Solar as cheap as coal? - article by Giles Parkinson

Can solar be cheaper than coal and gas? In a sense it already is, given the value that the NSW government has given it after cutting tariffs from rooftop solar to below that delivered to the household from coal and gas plants.

But in Germany, a new report suggests that solar could be produced, rather than just consumed, as cheaply as power from new gas and coal plants within five to eight years.

That turns all assumptions about the costs of energy on their head. But the report prepared by consulting group AT Kearney on behalf of its client, the German solar developer Phoenix Solar, suggests production costs for solar PV should be properly compared to the cost of new oil and gas facilities, rather than the current infrastructure.

And it predicts that solar, given further increases in scale and technological advances, could cut PV production costs in half by 2020 to be as low as low as 12.6 euro cents ($0.18) per kilowatt-hour, which would compare with around 15.6 euro cents for newly installed gas generation by 2020.

The study develops some further interesting arguments. It suggests that solar PV costs should not be compared with the baseload cost of electricity, but to the costs of the medium and high peak loads in which it usually operates.

It also says that the macro-economic benefits of solar PV will pass break-even for the first time in 2010. And the study suggests that once the estimated 6GW of solar PV are installed onto the German grid by end of 2011 then the accumulated benefits of all solar PV connected to the German grid since 2000 will have outweighed their costs.

The study cites not just the comparison of solar PV costs against medium and peak load power, but also broader benefits of a new manufacturing base, jobs, export income, and it’s key role in accelerating the structural transition to an efficient, intelligent energy grid with a high proportion of decentralised power generation.

“PV therefore enables wide swathes of the population to participate in the supply of energy,” the report says. ”In addition, it generates impetus for the development of innovative, decentralised energy systems and integrated applications, such as charging stations for electrical vehicles, which underpin Germany's technological cutting edge in the field of renewable energies."

If AT Kearney’s predictions on solar costs versus coal seem highly contentious, the argument about solar PVs broader significance in the energy networks of the future is an element that has been completely missing from the furore surrounding solar PV and other renewables in Australia.

What will be more troubling for the solar industry – and other emerging renewables hoping for a clear and helpful policy path – is the current tone of the debate from government and industry, which leaves little hope that sensible policy will ensue.

Established industry knows the value of a scare campaign, it’s worked to brilliant effect with state and federal capitulation over the CPRS, mining taxes, and now solar tariffs. But bullying works. Climate Change Minister Greg Combet, seemingly responding to such pressures, has hinted that the planned phase-down of renewable energy certificate multipliers may also be accelerated.

The Energy Minister, Martin Ferguson, who has a say in all of this, was at it again yesterday, telling an energy conference in Sydney that putting a price on carbon "is a significantly cheaper way of reducing greenhouse gas emissions than prescriptive, technology specific solar feed in tariffs that have been introduced by different state governments.”

Here, solar PV and other renewables seem destined to be measured only for their costs – even though they are a fraction of the expenditure for the planned (with little scrutiny) upgrade of our coal-fired networks – and their performance criteria are now judged only by their ability to cut emissions.

That’s all very well if your vision of the future is a continuation of the large centralised power grids that have been the blueprint of the industry for the past three decades. And your motivation, prodded by the fear campaigns of utilities with interests to protect, are that the lights may go out.

But that is not the way the world is heading – and it shouldn’t be the direction that Australia is taking either.

The government’s own task force on energy efficiency makes that clear. This report is not simply about turning things off when they are not in use and making appliances and buildings more efficient, it is also about challenging the national energy market to change its spots, and for various components to change their business models.

The current model that delivers rewards only for producing more electrons (in the case of generators) and building more poles and wires and transformers (in the case of transmission and distribution), is not the most sustainable, it is not the least cost, and it is not the most efficient.

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