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Green Energy and Technology Pere Mir-Artigues Pablo del Río The Economics and Policy of Solar Photovoltaic Generation Green Energy and Technology More information about this series at http://www.springer.com/series/8059 í Pere Mir-Artigues Pablo del R o (cid:129) The Economics and Policy of Solar Photovoltaic Generation 123 PereMir-Artigues Pablodel Río Energy Sustainability Research Group National Research Council of Spain(CSIC) University of Barcelona Madrid Barcelona Spain Spain ISSN 1865-3529 ISSN 1865-3537 (electronic) Green Energy andTechnology ISBN978-3-319-29651-7 ISBN978-3-319-29653-1 (eBook) DOI 10.1007/978-3-319-29653-1 LibraryofCongressControlNumber:2016935694 ©SpringerInternationalPublishingSwitzerland2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authorsortheeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinor foranyerrorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAGSwitzerland Foreword Theworkpresentedhere represents anambitiousanalysisofsolarPVenergy from several perspectives. The authors deal with aspects connected with its history, its technological characteristics, the innovation process and improvements in energy and cost efficiency, changes in the industrial organization of the energy sector and itsfirmsandthenewenergymodel,aswellaspolicyissuestofosterinvestmentsin research, development and demonstration (RD&D), energy regulation and policy, and the mitigation of climate change objective. The book brings together the state of the art of solar PV energy updated with the introduction of the research carried out by the authors themselves, which definitively establishes them as relevant contributors to the subject. The reader will find a thorough, honest work capable of showcasing all the positive aspects of solar PV energy and the literature that has covered the subject and, in turn, explain those questions that can be more debateable and which have not been explained correctly or resolved to date by the literature or technical developments. The extensive information offered and the rigour with which the wholerangeofsubjectsconnectedwithsolarPVenergyisanalysed(whichimplies ananalysisofpracticallyalltheregulationandobjectivesoftheelectricitysystem) make this a special book and essential reading for all those interested in the advances and challenges of the energy sector. It is an excellent textbook for those who are studying the economics of energy and especially those following a post- graduate course in renewable energy. ThisbooksuggestshowsolarPVenergywillplayadecisiveroleinreachingthe objectives of European climate and energy policy. The subject is especially timely after theagreements oftheCOP21andtheRoadmap2030and2050that member countries of the EU have promised to follow. European Union member countries should implement measures necessary to reduce greenhouse gas emissions to at least40 %by2030inrelationto1990,improvementinenergyefficiencybyatleast 27 %, and a target share of renewable energy in final consumption also by at least 27 %.TheRoadmap2050broadensthechallengestobemet.Theseobjectiveswill lead to a profound change in the current energy technology mix; generation from v vi Foreword renewable energy sources, and in particular solar PV energy, will irreversibly displace conventional generation, especially those plants that emit the most. SolarPVenergyhasaveryimportantrolereservedforitinthenewtechnological generationmix.Theimportanttechnologicaladvancesandcostreductionsachieved inthelast15yearshaveledtoalargegrowthofsolarPVenergy,indeedthehighest among renewable energies. In this period installed capacity has increased 100-fold and prices will reach additional reductions of 75 % in the next 10 years. Constant improvementsintechnicalefficiencyandcostreductionsareboostingaformidable expansion process. Numerous countries have a high installed capacity. More than 7 %oftheelectricitydemandinGermany,ItalyandGreeceiscoveredbysolarPV energy.Itisexpectedtogrowby80 %inEuropeby2019.IntheUnitedKingdom solar PV energy began to have a significant presence in 2011. Despite these advances in some countries, Europe is not the best example for the expanding performanceofsolarPVenergy.In2014,deploymentinEuropesloweddowntothe same level as in 2009. In a context of transitioning from feed-in tariff support policiestowardsamoremarket-baseddevelopmentframework,theEuropeansolar PV sector is the first to experience this dynamic. There is a general move to pro- gressively integrate solar PV into electricity markets. The European Electricity marketintegrationandself-consumptionchallengesarethetwomaindriversofPV redevelopment in Europe. Other geographical areas, such as APAC (Asian Pacific Countries) are leading the growth in industrial production and installed capacity, particularly in China. SolarPVenergyisacasestudythatshowshowdisruptivetechnologicalchanges canonlybeconsolidatedinthelongterm.Ascientificdiscoverycanrequirealong period of time, first to be recognized, and after to be seen as viable and to be commercialized in a competitive environment. This process is slower and more difficult when the technological innovation involves a transformation of the structure of the market and allows new entrants to replace incumbents. As the authors explaininthebook,thefirststepsinsolarPVenergyaretobefoundasfarbackas the first half of the nineteenth century and it was not established as a competitive alternativeuntilthetwenty-firstcentury.ThisistherealityofthehistoryofsolarPV energy. The depth of the analysis made by the authors and the wide range of subjects dealtwithhavealreadybeennotedhereandIthinkitisofinteresttoremarkonthe contributionsontheroleofRD&D,onchangesintheindustrialorganizationofthe sector, on the new electricity model and on the role of energy policy and its regulatory developments. In all these areas the study of solar PV energy leads to explanatory conclusions of a general nature. The fostering of RD&D is the backbone of the trajectory followed by solar PV energy, in its successes and errors. The authors carry out a broad review of the theory of innovation. It is an excellent overview of the state of the question in the academic literature. From reading the work it can be seen that research, right from itsinitialstage,requiresexternalsupportinassumingriskinordertoprosper.When thestage of itstechnological viabilityisreached, it