Democratising power

As the 17th century English theologian Thomas Fuller first put it, the darkest hour is just before the dawn. And rarely has this phrase felt so apt, as it does now for the solar industry.

I don't think there is any need to reprise the issues facing the solar sector that have been described on this blog as well as elsewhere. The structural issues facing the industry are enormous and further compounded by the actions of policy-makers who, eager to cut spending, are hacking back tariff and other forms of support for the sector.

For many, these moves presage the end of an expensive and ill-conceived new source of energy. Columnist and 'hereditary climate sceptic' Dominic Lawson, writing in the UK's Independent, called the UK's Feed-in-Tariff a 'grotesque subsidy' implemented at a time when other countries such as Germany and Spain had 'pulled back after they discovered just how much such schemes misdirected public funds' ('Dominic Lawson: Good riddance to the great solar scam').

This perspective could not be a more profound misreading of the situation, but not just for the obvious reasons. Solar power is of course an increasingly competitive source of energy. Prices of solar modules have fallen 80% in the last five years and already today in Germany solar can be used to generate electricity at €0.15/kWh - a price below the €0.23/kWh that retail customers pay for conventional electricity supply. Even in the UK, it is expected that the technology will have reached so-called 'grid-parity' in the next 3-4 years. And of course solar power is also virtually zero carbon.

Whilst these characteristics make solar enormously promising as a competitive solution to climate change, this may not represent the most profound impact of the technology. What makes solar really interesting is that it has the potential to rewrite the rules governing electricity markets in the same way that the internet has blown-apart the old order in the media and publishing industries.

Solar is a profoundly democratic technology - for the most part owned and operated by the general public, by schools, community groups and small private institutions. Across Europe approximately two thirds of all solar installations are not owned by energy utilities. By giving homeowners the ability to generate a significant proportion of their own electricity, you cut into the market power of the established utilities.

In Germany, where solar is now operating at scale, it is already having a material impact on marginal power prices at peak levels of demand. According to the European Energy Exchange ( solar can generate up to 15GW of power in the summer - essentially cutting power prices in half at peak times (from about €112/MWh to €56/MWh). These savings don't entirely wipe out the cost of the feed-in-tariffs, but they make them much less expensive. Germany estimate that the cost of the feed-in-tariff in 2013 will be approximately €0.04/kWh rather than the €0.06/kWh that they forecast.

Shaving off peak power prices is already having an enormous impact upon the returns of the traditional energy utilities that have come to rely on high prices during peak periods to support their profitability. It is for this reason that these utilities in Germany are now agitating for an overall cap on the scale of solar installations in their country.

The supreme irony of all of this for the current debate in the UK is that while politicians bemoan the market power of established energy utilities, aggressively cutting feed-in-tariffs actively undermines the role solar can play - and in Germany is already playing - in driving energy prices down for energy consumers.

It would be premature to be too sanguine about the long-term prognosis for the solar industry, as green entrepreneur Michael Liebreich put it recently in the Financial Times 'the world is going to go entirely to clean energy... The direction of travel has been set in stone.'

seb beloe

Topics: edie
Tags: | feed in tariff | retail | solar | technology
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