Low-Carbon Energy Economy Workshop – Cambridge MA
The Future of Solar Energy
An Interdisciplinary MIT Study
Francis O’Sullivan
May 26th, 2015
The scale and distribution of the solar resource make it one of the few low
carbon technologies capable of meeting a substantial fraction of
worldwide electricity demand even with rapid economic growth.
Map showing global variations in average annual solar irradiance
With today’s technology, total U.S. electricity demand could be
met by solar covering 0.43% of the contiguous U.S.
Source: Map adapted from Albuisson, M., M. Lefevre, and L. Wald. Averaged Solar Radiation 1990-2004, Ecole des Mines de Paris. (2006).
2
Two pathways for generating solar electricity; PV will likely dominate
solar electricity generation for the foreseeable future
Solar photovoltaics (PV)
Concentrated solar power (CSP)
-
Mature:
97% of global solar
capacity (~200 GW)
-
Modular:
efficiency does not
depend on scale
-
Output responds
immediately to
changes in
insolation
-
Less mature,
more expensive
-
Capital costs
fall with scale
-
Needs clear skies
Dispatchable when
thermal storage is
added
3
Since 2008 U.S. grid-connected PV capacity has grown from less than 1GW
to more than 18GW, while CSP has grown to 2.2GW – Solar now accounts for
one third of all new U.S. generation capacity
Annual PV capacity additions by system type
MW
Cumulative PV capacity by state
MW
Other
7000
6000
20000
Utility
New Mexico
Commercial
Texas
Residential
16000
New York
5000
Hawaii
12000
4000
Nevada
Massachusetts
3000
8000
North Carolina
2000
New Jersey
4000
Arizona
1000
California
0
0
2008
2009
2010
2011
2012
2013
2014
2014
Global installed solar capacity now stand at about
200GW, a 12X expansion since 2008
Source: MIT Analysis, National Renewable Energy Laboratory, Lawrence Berkeley National Laboratory, Solar Energy Industry Association, European Photovoltaic Industry Association, IHS
4
Solar now accounts for about 1% of global generation, but will the recent
rapid growth continue and yield the 50x scale-up needed by mid-century?
Rapid declines in PV module prices
have been important drivers of
growth
Evolution of PV module & system prices
$/Wp
… but these declines may have slowed
RESIDENTIAL
PV System
… and BOS costs have declined much
less rapidly
UTILITY
PV system
Deployment support at federal,
state, and local levels has also
driven growth
… but federal subsidies are scheduled to
be drastically cut from 2017, and
state programs have not expanded
recently
… and there has been a backlash
against rooftop solar in some states
MODULE
Price Drop
~85%
BOS
MODULE
Source: MIT Analysis, National Renewable Energy Laboratory, Lawrence Berkeley National Laboratory, U.S. Department of Energy, Solar Energy Industry Association, Photon Consulting
LLC
5
Encouragingly, with these costs, utility-scale PV is increasingly competitive in
high solar resource areas like CA, even without subsidy
Photovoltaic Systems
Levelized cost of electricity
$/MWh
350
300
CSP Systems*
ITC Subsidy Value
After Subsidy LCOE
331
Benchmark Natural Gas
Generation LCOEs
287
Regional variation
250
Minimum LCOE
192
200
158
141
150
123
105
100
76
50
0
Gas Combined
Cycle
Gas
Combustion
Turbine
CA
MA
Utility-Scale PV
CA
MA
Residential-Scale PV
* CSP LCOE numbers based on CA system having 11 hours and MA system having 8 hours of nameplate capacity storage
Source: MIT Analysis, U.S. Energy Information Administration
CA
MA
CSP
6
In competitive power markets, increased solar PV penetration will reduce the
average price that PV generators receive – This means that for solar to succeed
at very large scale, its costs must be reduced substantially
Illustration of how the price a solar generator receives for its output can fall well
below the average market price as solar penetration increases
$/MWh
60
55
50
45
40
35
30
25
20
0
Source: MIT Analysis
6
12
18
24
Solar Penetration
(% Peak Demand)
30
36
7
In light of all this, what needs to be done now to make it more likely that
solar energy can play a major role in limiting climate change?