again requires a support policy for its development in the precompetitive phases before competitive maturity. Foreword vii The book shows how RD&D investments have a key influence on the success of newtechnologicalprojectsandonthescopeoftheobjectivesofprivateinitiatives. The grounds for fostering RD&D are part of the basis of energy policy. The book shows how the history of solar PV energy is also the history of industrial organization, of changes in the structure of markets, of firms and competition.Theconflictbetweenentrantsandincumbentsisreflectedinthebarriersin the photovoltaic industry. In a sector heavily affected by regulation there are institutional and technological barriers (derived from institutional ones as projects aresubjecttochanges inpolicy objectives),andfinancialandscale barriers. These barriers to entry alter the conditions of competition for entrants in mature economies and favour, on the other hand, new highly competitive developments in newcomercountries.InparallelweseehowsolarPVenergyhasexpandedthesize of nationalelectrical energy markets. New agents with solar PVenergy generation have entered the markets, changing the composition of supply and increasing the numberofoperators.Thegridparityalreadyachievedinsomecountriesstrengthens this trend. The treatment given in the work on the development of the model of solar PV firmsisaninterestingcontributionthatopensupnewlinesofresearch.Itisknown that the optimal size for efficiency is smaller in this sector than in conventional sectors,especiallyinthegenerationphase.Nuclearenergyandgascombinedcycles require greater economies of scale. Nevertheless the authors show how the pro- gressive diffusion of solar PV energy and improvements in efficiency have been accompanied by a growing process of business consolidation and vertical inte- gration; a process especially important in Chinese firms. Differently from con- ventionalgeneration,theintegrationoftheindustrialprocessandgenerationinsolar PV energy leads to the exploitation of economies of scale. InasplendidextensiveaccounttheauthorsplacesolarPVenergyatthecentreof changeintheenergymodel.AsitispointedoutinthebooksolarPVenergyispart of a set of technological innovations that turn the functioning of the electricity systemupsidedown.Theincorporationofcomputerscienceintogrids(smartgrids) andintothecontrolofdemand(smartmeters)willmeantheelectricitysystemwill function on a demand response model. New generation technologies, and in particular solar photovoltaic energy, will also allow distributed generation and self-consumption. New technological developments are introducing disruptive organizationalchange intotheelectricitysystem.Obviouslythisdemandsadrastic change of direction in regulation. Energypolicyoccupiesaveryimportantpartofthebook.Itisafinalchapterthat in a way expresses the conclusions of the work more fully and in more detail than the summing up chapter. In accordance with the theoretical foundations that cover all matters dealt with in the book, the authors maintain their position and enter the debate on energy policy and its regulatory developments finding support in the existence of market failures and the double externality problem (technological spillovers and positive environmental externalities). In energy policy design the authors do not exclude the need for conventional energy as a back-up with the purpose of bypassing the intermittent nature, at least with the current state of viii Foreword technology,ofsolarPVenergyandalltherenewableenergies,inordertomaintain securityofsupply.Regulatorydesignshouldbestableandatthesametimeflexible insuchawaythattheobjectivesofsecurityofsupply,availability,affordabilityand competitiveness are compatible with sustainability. Finallythe account and the evaluation that the authors have made of thedesign andfunctioningofdifferentregulatorymodelsforfosteringsolarPVenergywillbe of great use to policy-makers in the field of energy. To sum up, this is an excellent book which is essential for acquiring critical knowledge of the energy sector. Barcelona Maria Teresa Costa-Campi February 2016 Chair in Energy and Environmental Sustainability University of Barcelona Former President Spanish National Energy Regulatory Authority (CNE) Preface and Acknowledgements The unprecedented accumulation ofgreenhousegases (GHG)intheatmospherein the last two centuries is undeniably changing the climate, as consistently informed by the Intergovernmental Panel on Climate Change (IPCC) (see IPCC 2014a; Houghton 2015). This represents quite a serious threat for the survival of many vegetalandanimalspeciesandhasthepotentialtogenerateconsiderabledistortions in the lifestyles of human beings. Despite the fact that most citizens and govern- ments are clearly aware of the problem, GHG concentrations are likely to exceed the 500 parts per million of CO equivalent (ppm CO e) level. This represents a 2 2 50-50chancethattheaveragetemperaturewouldhavebeen2 °Cabovetheaverage temperatureinthemid-nineteenthcentury,i.e.inthepreindustrialperiod,whenthe GHGconcentrationswereestimatedat280ppmCO e.Involumeterms,thismeans 2 that the 50 billion tonnes of CO e emitted in 2013 should go down to 35 billion 2 tonnes in 2030 and 20 billion tonnes in 2050. If emissions remain at this level in 2030, concentrations could be above 650 ppm CO e, consistent with temperature 2 increases of around 3.5 °C with a 50-50 chance (Sachs et al. 2014: 8–10; Stern 2015: 14–15, 37). It should be taken into account that the current concentration of around 450 ppm is unprecedented in our planet, and it could have only happened between 800 thousand and 3 million years ago. If this concentration exceeded 750 ppmbytheendofthiscentury,theaveragetemperaturewouldlikelybeabove4 °C withrespecttothepreindustrialera.Bothecosystemsandhumanswouldsuddenly bewithinanenvironmentwhichhasbeenthecommononeinourplanetinthelast 35 million years (Stern 2015: 9–10).1 The anthropogenic origin of climate change can no longer be doubted sinceaveragetemperaturechangesintheHolocenehaveremainedwithinanarrow ±1.5 °Crange.Thismeansthatawait-and-seeattitudeisnotanoption,evengiven the unavoidable uncertainty of the specific impacts of human-induced climate change.Delayingmitigationactionshastwoseriousimplications:ontheonehand, 1Since those increases are average values, the different regions can experience different rates of changeaccordingtotheseasonoftheyear. ix