An update on Grid parity

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2 market volume [TWh] RES COM IND An update on Grid parity Christian Breyer 1 and Alexander Gerlach 2 1 Professor for Solar Economy, LUT 2 Market Research Expert, Hanwha Q Cells IEA PVPES Task 1 Workshop on Self-consumption business models technical and economic challanges Amsterdam, September 22, 2014

3 Agenda Market Development and Assumptions Grid-Parity Events till 2030 Outlook Summary 3

4 Global Installed PV Capacity: Growth Rates source: Werner C., et al., Global Installed Photovoltaic Capacity and Identification of Hidden Growth Markets, /EP.1.3 (Friday) enormous market growth ahead, since ~50%+ of conventional power capacity base could be supplemented by PV at least and there is only limited competition to wind power 4

5 History of Grid-Parity Sources: Hoffmann W., 1999; Milner A., 2008; Ossenbrink H., 2012; Breyer Ch. and Gerlach A., 2012; EPIA, 2014 market volume RES [TWh] 6,000 5,000 4,000 3,000 2,000 1, countries IT, GR, DE Asia Americas Africa Europe 5

6 Global PV Market till 2020 RoW INDIA CHINA JAPAN USA RoE UK FRANCE ITALY GERMANY significant upside potential growth rates have been considerably higher in the past high economic market potential ahead E 2015E 2016E 2017E 2018E 2019E 2020E Growth: 44% 10% 24% 20% 14% 18% 11% 11% 9% 9% Sources: Hanwha Q CELLS Market Intelligence, IHS, BSW, EuPD, Bank analysts 6

7 Historic and Future Market Growth 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% past growth [%] future growth [%] cumulated market volume [GWp] On average PV showed a strong average 45% growth rate during the last 18 years In recent years the growth has decreased; but still allows for more than 600 GWp till 2020 and therefore 3x doubling of cumulative installed capacity Sources: Hanwha Q CELLS Market Intelligence, Photon, GTM, EPIA, IHS, Analyst reports 7

8 PV system price [EUR/kWp] global installed PV capacity [GWp] Development of System Cost installed capacity In 2014 PV system cost decreased by -64% since 2007 and will decrease to - 74% and -80% by 2020 and 2030 respectively Despite the strong focus on system price development recent publications till 2012 have underestimated the speed of reduction Further significant price reduction beyond this projection is possible Years System Price [EUR/kWp]* Sources: Hanwha Q CELLS Market Intelligence, IHS, BSW, EuPD *Average global system prices [EUR/kWp]

9 weighted cost of capital [%] National Interest Rates 35% 30% 25% Runaways high WACC w/ significant impact on Grid-parity: years later compared to peers 20% 15% 10% Median 12.8% WACC 5% 0% electricity consumption [TWh] National interest rates vary significantly: 3.7% - Japan and 254% - Zimbabwe The median is at 12.8% - higher than in previous publications assumed Among other factors higher electricity demand indicates a lower WACC A stable national finance situation and therefore a low WACC is one key driver for countries with low irradiation to reach Grid-Parity even before Sunbelt countries Trend higher electricity consumption indicates lower WACC Sources: Ondraczek J., et al., Wacc the dog: The effect of financing costs on levelized cost of solar power 9

10 Assumptions Capex is based on regional data (Europe, Americas, Africa, Asia-Pacific) by segment: Capex (average): RESidential: COMmercial: INDustrial: Opex: RES 2.00%; COM 1.75% and IND 1.50% of Capex Performance Ratio: RESidential: 76.5% (2010) 85.0% (2030) COMmercial: 79.0% (2010) 87.5% (2030) INDustrial: 81.5% (2010) 90.0% (2030) WACC: National Interest Rates & 30/70 Equity/Debt Lifetime 25 years (2010) 32 years (2030) System Learning Rate: 15.0% (2010) 7.5% (2030) Market Growth: 85% (2010) 10% (2030) Electricity Price Increase: % (depending on absolute level) 15% of the electricity price is attributed to fixed charges and excluded 10