Three main messages:
1. A long-term approach should be taken to technology
development
2. Preparation should be made for much greater
penetration of PV generation
3. Subsidies for solar deployment should be reformed
to improve their efficiency
8
Message 1:
A long-term approach should be taken to technology
development
What that means in practice:
Federal R&D spending should focus on emerging technologies with
the potential to deliver transformative cost reductions; the private
sector has the incentives and ability to improve those technologies
that are currently commercially marketed.
9
Wafer-based PV technologies and in particular crystalline silicon (c-Si)
dominate today’s solar market – In may respects this is a very attractive
technology but it has limitations
Current c-Si PV technology
ADVANTAGES
DISADVANTAGES
Efficient
Thick wafers
Reliable
Rigid and heavy
Robust and
Durable
Complex
manufacturing
Abundant
Non-toxic
c-Si PV technology is efficient and mature, but its intrinsic properties
may limit the potential for much further system cost reductions
10
With today’s c-Si PV technology balance of system (BOS) costs dominate
total system costs – Industry has the ability and incentive to reduce BOS
costs
Utility-Scale
PV
BOS now accounts
for 65% of utility-scale
system cost
2014 System cost build-up
$/W
2.00
1.80
Balance of System
1.00
0.05
0.40
0.65
0.30
0.40
0.00
Module
Residential-Scale
PV
Inverter & Other Engineering and
Hardware
Construction
Sales Tax
Margin and G&A
System Cost
2014 System cost build-up
$/W
3.25
Balance of System
3.00
0.74
0.05
BOS now accounts for
80% of residential-scale
system cost
0.56
2.00
0.35
1.00
0.90
0.65
0.00
Module
Source: MIT Analysis
Inverter, Other
Hardware &
Logistics
Installation
Labor
Customer
Acquisition &
PII
Sales Tax
Margin and
G&A
System Cost
11
Emerging thin-film technologies have the potential to lower
both module cost and BOS costs
Light & Flexible
High-throughput
Abundant
Kaltenbrunner, et al. 2012
Much more R&D needs to be done, and this is where federal
solar R&D should focus
(Current) Challenges
Low efficiency
Low stability
Unproven at scale
12
Thin-film PV technologies promise lower BOS costs due to their format
that can eliminate heavy glass substrates … but, unlike c-Si, materials
availability and high-temperature processing will limit the scale-up of
today’s commercial thin-film PV
more than 35
years of current
production
required by 2050
1400
years
6 years
Te, In, Ga, and Se
are now produced only as
by-products from the
production of other metals.
Substantial increases in
production volumes of these
materials would likely require
primary production with
unknown technologies.
COMMERCIAL
THIN FILM PV
Source: MIT Analysis
13
There is a promising set of emerging thin-film PV technologies that are
not materials-constrained and that can be developed at near roomtemperature
EMERGING Thin-Film PV
Material Sets
at most 3 years
of current
production
required by 2050
COMMERCIAL
THIN FILM PV
Source: MIT Analysis
EMERGING
THIN FILM PV
14
For CSP, achieving substantial cost reductions requires the development
of new high-temperature system designs & materials along with more
testing at pilot scale
More efficient solar
collectors can convert
more of the incident
solar energy into thermal
energy
Source: MIT Analysis
Higher-temperature
power cycles can
convert more of the
absorbed thermal
energy into electricity
Reminder:
Storage is integral for CSP
in the form of stored heat
that can be used on demand
to produce electricity
15
DOE solar R&D funding has increasingly focused on areas other than core
solar technology development – Balance of system costs with current
technologies and grid integration appear to be the main concerns
Breakdown of DOE’s Solar Energy Technology Office budget
$Millions
400
Other
350
CSP
PV
300
250
200
$241M
or
69%
Funding for work addressing
solar system integration,
enhanced manufacturing
competitiveness and the
reduction of balance of
system “soft costs”
$110M
or
31%
Funding for work directly
focused on conversion
technologies
150
100
50
0
2010
2011
2012
2013
* 2016 SETO budget values are proposed not actual
Source: Department of Energy Annual Budget Justification statements
2014
2015
2016*
16
Key Recommendations:
-
The federal PV R&D program should focus on new technologies,
not—as has been the trend in recent years—on near-term
reductions in the cost of crystalline silicon systems.
