Global grid parity and the solar shift

Global grid parity and the solar shift

A report from the World Energy Council (WEC) and Bloomberg New Energy Finance (BNEF) published last week during the 22nd World Energy Congress in Daegu, South Korea, has predicted that renewables worldwide will represent 34% of all installed capacity by 2030. Investment in renewable energy is already shifting to developing nations. The gap in spending on renewable energy between developed and developing countries shrank to 18% last year. In the US, a recent analysis by financial advisory and asset management firm Lazard calculated the levelized cost of energy (LCOE) for wind and solar installations to have fallen by over 50% in the past four years. Worldwide, the cost of using renewable energy sources, and especially the cost of wind and solar technology, has continued to drop, creating exciting opportunities in rural areas. The use of renewable energy is rapidly expanding to such regions, and solar power is a great example of how this is possible.

According to a recent report by Germany’s Deutsche Bank, the global solar market is expected to become sustainable within 12-18 months, no longer having to rely on subsidies to compete against other power sources. Solar photovoltaic (PV) costs have been falling rapidly, and in many regions worldwide grid parity has already been reached. Deutsche Bank recently reported that it is especially optimistic about solar power soon competing with fossil fuels in the UK, US, China, Italy, Germany and Spain. In India, solar power is already cheaper than grid power in several states, even without subsidies, and demand in rural areas has never been higher.

Source: Deutsche Bank

This transformation of the solar industry means the current boom in installing solar systems for both residential and commercial use is expected to continue into the future, without subsidisation, as households and businesses attempt to reduce energy bills in a new era of grid parity.


In China, the world’s biggest solar panel manufacturer, increased capacity and economies of scale have caused module-manufacturing costs to plummet. A recent study by the National Renewable Energy Laboratory (NREL) and the Massachussetts Institute of Technology (MIT) suggests that the sustainability of low manufacturing costs in China depends on global collaboration encouraging technological innovations that can further increase efficiency in manufacturing and design and drive down costs even more, enabling the industry to compete without subsidies (Goodrich et al., 2013). **

So what does this mean for the future of rural energy? Well, of great interest to me was that the study calculated a minimum sustainable price (MSP) for solar panel manufacturing in China and suggested that indigenous factors (low-cost labour, inflation, cost of equity) are not responsible for the significant MSP advantage China has over other countries (Goodrich et al., 2013). In other words, this means there aren’t necessarily any location-specific constraints preventing China’s competitive advantage (which is more due to scale and supply-chain benefits), from being replicated elsewhere over the world.

The study placed emphasis on the benefits of establishing manufacturing facilities over the world and the expansion of international networks working to improve solar technology. It seems to me that now more than ever, developing countries have an opportunity to take advantage of solar power. As the industry enters a new era, lower costs and grid parity mean there is huge potential for unsubsidized solar over the world - especially in rural regions which have not yet been reached by grid-generated power - reflecting the global shift of renewables growth to developing nations.

**On a side note, a French-German research team recently broke the record for the world’s most efficient solar cell yet, at 44.7% conversion efficiency. Assuming that this higher efficiency will equate with lower costs in the future, this is good news for rural renewable energy generation. But as pointed out in this CleanTechnica article, there are different ways of measuring conversion efficiency. It’s also more complicated when you consider the variety of different solar technologies that are now out there, all of which have different properties and work in different ways. I’ll be reviewing some of these different technologies in another post soon, and discuss which are most appropriate for rural energy use!

Introduction

1.3 billion people globally do not have access to electricity. The International Energy Agency (IEA) estimates that 84% of these live in rural areas. More than 95% of those without energy access are in sub-Saharan Africa and Asia.

Countries with the largest population without access to electricity, 2010

Source: IEA

Energy is a key driver of development and access to a reliable source of energy can transform impoverished areas. In developing countries, the electrification rate for rural areas is only 64%, compared to 92% in urban areas. In the rural areas of developing countries, biomass fuels provide the majority of energy. According to a recent report by Deloitte, in India, 85% of all rural energy is provided by biomass fuels (fuel-wood, crop residues, animal dung), which are highly inefficient and often have serious environmental impacts.
(See: Global Tracking Framework report – The World Bank)

An obvious solution is providing isolated and remote communities with renewable sources of clean energy, and electrifying rural areas with renewable energy at a large scale has now become a viable prospect. Supporting rural households and businesses with a supply of energy independent of national or regional grids is an exciting solution that in recent years has promised to foster sustainable economic and social development at minimal environmental cost.

Global carbon dioxide emissions continue to rise, and the threats posed by climate change are becoming increasingly tangible. Expanding the use of renewable energy worldwide has become more important than ever before, and is now possible as a result of new technology bringing down the cost of renewables. In addition, the increasing cost of using national grids, compounded by rises in the global wholesale price of energy, has helped stimulate the growth of renewable energy markets in developing countries. 

For the next few months, this blog will track developments in global efforts to bring renewable energy solutions to rural areas, and will consider how this relates to the wider context of environmental sustainability and climate change.