11 Agenda Market Development and Assumptions Grid-Parity Events till 2030 Outlook Summary 11

12 annual irradiation on module level [kwh/m²a] RES Grid-Parity top 30 Countries Saudi Arabia Egypt South Africa Iran India Argentina Brazil Korea Thailand Australia Spain Indonesia United Turkey Malaysia States China Ukraine Russia RESidential Mexico Taiwan Canada Poland United Kingdom France RESidential beyond Grid-Parity Japan Netherlands Sweden Norway Italy Germany 2010 Demand beyond Grid-Parity TWh (00%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 0,375 0,400 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 12

13 annual irradiation on module level [kwh/m²a] RES Grid-Parity top 30 Countries Ukraine Saudi Arabia Egypt South Africa RESidential Iran Thailand Indonesia Malaysia China Russia Mexico India Argentina Brazil Korea Australia Spain United Turkey States Taiwan Canada Poland United Kingdom France RESidential beyond Grid-Parity Japan Netherlands Sweden Norway Italy Germany 2015 Demand beyond Grid-Parity TWh (20%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 0,375 0,400 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 13

14 annual irradiation on module level [kwh/m²a] RES Grid-Parity top 30 Countries RESidential Saudi Arabia Egypt South Africa Ukraine Iran Thailand Indonesia Malaysia China Russia Mexico India Argentina Brazil Korea Australia Spain United Turkey States Taiwan Canada Poland United Kingdom RESidential beyond Grid-Parity France Japan Netherlands Sweden Norway Italy Germany 2020 Demand beyond Grid-Parity TWh (63%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 0,375 0,400 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 14

15 annual irradiation on module level [kwh/m²a] RES Grid-Parity top 30 Countries RESidential Saudi Arabia Egypt South Africa Ukraine Iran Thailand Indonesia Malaysia Russia China Mexico Taiwan Canada RESidential beyond Grid-Parity India Argentina Brazil Korea Australia Spain United Turkey States Poland France United Kingdom Japan Sweden Norway Italy Netherlands Germany 2025 Demand beyond Grid-Parity TWh (81%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 0,375 0,400 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 15

16 annual irradiation on module level [kwh/m²a] RES Grid-Parity top 30 Countries RESidential Saudi Arabia Egypt South Africa Ukraine Iran Thailand Indonesia Malaysia Russia China RESidential beyond Grid-Parity Mexico India Argentina Korea Australia Taiwan Canada United States Poland France United Kingdom Brazil Turkey Spain Japan Italy Netherlands Sweden Norway Germany 2030 Demand beyond Grid-Parity TWh (87%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 0,375 0,400 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 16

17 annual irradiation on module level [kwh/m²a] COM Grid-Parity top 30 Countries Saudi Arabia Egypt South Africa Taiwan Canada Ukraine COMmercial Iran Thailand Indonesia Malaysia Russia India Argentina Brazil Australia Korea Spain United Turkey States China Mexico Poland France Japan Netherlands COMmercial beyond Grid-Parity Italy Sweden Germany United Kingdom Norway 2010 Demand beyond Grid-Parity 110 TWh (2%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 17

18 annual irradiation on module level [kwh/m²a] COM Grid-Parity top 30 Countries Saudi Arabia Egypt South Africa Ukraine COMmercial Iran Thailand Indonesia Malaysia Taiwan Canada Russia India Argentina Brazil Australia Korea Spain United Turkey States China Mexico Poland France COMmercial beyond Grid-Parity Japan Netherlands Italy Sweden Germany United Kingdom Norway 2015 Demand beyond Grid-Parity TWh (25%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 18

19 annual irradiation on module level [kwh/m²a] COM Grid-Parity top 30 Countries COMmercial Saudi Arabia Egypt South Africa Ukraine Iran Thailand Indonesia Malaysia Taiwan Canada Russia India Argentina Australia Korea United States China Mexico France Poland COMmercial beyond Grid-Parity Brazil Spain Turkey Japan Netherlands Italy Sweden Germany United Kingdom Norway 2020 Demand beyond Grid-Parity TWh (44%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 19

20 annual irradiation on module level [kwh/m²a] COM Grid-Parity top 30 Countries COMmercial Saudi Arabia Egypt South Africa Ukraine Iran Thailand Indonesia Malaysia Taiwan Canada Russia China COMmercial beyond Grid-Parity Mexico India Argentina Australia Korea United States Poland France Brazil Spain Turkey Japan Netherlands Italy Sweden Germany United Kingdom Norway 2025 Demand beyond Grid-Parity TWh (85%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 20