-
Federal PV R&D should focus on efficient, environmentally
benign, thin-film technologies that use Earth-abundant
materials.
-
Federal CSP R&D efforts should focus on new materials and
system designs, and should establish a program to test these in
pilot-scale facilities, akin to those common in the chemical
industry.
17
Message 2:
Preparation should be made for much greater
penetration of PV generation
What that means in practice:
Given that c-Si PV will likely be the dominant solar technology for
many decades to come and very large-scale reliance on PV will pose
much more serious challenges than have been encountered to date, it
is necessary to focus on developing both the technical and
market/policy solutions needed to mitigate these challenges
18
Higher levels of PV penetration yield a number of challenges for the grid
operation including capacity and ramping requirements – These issues
can be mitigated to various degrees by storage
Simulated net demand for non-PV generation at different levels of PV penetration
ERCOT (Texas) typical summer day
ELECTRICITY
DEMAND
PEAK NON-PV
GENERATION
INCREASED RAMPING
RATE REQUIRED
24 hour day
19
R&D support for the development of scalable energy storage technologies is a
crucial part of a strategy to achieve economic large-scale PV deployment
Example of how market remuneration for PV generation varies
as a function of solar penetration and energy storage
availability
When storage is added
to a grid system, the
average remuneration a
solar system receives
for its generation
increases
The availability of energy storage is critical to enabling the
economic deployment of large-scale solar generation
Source: MIT Analysis
20
Distributed PV can help lower line losses, but as penetration grows those
savings are generally outweighed by investments needed to maintain
power quality
Average total costs with increased distributed PV penetration under
different assumptions about design standards & generation mix
Source: MIT Analysis
21
Net metering subsidizes residential PV more than utility-scale PV at the
expense of other customers – This has already produced conflict
System after A becomes a net solar seller
System before A installs solar
Network cost paid by customer per kWh
Network cost paid to customer A per kWh
Energy cost paid by customer per kWh
Energy cost paid to net-metered customer per kWh
Additional network cost paid by customers without solar
Utility Rate
$/kWh
Utility Rate
$/kWh
Higher retail price
with cost shifted
Retail price
including
network
costs
Wholesale
energy price
Wholesale
energy price
A
B
C
Utility Customers
…N
A
B
C
…N
Utility Customers
- When A sells power, she gets the retail price, while utilityscale sellers get the wholesale price, often much lower
- When A stops covering any network costs, the retail rate
must go up so the other customers cover those costs –
plus the network cost paid to A!
Net-metered rate
paid to Customer A
22
Key Recommendations
-
R&D aimed at developing low-cost, scalable energy storage
technologies is a crucial part of a strategy to achieve economic
PV deployment at large scale.
-
Pricing systems need to be developed and deployed that
allocate distribution network costs to those that cause them,
and that are widely viewed as fair.
