Why the future of solar is not like the present of solar: Part 2

Jenny Chase is the manager of Bloomberg New Energy Finance’s global Solar Insight Service. She joined BNEF mid-2005 and launched the Solar Insight Service in early 2006. Ms Chase has conducted or overseen all the research of the Solar Insight Service over its four-year lifespan. 

Bloomberg New Energy Finance published its Q3 2011 update on the levelised cost of renewable energy technologies, including solar power. Levelised cost of energy (LCOE) is an attempt to quantify the real cost of building and operating a new power plant with today's cost of capital, to compare different energy sources on a standardised basis without subsidies.

Arguing over the assumptions that go into this is always fun. Do we go with the average disclosed photovoltaic project cost, or with the low end of the bankable quotes.

Seeking a price point

However, these are numbers on paper. What is more interesting to watch is when markets for solar seek their own price point. We have already seen a number of markets engage in tenders, and so far, the results have always surprised us to the low side as developers stretch their assumptions tight to win a bid.

The October 2010 Chinese tender for 280MW of projects was won at prices from 730 yuan (US$110) per MWh to 990 yuan (US$156) per MWh, all by state-owned enterprises. The PV tender in Peru was won in August 2011 at US$120/MWh, albeit for projects to be built in 2014.

In India in December 2010, developers bid from 10,950 rupees (US$240)/MWh for PV and 10,490 rupees (US$230)/MWh for solar thermal projects--ambitious given the funding environment in India, where the utilities themselves are not considered reliable counterparties by debt financiers. Other countries and regions are adopting the tender method to avoid overpaying for their solar power.

These projects are not built yet, of course. Perhaps the developers will find that after all, the economics cannot be made to work. In that case, everyone has wasted a little time and a little money, and a new tender will be necessary. At the rate ingenious manufacturers and engineering contractors are squeezing costs out of the value chain, I think it unlikely.

Solar systems have never before been so cheap, and will never again be so expensive. We at Bloomberg New Energy Finance find this very exciting, even if it does make our LCOE analysis rather difficult.

By: Jenny Chase, Bloomberg New Energy Finance