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Regulation, profitability and diffusion of PV grid connected systems in Spain 2004-2013 Javier López Prol Promitheas conference Athens, October 2015.

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Presentation on theme: "Regulation, profitability and diffusion of PV grid connected systems in Spain 2004-2013 Javier López Prol Promitheas conference Athens, October 2015."— Presentation transcript:

1 Regulation, profitability and diffusion of PV grid connected systems in Spain 2004-2013
Javier López Prol Promitheas conference Athens, October 2015

2 Content Introduction: climate change, energy and PV
Spain & PV: a love and hate relationship Determinants of profitability Financial conditions Solar irradiation Costs Electricity prices (Regulation) Profitability and diffusion Sensitivity analysis Conclusions

3 Source: International Geosphere-Biosphere Programme
“Anthropogenic greenhouse gas emissions have increased since the pre-industrial era driven largely by economic and population growth” “Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, and in global mean sea level rise; and it is extremely likely to have been the dominant cause of the observed warming since the mid- 20th century” (IPCC, 2014:47). Source: International Geosphere-Biosphere Programme

4 1. Introduction Renewable energies Solar: most abundant resource
Not only for sustainability, but also for energy security Soºurce: EPIA and Greenpeace

5 1. Introduction Renewable energies Potential (EJ/year) Theoretical
Technical Sustainable Production 2008 Biomass 2,400 800 100 50.3 Geothermal 41,700,000 720 22 0.4 Hydropower 504,000 160 12 11.6 Solar 3,900,000 280,000 10,000 0.5 Wind 110,000 1,700 >1,000 0.8 Total renewables 46,000,000 283,500 >11,000 64 Source: WBGU, 2011

6 1. Introduction Experience curve: historical production costs of modules and forecast Source: IEA (2014)

7 1. Introduction Source: REN21 (2015)

8 Spain: 45% of global installed capacity in 2008
2. Spain & PV: love & hate Spain: 45% of global installed capacity in 2008 Source: ASIF (2009)

9 Spain: 0% of global installed capacity in 2014
2. Spain & PV: love & hate Spain: 0% of global installed capacity in 2014 Source: REN21 (2015)

10 2. Spain & PV: love & hate Our hypothesis:
Profitability is the main driver of diffusion. A profitability bubble created by too generous incentives in a time of declining costs, caused a diffusion bubble which bust when the incentives were removed due to the economic crises and the high policy costs

11 3. Determinants of profitability
3.1. Financial conditions: Typical financial conditions: 80% financed in 10 years at market interest rates (Average of the period ): - Residential or small scale (SC) (R): 7,15% - Commercial-Industrial or medium scale (MC) (C-I): 5,25% - Utility or large scale (LC) (U):3,78% Other assumptions: Electricity prices escalation rate: 2% O&M cost: 1% of initial investment Degradation rate: 0,8% Lifetime of the system: 25 years

12 Yearly PV power (kWh/1kWp)
3. Determinants of profitability 3.1. Solar Irradiation Yearly PV power (kWh/1kWp) horizontal vertical optimal minimum 891 671 1001 average 1165 874 1328 maximum 1323 982 1475 Andalucía 1248 899 1406 R and C-I U Source: PVGIS

13 3. Determinants of profitability
3.1. System cost Smaller installation, higher cost Source: IEA

14 3.1. Electricity prices (regulation)
3. Determinants of profitability 3.1. Electricity prices (regulation) Quota + degression FIT Moratorium ≤100kW ≤100kW 100kW-10MW roof≤20kW 100KW-50MW ground≤10MW roof 20kW-2MW 10-50MW Pool RD 436/2004 RDL 1/2012 RD 2818/1998 RD 661/2007 RD 1578/2008 RD 1565/2010 Source: own

15 4. Profitability and diffusion
Upper line: soft loans (3%) and max. subsidy (40% cost) MC installations, high FiTs MC installations, low FiTs Source: own

16 5. Profitability and diffusion
Diffusion bubble Profitability bubble

17 5. Profitability and diffusion
PV boom happened in a moment when the profit rate of the economy was crumbling (almost 10 percentage points in 2009 and 17 pp between according to AMECO)

18 6. Sensitivity analysis Pvin (€/kWp) System cost 1285 εPu (%) Escalation rate of Pu 2 Pu (€cts/kWh) Electricity price 4,43 Base case: current situation (2013) of the Utility segment without any incentive, high irradiation and optimal tilt.

19 7. Conclusions False myths: Myth Reality
- Diffusion bubble caused by profitability bubble - Profitability bubble (understood as general high profitabilities for all segments caused by the combination of FiTs and declining cost) was subsequent to the diffusion bubble, not the cause of it - Too generous FiTs caused diffusion bubble - FiTs were designed to provide a return on investment below 5%. - Declining costs and favorable exchange rate caused the diffusion bubble - System costs peaked in Spain in , due to Silicon shortage (global factor) and high demand (national factor), offsetting the effect of exchange rate and strengthening subsequent decline in

20 7. Conclusions Regulation was not flexible enough to adapt to market dynamics (even when degression was established, costs dropped higher than FiTs). (Del Rio & Mir Artigues, 2012 and 2014) Economic crisis played a major role in the diffusion bubble, as the profit rate of the economy was falling dramatically in contrast with security provided by FiTs (capital flight from construction sector and financialization of PV investments) (Prieto & Hill, 2014) Expectations played also a main role (rush to invest before Degression system and Quotas were established and FiTs lowered) Grid parity has not been reached yet for Utility segment (2013). Profitability will be above 4% when costs decline by 30%, wholesale electricity price trebles, or if expected escalation rate of electricity prices is above 5% (a combination of the three factors is more likely)

21 Thank you for your attention!

22 6. Sensitivity analysis 6.1. Diffusion
Between FiTs were compromised to ensure a total retribution of about 46B€* at present value (3% discount) for the next 29 years** How would the diffusion process had been if the NPV of the total remuneration for PV investors was directly invested and evenly distributed during these 29 years? +44% +22% +9% Assumptions: 3% discount rate Constant cost decline towards 1€/W in 2040 (solid lines); no cost decline (dashed lines). 100% investment in large installations (green lines); or small ones (blue lines) No economies of scale No admin. Costs Lyfetime of the system: 25 years -46%

23 Appendix: Germany:

24 Appendix: Germany: Clear correlation profitability diffusion
Larger scale, stronger correlation and sensitivity Not only important profitability level, but also relative change with respect to the profit rate of the economy

25 FiT/electricity prices

26 System Cost

27 Profitability

28 Diffusion


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