LONDON — We are familiar with the inexorable and welcome march of solar panels across our rooftops, but many might be surprised that utility-scale power plants are now the fastest-growing application for the photovoltaics (PV) industry. This sector has delivered a compound annual growth rate over the last five years of 100 percent, to reach a cumulative installed capacity above 10 GW by the end of 2012. At that time, there were some 400 solar generating stations with a nameplate capacity of 10 MW and over, but the number and capacity of large-scale PV plants continued to grow in early 2013.
The first MW-scale PV projects date back to the early 1980s, when Arco Solar built two large plants in California; but there was little else at this size until the German feed-in tariff (FiT) law was revised in 2004. Subsequently the first PV installations of 10 MW and more were built in 2006, and the sector burgeoned with the introduction of Spain’s FiT in 2007. Notwithstanding the hiatus over the subsequent withdrawal of Spanish tariffs, other European markets pressed on and large-scale capacity totaling 3 GW was installed in 2011, led by almost 1 GW in Germany.
Large-scale solar PV installations by region 2006-2012.
Cumulative total and new large-scale solar PV installations by country.
Grid Parity and All That
FiT programmes have two main objectives. The first motivation is to incentivise deployment, increasing the contribution of renewable generation in the overall energy mix. Secondly, they stimulate production and installation volumes, enabling costs to fall.
This approach proves particularly successful for photovoltaics because, as a solid-state semiconductor technology, costs can continue to decline exponentially with increasing volume. It has been estimated that PV modules have a so-called progress ratio of 82 percent. In other words, the costs reduce by 82 percent for every doubling of installed capacity.
As markets mushroomed, particularly under the incentive of FiTs, prices declined rapidly. The installation cost of a large-scale solar park, for example, has declined by half in less than two years and now stands close to €1 million per MW.
Conversely, the long-term prices of traditional fossil and nuclear energy have been rising inexorably. These two cost trends lead to a crossover where solar power inevitably becomes cheaper than traditional electricity. The point at which grid parity is reached depends, of course, on sunlight levels and electricity pool prices. It also occurs earlier where solar power can be delivered direct to the user and therefore competes against retail rather than the wholesale power prices.
A similar logic applies more parochially within the renewable energy sector. Many countries and states encourage renewables not through FiTs but by placing an obligation on their utility companies to source a growing proportion of their electricity from renewables. These obligations or Renewable Portfolio Standards (RPS) typically apply to renewable energy sources overall; rather than setting differential prices for each technology, as tariffs do. The utilities therefore seek to procure the lowest cost renewable sources. In most cases this has historically favoured onshore wind and hydro power. Recently, however, the rapid decline in PV costs has meant that solar is often the low-cost renewable, so it has been increasing its penetration into these schemes.
The onset of grid parity will become the major driver for the continuing deployment of solar power plants, as incentives such as the feed-in tariffs progressively fall away.
The focus of global activity is changing as these economic dynamics impact on the marketplace. Europe dominated the installations of large-scale solar stations in the early years. The FiTs in Spain and Germany, in particular, provided a strong incentive to make solar viable.
New Markets Fuel Growth
Each year until 2010 Europe’s share of the global installations of utility-scale projects exceeded 70 percent. By 2012, even though Europe managed to notch up another record year, this had declined to 40 percent. It will be much lower again in 2013, when both the US and China are expected to leapfrog Germany at the top of the table for cumulative installed capacity.
Total operating capacity at the end of 2012 by project developer.
Unless China surprises us again, North America is likely to be this year’s largest market. This is driven, in particular, by several very large projects being built to supply electricity to the RPS programmes in California and other southwestern states of the U.S. First Solar’s Agua Caliente plant feeding into southern California from western Arizona topped 250 MW in September 2012 and will have a capacity approaching 400 MW when it is completed. Other major projects, in the 100 MW+ range, are under construction in California’s Carrizo Plain and Imperial Valley.
Major markets are also developing in other parts of the world, most notably China and India, where the largest projects also run to hundreds of megawatts. Many of these are supported by the Clean Development Mechanism (CDM) of the UNFCCC. In the last quarter of 2012, 60 utility-scale PV projects, with a combined capacity of 1.2 GW were approved under the CDM. These contributed substantially to the continuing acceleration of new capacity in early 2013. Both India and China have designated sites where clusters of new plants are being built, such as the Charanka Solar Park in Gujarat, Golmud Desert Solar Cluster and the Qili Photoelectricity Park.
As the attractiveness of large-scale solar generation continues to improve, the markets will broaden further, with new projects being developed in South America and Africa, for example. Countries expected to break into the top 20 during 2013 include Chile and the U.K. South Africa, the UAE and Serbia can also climb up the rankings if they can get some of their announced projects built and connected.
New Energy Entrepreneurs
The range of corporate participants in the utility-scale solar sector also gets broader and deeper as the market develops. In addition to the primary equipment suppliers, there are typically four key participants in a large-scale PV project: the project developer, who originates and promotes the scheme; the power producer, who owns and operates the plant once it is commissioned; the EPC contractor, who handles engineering, procurement and construction of the plant; and the power offtaker, who buys the electricity it produces. Finance providers are naturally important partners for these participants, while other stakeholders include planning authorities, network companies, regulators and sub-contractors. The different project roles are not necessarily fulfilled by separate organisations. Indeed it is not unknown for a utility company to develop, construct, own and operate a plant and take the power which it produces.
Based on the projects completed to date, Germany’s early leadership has been rewarded by producing one third of the world’s top project developers. Those with a degree of vertical integration seem to have been more prominent in the sector. In the table of leading project developers, for example (see image gallery at right – click View Images), some retain ownership of projects (indicated with an O), and several are also involved as EPC contractors (shown as E). A number of project developers are also significant solar module manufacturers (shown as M).
However, more than half of the leading solar module suppliers for these large plants have no in-house project development capability, but focus solely on manufacturing. The number of recognised utilities with a significant profile in this market is surprisingly small, though this may change in the future.
Many of the owners or ‘independent power producers’ hold broad portfolios of generating plant; including other technologies, of which wind is probably the most common. The burgeoning large-scale solar sector has attracted new smart money into the energy field. Warren buffet’s Mid-American energy, for example, became the world’s eighth largest PV capacity owner in 2012 (see page 11 for more on this). Based on developments in hand, it could be world number one by 2015. Again the participation of major utilities as plant owners is surprisingly rare, with EDF the sole representative in the top 10. Only in Japan and France do utilities own a majority of the large-scale solar generating capacity. In the US and Canada this figure is about 15 percent, while some achieve no more than 5 percent.
Where To Next?
In the short term, prospects for rooftop photovoltaics seem rather uncertain, because of legislation changes in Europe. Growth in utility-scale PV, however, looks assured. The pipeline of existing projects already under construction is likely to deliver another record year in 2013. Indeed it would not be surprising to see the installed capacity of 10 MW+ plants rise to 18 GW before year end.
The longer-term trends will depend fundamentally on future progress in costs and prices. It would not be a surprise if prices level out for a year or so, and this could cause some deceleration in the market. There is little doubt about the long-term direction, though. Solar energy will become the world’s major energy source in our lifetime.
Philip Wolfe is the founder of Wiki-Solar.