On January 23rd, the record for wind power production in Spain was broken with 373 GWh in 24 hours and today we still have days with a lot of wind, which means that a very important part of the electricity demand is covered with wind power. It is in these days of records when the media echoes the important contribution that renewables already have in the national electricity system. It is also a good time to make a brief review of what has been 2018 in terms of wind and solar production in Spain.

 

The truth is that the annual data for 2018 have not yet been published but thanks to Entso’s great site, we can now have all the electricity generation data in Europe in real time, so it is possible to make our own analysis. And that is what I have done here: I have downloaded the daily wind and solar production throughout 2018 in order to draw some conclusions.

So let’s first look at the daily wind and solar production throughout the year in Spain:

 

Several aspects catch our attention

  • The seasonality of both is clearly appreciated but with the good news that it is complementary: in summer there is less wind but it is when more solar is produced. This is very important because the solar will grow in installed capacity and better compensate for low summer wind production.

 

  • It is confirmed that wind is much more variable than solar. The saw curve of the wind is in some cases spectacular, such as last February 15, which in just 48 hours went from generating almost 300GWh to less than 50GWh.

 

  • The maximum daily wind production was on March 24. Let’s see the detail of generation that day on the REE page:

As can be seen, wind supplied 53% of the demand. Another curious detail in how the daily peaks are attended: the midday peak is covered with the contribution of the solar, but the 21h peak, as there is no solar, has to be covered with hydraulics (abundant in March).

  • It is curious that the maximum solar production was on May 16. This may be due to the fact that in May there are already many hours of sunshine, but it is still not as hot as in summer, so the modules work better and produce more.

 

Another aspect that is strongly emphasized these days is the relationship between the level of renewable production and the price of electricity. Although it is a rather complex subject (AEE’s page on this subject is highly recommended for those who want to go deeper), the relationship is clear: the more renewable, the lower the cost. Let’s see how it was in 2018:

It is very illustrative that the peaks in the daily price of electricity coincide exactly with the inverse peaks of wind production: in March with the peak of wind was reached in minimum price of electricity and vice versa in September.

 

As a curiosity, let’s look at the pattern of wind and solar generation in 2018 of the European country with the highest installed capacity: Germany.

Germany has been the first European country to reach 1TWh of daily production with wind power. It happened on December 8 and was thanks to the increasing contribution of offshore wind. And once again the variability of the wind is evident when with a separation of 34 calendar days we go from the historical record (8-Dec) to the annual minimum (11-Jan).

 

This analysis confirms with data several things we already knew: the direct relationship between renewables and lower electricity prices, seasonality and variability in production and the increasing weight in the generation mix.

In the previous post on this blog commenting on Lazard’s latest LCoE report, I made some comments on the competition between renewables and more specifically between wind and solar as the most viable and cheapest renewable sources of generation today. As a result of this article, I received several comments on this subject, some asking for more multi-technology auctions where the prime is the lowest committed price and others remembering that not everything is the price when planning the generation mix. The truth is that it is a hot topic as news like the last mixed auction in Germany where the solar PV took all the projects in front of the wind make more and more voices are heard advocating mixed auctions where, as expected, the solar offers unattainable prices for other technologies.

But is this the right approach? should the price be the only driver? is the solar PV really going to be unbeatable in mixed auctions? for those who are short of time, here are the quick answers: Depends, No and Yes. For those who have a few minutes to go deeper into these questions, here are some arguments …

 

Will PV solar be unbeatable in price?

It is very likely that, at absolute minimum price, yes. The current level of cost plus the future reduction potential will make this technology unbeatable in a few years in terms of costs. Let’s look at some of the reasons

 

1.Volume

It is one of the main drivers to reduce the cost and as we see in the graph, the volumes of the solar are already much larger than those of wind and the trend is that this difference is becoming larger.

One of the keys to explain this is that wind is limited to the grid-connected segment with large generation projects. However, solar has some residential and commercial business segments that bring a lot of volume to the sector. As can be seen in the following graph, almost half of the volume comes from these segments that do not exist in wind power

The reason is obvious: the solar resource is the same in urban and non-urban environments while the wind resource is very scarce in urban environments.

 

2. Technological and logistical complexity

Anyone who has seen the installation of a wind farm and a solar park already knows what I mean. The solar avoids much of the technical complexities of the wind: no work at height, no need for large cranes, no heavy elements, no mechanical elements that rotate, the dimensions of the components are small, and so on. For me, an example that clearly shows this difference are the floating projects: in the case of wind are projects worthy of a chapter (or two) of the mega-structures program, while the solar, are panels with floats underneath.

Another very illustrative example of this difference is the O&M: in solar is basically to clean the modules well and occasionally change small elements while, in wind, any corrective is already complex only by height and dimensions.

