Solar, a prominent part of renewable

• Global consumption of electricity continues to rise backed by enhanced economic growth
• Increasing focus on renewable power generating sources with solar among the top
• Lower input costs, technological advancements and government policies driving solar power capacity

The power sector has been a major pillar of the world economy along with other segments. The commercial, residential or industrial sectors all require electricity. Moreover, with the expansion of the global economy, the demand for power is increasing at a rapid pace. One of the major factors driving the demand is a wide distinction between per capita consumption of electricity across the world. The per capita consumption of electricity stayed the highest for the US at almost 11500 kWh, while for the emerging economies like China and Brazil this was lower and was nearly 2700 and 2400 kWh. This was also low for India at ~700 kWh. The reading was the lowest for underdeveloped regions in South Africa and parts of South America. 

Hence, as emerging and under-developed nations enhance their economic growth, the consumption of electricity will rise at a sharper pace and will eventually lead to an increased investment in the sector. According to the IEA (International Energy Agency), the total global installed power generation capacity stood around 5950 GW (2013) and this may rise to 10700 GW (2040). Notably, as the demand for electricity grows in the world so will its impact on the environment. Historically, the global power generation depended upon fossil fuels and the 2012 data from the IEA states that the production from coal, oil and gas accounted for over two-thirds of the total generation. Furthermore, around 11% was contributed through nuclear and the balance of 20% came from renewables (mostly hydro). Thus, a traditionally high usage of fossil fuels has led to a persistent unfavourable impact on the environment in terms of GHG (Green House Gases) emissions amongst others.

In order to counter the effects on the environment, several governments have initiated policy frameworks to encourage power generation through renewable sources, especially in the past decade. The share of Renewable Energy (RE) in terms of the capacity, power generation and prospective investment is rising with the major focus on wind and solar.

In the present blog, Televisory evaluated the historical trends, current scenario and future growth potential for the solar power generation internationally.

Renewables (green energy) have taken a major lead in the global power space during the last decade as mentioned above, with the global renewable energy power capacity increasing at a CAGR of 8.2% from under 1000 GW to ~2000 GW ([2016], Source; IRENA: International Renewable Energy Agency). In this, solar started from a low base and saw an incremental rise in the capacity, registering a CAGR growth of 47.1%, which was the highest in the RE space. The total solar power capacity increased from 9.2 GW (2007) to 295.7 GW (2016). Further, solar capacity share in total RE capacity increased to 14.7% from under 1% in the aforementioned period. An examination of the net capacity additions during the last ten years reveals that RE saw a total addition of 1071 GW (2007-16). Solar power capacity witnessed an addition of 289 GW and lagged behind wind (393 GW) and hydro (324 GW). In 2016, the solar power additions shot-up significantly, with a net addition mounting to 71 GW and marked 44% of the total increase, this was 161 GW for RE.

It is noteworthy to mention that the solar power capacity grew steadily during the past decade backed by the technological advancements and an identical support received through governmental policies, where many nations provided tax concessions in order to boost the solar power plant projects. However, 2011-12 was a game changer for this industry as PV (Photovoltaic) prices fell globally. Solar panels are mainly made up of PV technology or use concentrated solar power, of this PV makes up nearly 95% of the total capacity and generation. PV module which makes up the major portion of the input costs in solar power generating system saw its capacity rising steadily between 2007-11. While the demand for the end product was increasing, the growth in the module production was higher than the actual requirement from the power generation space and thus, led to huge unutilized capacities. The module capacity peaked in 2011, while prices started falling from 2009-10, and crashed in 2011 and in the following years. Hence, on an average PV module prices slumped by approx. 80% during the 2009-15 period. While the module developers suffered, this provided an additional relief to the end product users, specifically the solar power generation industry.

Simultaneously, as the technological advancements continued, this along with the government support pushed the LCOE (Levelised Cost of Electricity) for solar power segment to a low level. LCOE measures the lifelong cost of the power plant including the set-up cost, operations and maintenance and is compared with the total production that the plant generates. According to the preliminary data from IRENA, solar PV LCOE fell over 62% ([2010-16] Avg. LCOE).

While the above data shows that the LCOE for solar PV is still not the best as compared to the wind onshore and hydro among the majors on an average reading, it has become increasingly competitive both for the power generating source within the RE and the non-RE space. Additionally, for solar, there has been a further amelioration as one delves deeper into the projects, which were planned for 2016 and 2017. According to the IRENA auctions for solar energy were contracted at an average price of USD 0.050/kWh (2016), this was lower than the preliminary forecast. Wind too saw a decline in the average contracted price, though the pace was less as the technology is in the much-advanced stage as compared to the solar. A number of countries pushed auctions for power projects in the RE space, with the major being India, Canada, Mexico, Argentina, Morocco, UAE and Saudi Arabia. India completed big levels of solar auctions with various projects driving a combined size of 6500 MW (2016) at an average set-up cost of USD cents 7.3/kWh. In addition, record low levels of solar auctions were achieved across segments in Dubai (late 2016), where a consortium of Japanese and Chinese firms bade at USD cents 2.42/kWh for a 350 MW project. Further, bade went as low as USD cents 1.79/kWh for 300 MW solar plant in Saudi Arabia (2017).

Thus, in the long-term, the growth in the solar space seems healthy. The IEA 2014 report forecast global cumulative capacity additions of roughly 7200 GW (2014-40), with net additions of 4750 GW and 2450 GW of this would need replacement due to old plants getting retired. The net additions of RE projects would be 60% of the total estimated 2850 GW (after accounting for retirements of 880 GW). It is significant to note that retirements for RE based plants will be the highest during the period covered (2014-40) as the life cycle of the wind and solar plants remain lower (25 years) as compared to the fossil fuel based plants (40-50 years) and hydro (70 years). Further, under RE, the wind power capacity will be expanding with the highest value of 975 GW (net) followed by the solar PV standing at about 775 GW (net). This, if implemented, would lead to a total RE share in the global power capacity at 42% (2040), this will be higher from under 30% (2014), while the share of solar based plants would increase more than 4x from ~2% lately to ~9% (2040). The projected overcapacity additions are based on the New Policies Scenario (NPS) of the IEA. According to the definition, NPS is ‘The central scenario in WEO-2014 describes a pathway for energy markets based on the continuation of existing policies and measures as well as the implementation (albeit cautiously) of policy proposals, even if they are yet to be formally adopted.’

Therefore, to summarise, the future of solar-based power generation appears rosy over the medium to long-term period. Pressed by the rising concerns over GHG emissions and in order to counter the problem of climate change, governments across the cosmos are working cohesively to develop more sustainable and cleaner power generation sources wherein solar is bound to benefit. In the past decade, technological innovations, fall in key system-input costs as well as supportive government policies did push solar power sector to the centre stage. On a positive note, this technology is yet to attain maturity which will append with economies of scale and is further anticipated to drive costs lower and may help in alleviating the small but critical hiccups over low the life cycle of plants. Notably, the significance of power generation via solar lies with the fact that it fits into all segments of the value chain. Solar power systems can be installed in residential houses, commercial complexes, industrial regions and in a much wider area developing solar farms. This can vary from small power grids to big utility-scale installations. This kind of flexibility in terms of the usage is unavailable with any other source of power generation and thus, adds extended value to the solar power generation and consumption space. Lastly, if government support continues for the sector, the sky will be the limit for the growth in the upcoming years.