21 annual irradiation on module level [kwh/m²a] COM Grid-Parity top 30 Countries COMmercial Saudi Arabia Egypt South Africa Ukraine Iran Thailand Indonesia Malaysia Russia Taiwan Canada COMmercial beyond Grid-Parity India Argentina Australia Korea United States China Mexico Poland France Brazil Spain Turkey Japan Netherlands Italy Sweden Germany United Kingdom Norway 2030 Demand beyond Grid-Parity TWh (90%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 0,325 0,350 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 21

22 Impression for (Commercial) End-User Profitability source: REC Solar, Study on the Profitability of Commercial Self-Consumption Solar Installations in Germany; Italy and Turkey (only in German available) 22 Lappeenranta University of Technology both systems on the right are part of a 220 kwp commercial solar PV system it is financially beneficial for the university source: Kosonen A., Ahola J., Breyer Ch., Albó A., Large Scale Solar Power Plant in Nordic Conditions, 16 th EU Conference on Power Electronics and Applications, August 26-28

23 annual irradiation on module level [kwh/m²a] IND Grid-Parity top 30 Countries Iran Argentina India Korea Spain Australia Brazil Thailand United Turkey Indonesia States Malaysia Italy Taiwan China Japan Canada INDustrial Saudi Arabia Egypt South Africa Ukraine Russia Norway France Sweden Mexico Netherlands Poland Germany United Kingdom INDustrial beyond Grid-Parity 2010 Demand beyond Grid-Parity 376 TWh (5%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 23

24 annual irradiation on module level [kwh/m²a] IND Grid-Parity top 30 Countries United States INDustrial Saudi Arabia Egypt South Africa Ukraine Russia Canada China France Mexico Iran Argentina India Korea Spain Australia Thailand Indonesia Malaysia Taiwan Norway Sweden INDustrial beyond Grid-Parity Brazil Turkey Japan Poland Netherlands Germany Italy United Kingdom 2015 Demand beyond Grid-Parity TWh (52%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 24

25 annual irradiation on module level [kwh/m²a] IND Grid-Parity top 30 Countries INDustrial Saudi Arabia Egypt South Africa Iran Argentina Korea Australia Thailand United Indonesia States Malaysia Ukraine Taiwan Russia Canada Norway China France Sweden INDustrial beyond Grid-Parity Mexico India Spain Brazil Turkey Japan Poland Netherlands Germany Italy United Kingdom 2020 Demand beyond Grid-Parity TWh (68%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 25

26 annual irradiation on module level [kwh/m²a] IND Grid-Parity top 30 Countries INDustrial Saudi Arabia Egypt South Africa Ukraine Iran Argentina Korea Australia Thailand United Indonesia States Malaysia Taiwan Russia Canada Norway INDustrial beyond Grid-Parity China France Sweden Mexico India Spain Brazil Turkey Japan Poland Netherlands Germany Italy United Kingdom 2025 Demand beyond Grid-Parity TWh (89%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 26

27 annual irradiation on module level [kwh/m²a] IND Grid-Parity top 30 Countries INDustrial Saudi Arabia Ukraine South Africa Iran United States Egypt Russia INDustrial beyond Grid-Parity Argentina Korea Australia Thailand Indonesia Malaysia Taiwan Canada Norway China France Sweden Mexico India Spain Poland Brazil Turkey Japan Netherlands Germany United Kingdom Italy 2030 Demand beyond Grid-Parity TWh (98%) 0,000 0,025 0,050 0,075 0,100 0,125 0,150 0,175 0,200 0,225 0,250 0,275 0,300 average cost of electricity [EUR/kWh] Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 27

28 electricity market beyond grid-parity Interest Rates Impact on Grid-Parity 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% national - interest rates [%] international - interest rates [%] Adding national country based interest rates has several effects on Grid-Parity: 1: The developed countries like JP and DE reach Grid-Parity faster during the 2010s 2: Transitioning & less developed countries are delayed due to higher WACC 3: Till the end of 2020s PV has become cheap enough despite higher WACC 28 Sources: Ondraczek J., et al., Wacc the dog: The effect of financing costs on levelized cost of solar power

