcs are rock solid, as I've made many assumptions, however, I hope the assumptions are at least 'reasonable'.

Mart.

Martyn1981

Jeremy Leggett's response to George Monbiot:

http://www.guardian.co.uk/environment/blog/2013/jun/24/solar-nuclear-power-climate-change

Solar power still better than nuclear in the fight against climate change

I concede I've lost the £100 bet, but it's a folly to put faith in costly reactors to cut emissions

Nice little article/blog.

Mart.

cepheus

I thought it might be interesting to rejuvenate this thread after reading this.

Solar loses out in renewables auction

This is the first time the technologies have been forced to bid against each other for government support.

The solar power industry says it has suffered a huge blow from its cut in support.

Offshore wind, still in relative infancy, is the biggest winner with 1,162 megawatts receiving public support to 2019. Onshore wind will get support for 749MW.

The biggest loser is solar, with public support for just 71MW – a figure that the industry says will result in a big drop in its market.

Solar is expected eventually to become the top source of energy globally by 2050 as the technology continues to improve.

If you remember, my view is that solar is unlikely to become cost effective, for this country as a whole and we should be concentrating on more cost effective renewables such as wind and conservation. This situation remains the case in high latitudes such as the UK.

Ectophile

There's a lot that the article doesn't say.

If the FITs are going to continue for new installs, then solar is pretty much self-supporting these days. I don't see it needing any additional subsidies.

Off-shore wind is horrendously expensive to install, and the prices aren't coming down as expected. I suspect that the government may only be subsidising it because people are bailing out of off-shore wind farm projects at the moment, and new installs are likely to grind to a halt without lots of government money. Off-shore wind is likely to suffer less from NIMBYs than on-shore.

There was no mention in the BBC article about energy storage. If we are going to switch more and more to renewables, then we really need some way to store large amounts of spare energy when it's windy and/or sunny. A handful of pumped-storage hydro stations scattered around the country isn't going to be anywhere near enough.

Martyn1981

cepheus wrote: »

I thought it might be interesting to rejuvenate this thread after reading this.



If you remember, my view is that solar is unlikely to become cost effective, for this country as a whole and we should be concentrating on more cost effective renewables such as wind and conservation. This situation remains the case in high latitudes such as the UK.

So you claim that wind is more cost-effective than solar? But the maximum CfD for PV is already much lower than that for off-shore wind (£120 v's £155 per MWh)? And on the small scale the FiT for PV is lower than that for wind (and falling fast)?

Also PV is rapidly closing the gap with on-shore wind, the max CfD rates for 2014/15 being wind £95 and PV £120 moving to 2018/19 being wind £90 and PV £100.

Also, you failed to point out that in that CfD auction, the first for PV, it was placed in the 'toughest' group 'established', having to compete directly with on-shore wind, rather than with off-shore wind in the 'less established' group, despite most analysts saying that it wasn't yet ready.

Also, you failed to point out that the 5 winning PV bids came in lower than all of the other bids, including on-shore wind (admittedly one wind project matched the highest PV price).

Contracts for Difference (CFD) Allocation Round One Outcome

I was going to post this story in the PV News thread yesterday, but thought I'd wait and learn more as those CfD's of £50/MWh seem stupidly cheap. With the current supply price of leccy that would pretty much mean unsubsidised. I figured such good news might get criticised, if there was some sort of error, or if the schemes don't actually get built - but didn't anticipate anyone criticising the good news simply for being good news!

Regarding small scale demand side PV, then obviously you're way out of date, as it's already the cheapest technology, and costs far less than the supply price of leccy,* so it's cost effectiveness now depends on the ability to use it on site, and the development of supporting technologies such as storage.

So to sum up, you state that PV is unlikely to become cost-effective and we should concentrate on wind, even though PV is now competing directly with on-shore wind (having already spanked off-shore wind, and small scale wind)?

All of these arguments aside, my view still remains that we should be concentrating on demand side PV, not supply side:

1. It's probably the only technology that can do this, since economies of scale are small (therefore diseconomies of scale are also small),

2. Since PV has a concentrated generation pattern (daytime and BST months) there is a limited amount of PV that can be installed before the grid will struggle (without storage) and this amount (20-30GWp) can be installed on demand side roof-tops.

3. Encouraging demand side investment increases the available monies for investment in renewables, and 'involves' the public and companies in renewables.

*A well sited 4kWp system costing £5k, and purchased via a 4% mortgage (to simplify all costs including depreciation) with an inverter replacement after 12 years would price the leccy at 9p/kWh. For a new build with costs at £4k or less, the unit cost would be around 7p/kWh.

Mart.

Martyn1981

Possibly worth a quick re-cap regarding the thread title and the £100 bet. This involved George Monbiot and his anti-PV position, and that ludicrous, nonsense filled article he wrote 5 years ago, concluding that PV is simply too expensive.

At the same time he was supporting nuclear on the grounds that he doesn't like (nor want it) but it is probably too important to dismiss.

Bearing these points in mind it may be worth looking at those CfD bids again and comparing them to the £93/MWh that nuclear is to get when it is finally built (2025?). [Nuclear CfD's are for 35 years v's the 15 for wind and solar.]

It's not unreasonable to conclude that even off-shore wind may join on-shore wind and PV, by being cheaper than nuclear by 2025*.

Perhaps Monbiot can put the £100 towards buying himself a new crystal ball, or some replacement credibility?

[Edit * good news article on off-shore wind costs:

Giant turbines driving down offshore wind costs, study finds

The report provides further evidence that the industry is on course to deliver the target set by the UK government of £100/MWh by 2020.

close edit. M.]

Mart.

Generali

In Aus my BiL is buying a system on credit. His HP payment is about $20 a fortnight and the solar reduces his electricity bills to about $0. This is despite paying about 4x the price for electricity as he receives for generating it.

cepheus

Australia would be ideal for solar especially the dry areas, so no comparison.

Martyn1981 wrote: »

2. Since PV has a concentrated generation pattern (daytime and BST months) there is a limited amount of PV that can be installed before the grid will struggle (without storage) and this amount (20-30GWp) can be installed on demand side roof-tops.

I would certainly agree with this. Solar works best in countries with need for cooling in summer.