Why there are limits to the infinite growth in solar power

A few lonely researchers have been warning for years that solar energy is facing a fundamental challenge – but so far nobody seems to be listening to them. Their theory: The breakneck growth of the industry could stop very abruptly. Because: The more solar power is fed into the grid, the less it is ultimately worth it for the producers, at least under certain criteria.

The basic problem is that solar modules generate a lot of electricity on sunny days – often more than is needed, which pushes prices down, now sometimes even in negative territory. But in contrast to a natural gas power plant, the operators of solar power plants cannot simply reduce the electricity generated as required or spread the generation over a day, postpone it into the night or use the dark winter. Solar power is available when it is available – that is, when the sun is shining. And that in turn is the point in time when all other solar power plants also generate electricity with maximum output.

A new Investigation shows nowthat California, which has one of the largest proportions of solar energy on the planet, is already acutely feeling the phenomenon of so-called solar value deflation.

According to the Breakthrough Institute analysis released this month, average wholesale solar power prices in California have fallen 37 percent since 2014 compared to average power prices for other energy sources. In other words: the energy suppliers pay solar systems less overall than all other sources due to their fluctuating generation.

Wholesale prices are basically the amount that energy providers pay power plants for the electricity they then deliver to households and businesses. They fluctuate over the course of the day and the year and for solar system operators rise in the morning, in the afternoon and at other times when there is no oversupply. But the more solar systems that are connected to the grid at the same time, the more frequent and more pronounced are the times of oversupply, which lower these tariffs to the bottom.

Lower prices may sound good to consumers at first. But solar deflation is having a troubling impact on the world’s goals to rapidly expand solar capacity and halt climate change. Because it could be difficult in the future to convince developers and investors to build more and more solar power plants if they could earn less money or even lose some. In fact, the construction of solar systems in California has stagnated since 2018, according to the study. But a state will need industry to significantly accelerate development if it hopes to meet its ambitious clean energy goals. This could soon become a wider problem.

“California is a glimpse of what the rest of the world can expect if we ramp up solar power dramatically,” said Zeke Hausfather, director of climate and energy at the Breakthrough Institute and author of the report. Because while around 19 percent of the electricity generated in California comes from solar energy, photovoltaic systems are also being installed quickly in other regions. In Nevada and Hawaii, for example, the share of solar power generation was around 13 percent in 2019, according to the study. The values ​​in Italy, Greece and Germany were 8.6 percent, 7.9 percent and 7.8 percent, respectively.

So far, the often still high solar subsidies and the rapidly falling costs for solar power in California have offset the solar value deflation. As long as it becomes cheaper to build and operate solar power plants, it is less of a problem.

But it will likely soon become increasingly difficult to accomplish this feat as the proportion of solar power generation continues to rise. If the decline in the cost of building and installing solar panels subsides, California’s solar power deflation could lead the race against falling costs as early as 2022 and continue to climb from then on, the report said. At that point, wholesale prices would be below the subsidized cost of solar panels in the state, undermining a purely economic rationale for building more systems, Hausfather said.

California’s SB 100 law, passed in 2018, requires all electricity to come from “renewable and carbon-free resources” by 2045. By then, according to a model by the California Energy Commission, around 60 percent of electricity could come from solar energy.

The Breakthrough Study estimates that the value of solar energy – or the average wholesale price compared to other energy sources – will fall 85 percent by this point, decimating the economics of solar farms, at least in the form that California’s power grid is today .

But how can we solve the problem? There are a number of ways to mitigate this effect, although none of them are likely to be a panacea. For example, the solar industry may continue to try to find ways to reduce solar costs. Yet some researchers argue that it may be necessary to move to new materials and technologies in order to maintain the dirt cheap levels needed to undercut solar deflation.

A central technical solution: grid operators and developers of solar systems can add more energy storage devices – and they are increasingly doing so. Researchers at the Lawrence Berkeley National Laboratory did a broader study, which was published in the journal Joule in June, pointed to similar problems in California. But the researchers also point out that numerous model studies have shown that the addition of low-cost storage options, including so-called hybrid systems coupled with lithium-ion batteries, could mitigate solar value deflation and allow the technology to run economically.

However, there are probably limits to this, as one study after another shows that storage and system costs rise sharply as soon as renewable energies supply the majority of the electricity in the grid. States and nations could also increase subsidies for solar energy, set up more long-distance transmission lines to allow regions to trade clean power among themselves as needed – or create incentives for customers to shift energy use to times of the day that better match the times of high power generation.

The good news is that each of these moves will ease the transition to cleaner power sources in other ways as well. The problem: It will cost us a lot of time and money. The California solar market reminds us that the climate clock is ticking.

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