A recent study by the Brussels-basedEuropean Photovoltaics Industry Association (EPIA) predicts that the price of PV systems will decrease by up to 51 percent over the coming decade, cutting the cost of PV-generated electricity by a similar amount. The EPIA analysis suggests that PVs will become competitive with conventional energy sources in Europe by 2020, including some of the northern sections of the European continent. The report also notes that some market segments will see this occur by as early as 2013.
The full report, Solar Photovoltaics Competing in the Energy Sector – On the Road to Competitiveness, was presented and discussed with CEOs of the industry and the energy sector at the8th European PV Industry Summitduring the 26th European Photovoltaic Solar Energy Conference and Exhibition (EUPVSEC) in Hamburg.
Partnering with the strategic consulting firm A.T. Kearney, EPIA analyzed the five major European electricity markets in France, Germany, Italy, Spain and the United Kingdom by comparing the projected cost of PV-generated electricity to other energy sources over the next decade. What they found was that PV module costs will decrease by 20 percent every time the cumulative volume of PV modules sold doubles. EPIA also noted that there is "huge potential for further generation cost decline" during the next decade. It is those declining prices for PVs that EPIA says are the key to PV-generated electricity’s coming competitiveness.
Declining Cost of PVs
The report calculated the cost of PVs using the “levelized cost of electricity” (LCOE), which is the total output of a PV module over its lifetime divided by the total cost of its installation and maintenance. According to the EPIA, the cost of a kilowatt-hour of PV-generated electricity, which ranged from $0.21 to 0.47/kWhin 2010, will fall to between $0.08 and $0.24/kWh in 2020, depending on the size and location of the PV installation. The EPIA came up with these numbers assuming that future technological improvements would extend the lifetime of PV modules to 35 years by 2020, compared to the current 25 year lifetime.
The EPIA also assumes the annual cost of conventional electricity will increase between 3.8 percent for Italy, to 6.7 percent for the UK - an 80 percent overall increase for the UK between 2011 and 2020.
These costs compare with generation costs of about $1.23 for coal in Germany in 2010, according to data from the Organization of Economic Co-operation and Development. Germany, which aims for a 35 percent share from renewable energy by 2020, already derived more than one fifth of its total power from renewable sources in the first six month of the year, according to the Federal Association of the Energy and Water Industry (BDEW). Early in 2011, PVs became the driving force in renewable energy growth for Germany even though that country receives roughly the same amount of sunlight as Alaska.
The European Union as a whole is aiming to raise its share of renewable energy as to one-fifth of total energy consumption by 2020. That, in contrast with the United States, which generates only 10 percent of its electricity from renewable sources, 6 percent of which comes from hydroelectric power.
Italy Key to EPIA Findings
According to EPIA, Italian electricity prices are among the highest in the world, with households paying roughly $0.31 per kWh in 2007. That is nearly twice as much as it costs in France, the world’s highest net exporter of electricity.
But the EPIA study notes that “dynamic grid parity,” the point at which long-term revenues from PVs become equal to that from traditional energy supplies, could be reached in Italy as early as 2013 in the commercial segment, with residential installations predicted to reach that milestone two years later. The report also found that "generation value competitiveness", where the value of adding PVs to the energy mix from an investor’s point of view is equal to conventional energy sources, could be reached in Italy by 2014.
EPIA compares those numbers to the prospects for the UK, the least sunny and furthest behind in developing a PV market. For the UK, commercial grid parity is not predicted until 2017, followed by residential parity in 2019.
“Considering all of these factors, it is clear that dynamic grid parity could occur in Italy in 2013 in the commercial segment, and then spread all across the continent in the different market segments by 2020,” concludes the EPIA report.
As EPIA admits in its report, the cost of both PV generation and that of conventional energy sources could vary dramatically in the coming years so predictions of any kind are speculative. But EPIA's more than 240 members, including U.S.-based First Solar, the world's No. 1 solar company by market value; SMA Solar, Germany's No.1 solar company; and China's Suntech Power Holdings, the world's No. 1 PV manufacturer, are probably hoping they are right.
EPIA also adds a caveat in that it notes that these findings are made assuming government support programs, such as feed-in tariffs, will remain in place until full competitiveness occurs. EPIA suggests that those government subsidies should then be phased out.
EPIA also suggests that the move towards competitive PV-generated electricity across Europe will require political commitment toward a regulatory framework designed to support further research and development to increase PV conversion efficiencies and PV module lifetimes.
Despite the speculative nature of the report, EPIA stands by its belief that PVs are clearly moving towards a true competitive position:
“One thing is clear in all of the scenarios,” concludes the report. “When it comes to the growing PV competitiveness, the defining issue is not price, which has been coming down for years and will continue to do so under almost all circumstances. The PV industry is fully committed to further decrease the price should European governments make the right political choices. PV is one of the world’s most promising energy sources and is on the way to competing in the energy sector.”