 

3. Potential cost reduction

Here are 2 important elements to try to guess the potential of each technology in cost reduction:

  • Raw materials: In solar, the element that weighs the most in the cost (the modules) are basically connected semiconductors. It is therefore based on silicon as well as chips so it could potentially follow a Moore’s law-type curve of cost/size reduction (I know this is very debatable, so I say potentially). Wind, however, is mostly steel, fiberglass/carbon and concrete, elements that have less capacity to follow important reduction curves.

 

  • R&D: this is key in technological sectors. The technology where the most investment is made is usually the one with the greatest advances. An indicative figure for investment in R&D are the published patents and, as can be seen in the data compiled by IRENA, patents in solar in 2016 are twice as high as those in wind power.

 

 

Should price be the only driver?

Obviously not. Both solar and wind are intermittent, so any responsible planner must be very cautious about this. But even though both are intermittent by nature, there are clear differences

 

1.Hourly distribution

We are talking about one of the great weaknesses of the solar system. It is obvious that the hours of sunshine per day are what they are and do not cover one of the peaks of demand of the day (that of 20h).

 

However, the wind is fairly evenly distributed throughout the 24 hours of the day, so it helps in all peaks of demand.

This is where the batteries come in and their ability to “move” the solar for a few hours towards the late-night peak. But the reality is that in about 10 years, the cost of the batteries will not be such that it can be a “default” complement to the solar.

The need to incorporate the time periods in the auctions because a kWh at 11 am and at 8 pm is not worth the same. If this were done, the solar would not be able to compete (for the moment) with the wind in certain hourly sections, which would make the results of the mixed auctions more balanced.

 

2. Local value

I know this is a sensitive issue and nobody wants to talk about local content, tariffs or quotas, but you have to be aware of the differences: 9 of the top 10 module manufacturers and 4 of the top 5 inverter manufacturers are Chinese. In wind power, there is only one big Chinese manufacturer in the top 5. In addition, the local investment per MW installed (installation, logistics, O&M) in the case of PV solar projects is much lower than wind. The reality is that the rate of return on investment in the local European or Spanish economy in the case of solar projects is much lower than that of wind projects.

 

What seems clear is that the times of brotherhood between wind and solar when fighting against the common enemy “thermal” are over and each time there will be more cases competing in the same markets and for the same customers. We will see how it turns out, but what is clear is that for the world, any result will be beneficial.

Last week, the financial advisory and asset management company Lazard launched the 12th edition of its Levelized Cost of Energy Analysis where it makes a comparative analysis of the average cost of producing a MWh with different generation technologies (here the complete pdf). Since 2008, when the first edition was launched, it has been a reference in the sector to see how renewables were reducing the cost of generation and approaching what seemed like a chimera a few years ago: the grid parity. But the news is that this is no longer news: that renewables (wind and solar) are now clearly more competitive in new installation than conventional is something that almost no one (with some criteria) discusses. Now the goal is what I would call the point of no return of renewables: that new wind or solar installations are cheaper than keeping conventional already amortized.

 

And this is what, for the first time, the Lazard report indicates may be happening. That’s why all the headlines in various media such as PV Magazine or El periódico de la Energía have highlighted this fact. Let’s take a closer look at Lazard’s report on LCoE:

  1. New renewable installation vs. conventional marginal cost

As already mentioned, this is the big news. According to Lazard, in certain cases, both the wind power and the new solar installation (both without subsidies) can have a lower generation cost than the cost of generating coal or nuclear power plants that are already depreciated and that, therefore, their cost is the marginal cost of operation, fuel, maintenance, etc.

  • The first thing that is surprising is that we are already at that point. Bloomberg NEF, which is probably the most reputable consultant in the sector, published this year its New Energy Outlook where it predicted that this point would be reached at the earliest in 2028 in projects in Germany and in 2030 in China, in both cases versus Coal installations. If the comparison is with gas installations, the date is brought forward to 2022 and 2023 for China and Germany respectively. It is already known that the profession of fortune teller is especially difficult in the world of energy but 10-12 years difference is a lot even for this world. Surely there is an explanation for such a difference (criteria, assumptions, etc.) but I personally, if I have to choose one of the two sources, I stay with Bloomberg.
  • The consequences of reaching this point are very relevant: to begin with, it would give a free hand to force closures of highly polluting plants (e.g. Coal) without economically damaging operators. This, together with private initiatives by the utilities themselves, would accelerate the penetration of renewables.
  • Apparently, the previous point seems very positive, but if we go a little further, a massive introduction of renewables would cause a fall in the pool price, which would make projects without PPA less attractive, which could be very detrimental to the renewables themselves.

