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No sign of slowdown in solar deflation – IEEFA

IEEFA director of energy finance research Tim Buckley

IEEFA director of energy finance research Tim Buckley

8th June 2020

By: Terence Creamer

Creamer Media Editor

     

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Despite a sharp decline in costs over the past decade, there is no sign that solar photovoltaic (PV) deflation will slow anytime soon, Institute for Energy Economics and Financial Analysis (IEEFA) director of energy finance research Tim Buckley asserts in a new research note.

Double-digit annual deflation is also likely to continue over the coming decade on the back of ongoing technology enhancements and an upscaling of manufacturing plants.

Quoting Bank of America research published in May, Buckley highlights that solar module costs have fallen to between $0.17/W and $0.20/W, representing a 20% year-on-year decline.

“Prices are half the $0.30/W to $0.40c/W of just two years ago,” he states, noting that they are 90% below the $2.00/W levels recorded in 2010.

The deflationary trend will be further supported by the recent Covid-19-induced collapse in interest rates and announcements of a record number of solar manufacturing capacity expansions in China.

“Whereas a 1 GW to 2 GW solar module manufacturing plant was world-scale two years ago, China is announcing plants of 5 GW to 10 GW capacity in 2020, showing the dramatic scale advances that are being implemented now.”

The fall in costs helped to support an ongoing decline in solar tariffs even during the month of May, which was severely disrupted by the Covid-19 pandemic and associated lockdowns.

A global record-low solar tariff of $13.50/MWh was awarded in Abu Dhabi, some 13% below the previous record low set in January of $15.60/MWh for a project in Qatar.

Likewise, the storage sector achieved new price records last month, with the New Mexico Public Regulation Commission approving a 100 MW solar generation plant linked to 50 MW of dispatchable battery storage for a tariff of about $30/MWh.

These trends are at odds, Buckley states, with the International Energy Agency’s (IEA’s) recent warning that Covid-19 represents a possible setback to the technology-driven deflationary renewables trend.

He says the IEA has, for years, ignored this [deflationary] trend associated with ongoing technology enhancements and manufacturing scale. It has, thus, “consistently forecast about 4% annual deflation of solar costs over the coming decade, with this ‘conservative’ error compounded by estimates of the average current year starting tariffs at double the actual experience.

The IEEFA, Buckley adds, expects the IEA to continue to be surprised every year over the coming decade at the speed of ongoing technology-driven deflation and hence the rate of uptake of renewable energy, electric vehicles and battery storage, “as it has been for the past decade, every year without fail”.

Edited by Creamer Media Reporter

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