29 market volume [TWh] market volume [% of total volume] Global Grid-Parity Volume GLOBAL MARKET VOLUME [TWh] GLOBAL MARKET VOLUME [% of total volume] % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% RES COM IND RES COM IND NUMBER OF MARKETS BEYOND GRID-PARITY BY SEGMENT Years RES COM IND Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 29

30 INDUSTRIAL [TWh] INDUSTRIAL [%] GLOBAL GRID-PARITY BY VOLUME COMMERCIAL [TWh] GLOBAL GRID-PARITY BY VOLUME COMMERCIAL [%] RESIDENTIAL [TWh] RESIDENTIAL [%] Global Grid-Parity Volume countries 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 215 countries Europe Africa Americas Asia-Pacific Europe Africa Americas Asia-Pacific countries 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 215 countries Europe Africa Americas Asia-Pacific 215 countries 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Europe Africa Americas Asia-Pacific 215 countries Europe Africa Americas Asia-Pacific Europe Africa Americas Asia-Pacific Sources: Hanwha Q CELLS Market Intelligence, Eurostat, EIA, utility feedback 30

31 Agenda Market Development and Assumptions Grid-Parity Events till 2030 Outlook Summary 31

32 Do not forget Fuel-Parity Macroeconomic implications for MENA MENA among first fuel-parity markets in the world 1 GW PV saves m bbl oil per year Investment in PV results in 20% IRR for MENA region due to higher oil export revenues * oil production cost 4 $/barrel, world market price for opportunity cost today 80 $/barrel and in future 160 $/barrel, PV Capex 2000 /kwp (2010) and 1000 /kwp (2020), 5% WACC Reality in the year 2014 Oil LCOE about 19 $ct/kwh PV LCOE about 8 $ct/kwh source: Breyer Ch., Görig M., et al., Economics of Hybrid PV-Fossil Power Plants, 26 th EU PVSEC, Hamburg, September 5 9 Breyer Ch. and Reiß A., Hybrid PV Power Plants: Least Cost Power Options for the MENA Region, 7AV.6.23 (Monday 17:00-18:30) 32

33 100% RE in Ireland Aalborg University, DK source: Connolly D. and Mathiesen V., A technical and economic analysis of one potential pathway to a 100% renewable energy system, Int. J. Sustain Energy Planning and Mgm Key characteristics: 100% RE system for all sector hourly resolved simulation solar PV forgotten well balanced RE-heat and RE-mobility focus on energy flows and system costs no grid, no import/ export, not fully optimised 33

34 100% RE in Ireland Aalborg University, DK Key insights: 7 step approach feasible significant increase in power demand (~ +350%) BUT, no change in total primary energy demand (TPED) highly efficient power-based RE system enables powerto-gas/liquid pathways 34

35 100% RE in Ireland Aalborg University, DK Key insights: 2020 system cost only 30% higher than reference (neglecting: cost of climate change, cancer deaths, negative trade balance effects, lower level of employment in energy sector, less tax income) 2050 system cost identical to reference simplified standard economic consideration, neglecting the full view on total societal cost otherwise, maybe 30% less in cost (personal estimate) 35 significant increase in employment (> jobs)

36 Agora Energiewende Role of Electricity Key insights: mobility will be powered by electricity (batteries and PtG) chemistry will change the resource basis towards electricity source: Agora Energiewende, Stromspeicher in der Energiwende 36

37 Agenda Market Development and Assumptions Grid-Parity Events till 2030 Outlook Summary 37

38 Summary We expect strong PV market growth during the 2010s and PV eventually reaching a 600+ GWp cumulated installed capacity Very good economics of PV push the growth ahead Cumulated installations by YE 2014 represent a marginal 10% of 2030 market potential Annual installations may grow 2x till 2020 and 3.5x till 2030 PV can successfully compete with grid electricity Adaptations in this model: fixed charges of the electricity bill are excluded (~15% of total cost) national WACC levels are applied system cost assumptions rather conservative Nevertheless PV becomes more competitive in more than 150 countries and their respective market segments; reaching 60% and 94% of global electricity demand in 2020 and 2030; respectively 38

39 Thanks for your attention!