2. Wind vs Solar

Another thing that catches my attention in the report is the very low LCoE of wind (29 $/MWh) while the cheapest solar is at 26 $/MWh. It is striking because the price levels that are being reached in the auctions seem to indicate that the soil of the solar is lower than that of the wind. Let’s look at some relevant details in this comparison

  • Analyzing the assumptions of the analysis, we see that the capacity factor of Wind Onshore is set at a range of 55-38%. That 55% corresponds to the minimum value of 29$/MWh and personally it seems to me something unreal for onshore projects. I find it hard to think that there are projects with 4,800 net equivalente hours. What’s more, the offshore range is 55-45% which seems more real but that the maximum range of both ranges coincides is very rare. I would put a range of 50-30% for onshore.

As for the lifetime of the installations, 20 years are assumed for wind. For Onshore it may make sense (life extension currently has capex associated) but for Offshore it should clearly be 25 or even 30 years.

  • Historical reduction ratios are spectacular but seem to indicate some floor for wind while solar seems far from reaching some floor (Bloomberg predicts in solar an additional 30% reduction by 2025).

  • It seems clear that solar will be cheaper than wind (if it is not already) and this coupled with being less capital-intensive, less technological risk and very short installation times, makes it look like an unbeatable rival in future multi-technology auctions. But as Jose Luis Blanco, CEO of Nordex-Acciona said at the recent EnerCluster event in Navarre: “although solar may be cheaper, the value of wind MWh will always be higher”. And this is something that legislators should bear in mind when planning future auctions: for regions such as Navarre or countries such as Spain or even for Europe, the return on investment in wind power is very high as a large percentage of the investment is local or regional while, in solar, the trend is that each time the manufacture of all the HW focuses more on China.

Be that as it may, the trend is unstoppable: renewables are already the most installed source of generation and will be even more so in the coming years. Now it is the turn of legislators and market planners to put in place the right mechanisms so that there is no risk of dying of success.

A few weeks ago I was attending the most important solar fair in Europe, Intersolar, in Munich. In addition to solar energy, this fair is a reference in e-mobility and energy storage. And the feeling I was left with is that batteries and their applications for energy storage are the new market boom. And many of the things I saw reminded me of the dot-com boom 20 years ago when, among other things, datacenters emerged as a large-scale business model. And that flashback, in addition to making me aware of the unrelenting pace of time, gave me the opportunity to analyze this analogy a little more in depth.

  • It is an infrastructure business that serves as an “enabler” for other businesses. In the case of data centers, he was the enabler of e-commerce, cloud applications, etc. In the case of energycenters, we will have to wait and see how to monetize the break with the first commandment of the network operators: “generation and demand must be identical”.
  • Both are businesses based on efficient hardware management using advanced thermal management and control software. Both scale well and savings are achieved by centralizing the infrastructure.
  • Both base their profitability on the cost reduction curve. In the case of datacenters it is heavily influenced by Moore’s law. In the case of the energycenters, as they are electrochemical technology, we cannot expect such spectacular curves, but according to BNEF in its latest report, the cost reduction will lead us in a few years to reach the mythical figure of 100 $/kWh.

  • The value chain in both is very similar

Currently, energy storage attracts players of many different types. From large industrial conglomerates such as LG, Panasonic, Siemens, GE or ABB, through IPPs such as RES or AES to specialists in the new sector such as Tesla, BYD or Leclanché. If we look at the datacenters, we can see that 20 years ago there were also many players but now the sector is evolving towards 2 large groups of companies:

Infrastructure providers: specialists such as Equinix or Cyxtera or telcos such as China Telecom who maintain the centres with the associated HW.

Service providers: Amazon, IBM, Google… hire the above mentioned capacity and offer “cloud” services.

In the case of energycenters, infrastructure providers are likely to be large companies such as utilities with the capacity to make large investments with medium term returns. But it is in the part of service providers where the most exciting battle seems to me to be where perhaps we will see great Internet companies like Google with new companies like Tesla and certainly classics like Siemens or IBM. In fact, I was struck by the fact that one of the most spectacular stands at Intersolar was from Mercedes energy, which did not actually show any specific products but clearly focused on energy storage solutions. Whoever develops services that fully leverage the capabilities of technology (as Amazon did with its cloud services) will revolutionize the market. And all of this has a lot to do with Smart Grids, a field that focuses the efforts of many giants of both energy and IT.

 

It seems clear that energy storage is going to change the management of renewables, as well as the grid management currently being carried out by operators, but I believe that it is not going to be through distributed private installations but as virtual’ storage services offered by companies that in turn will rely on optimised centralised infrastructures. Initially it will be aimed at large power generators/consumers, but it will evolve towards a scalable service that is within the reach of both large customers and individuals.

 

But all this will only happen if energy storage is profitable. Currently, the main source of income is frequency regulation, which is usually paid for by the network operator. As storage costs are reduced, new business applications will emerge. At the moment everyone wants to be well prepared for what is supposed to come in the near future: energy storage as a tool to revolutionise electricity management.