23
Message 3:
Subsidies for solar deployment should be reformed to
improve their efficiency
What that means in practice:
There is a good case for continuing to subsidize the deployment of
solar generation, but today taxpayers and utility ratepayers are paying
considerably more per kilowatt-hour of solar generation than they
should be. Appropriate reforming of today’s subsidy mechanisms will
ensure greater solar deployment per dollar of subsidy investment
24
Federal, state, & local governments subsidize the deployment of solar via
tax breaks, regulatory requirements, and direct subsidies – These help lay
the foundation for a major scale-up by building experience with manufacturing &
deployment and overcoming institutional barriers
- The main federal solar subsidies are accelerated depreciation and a 30%
investment tax credit (ITC) for businesses and individuals who own a solar
system
- At the end of 2016 the business ITC is scheduled to be cut to 10%, and the
individual ITC is scheduled to expire
- Such a drastic cut in federal support for solar deployment would be unwise,
but retaining the ITCs in their current form would be a significant waste of tax
dollars.
25
Solar developers are generally not capable of monetizing the ITC without use
of the tax equity market – Having to partner with tax equity investors is costly and
reduces the effectiveness of the entire subsidy mechanism
Levelized cost of electricity
$/MWh
350
ITC subsidy cost per
kWh
-
The current solar ITC subsidy regime
means that more expensive systems
receive higher subsidies
-
Generation from residential systems
can receive 2X or more subsidy per
kWh than from utility-scale systems
-
Not only that, firms that build and
own residential solar systems can
calculate ITC and depreciation based
on the present value of systems’
income, which in markets with little
competition may be well above the
actual investment cost.
300
After ITC electricity
LCOE
250
107
200
72
150
57
100
180
37
50
101
120
68
0
CA
MA
Utility-Scale PV
Source: MIT Analysis
CA
MA
Residential-Scale PV
26
The 24 state-level RPSs that require utilities to buy solar electricity from
distributed generators are a major driver of solar deployment
All RPS programs are different; many states have multiple solar support policies
Source: dsireusa.org
27
Key Recommendations
-
Drastic cuts in federal support for solar technology deployment
would be unwise.
-
Policies to support solar deployment should reward generation,
not investment; should not provide greater subsidies to
residential generators than to utility-scale generators; and
should avoid the use of tax credits.
-
State RPS programs should be replaced by a uniform national
program. If this is not possible, states should remove
restrictions on out-of-state siting of eligible solar generation.
28
Our main messages:
1. A long-term approach should be taken to technology
development
2. Preparation should be made for much greater
penetration of PV generation
3. Subsidies for solar deployment should be reformed
to improve their efficiency
29
Backup slides
30
Utility-scale solar is a business where developer competition is often very
high and the key to success lies in having the lowest cost base – The
federal subsidies have been key to increasing the competitiveness of utility PV
$1.80/W
ITC: $0.54/W
MACRS: $0.22/W
Unsubsidized System Cost
Source: MIT Team Analysis
Federal Subsidies
System cost upon which
developers establish
their PPA bid
$1.04/W
Effective System Cost
31
Price formation in the residential sector differs from market-to-market and is
often linked to regulated utility rates – Consumer willingness to pay can lead to
a decoupling of solar price from underlying cost
Reported price in
immature market
Reported
price in
competitive
market
$4.50/W
ITC: $1.35/W
$3.25/W
ITC: $0.98/W
Unsubsidized
Costs - Gross
Price to
Consumer
Federal Subsidy
Competitive Market
Source: MIT Team Analysis
$2.27/W
Net Price to
Consumer
WTP: $3.15/W
Net Consumer Federal Subsidy Gross Price to
Willingness to
Consumer
Pay
Immature or Uncompetitive Market
32
In many contemporary U.S. residential solar markets, allowing the ITC cost
basis be established via the ―income method‖ amplifies the subsidy by 50%
or more – In highly competitive markets this amplification would be eliminated
Subsidies:
ITC:
$0.98/W
MACRS: $0.26/W
Subsidies:
ITC:
$1.45/W
MACRS: $0.39/W
$4.84/W
$4.24/W
$3.25/W
Unsubsidized
Cost
$3.00/W
Lease PV
Cost Method
Source: MIT Team Analysis
$3.00/W
Subsidy PV Total Income
PV
Lease PV
Subsidy PV Total Income
PV
Income Method
33