By Daniel Webster, dWeb.News Publisher
BOSTON–(BUSINESS WIRE)–Customer-sited solar is a major untapped opportunity, which could see 167 million households and 23 million businesses worldwide hosting their own clean power generation by 2050, according to a joint report by research firm BloombergNEF (BNEF) and Schneider Electric. However, these deployments will bring about major decarbonization benefits. But policy and tariff design are crucial to make them possible.
The report ‘Realizing the Potential of Customer-Sited Solar’ finds that rapidly falling costs of solar technology have already made it economical for homes and businesses to generate their own power in some markets. In Australia, for example, the payback period for households investing in solar has been favorable, at less than 10 years, since 2013. As a result, adoption has already taken off, with more than 2.5 gigawatts of residential solar added in 2020 alone.
These installations can bring economic benefits to the hosting homes or businesses as well as reducing carbon emissions, peak load reductions and creating employment opportunities.
Customer-sited solar offers a tremendous opportunity that is often overlooked. It’s being quickly deployed in certain markets due to falling costs and policies. Its rapid scale up is very probable,” Vincent Petit, Head, Schneider Electric TM Sustainability Research Institute and SVP Global Strategy Prospective & External Affairs, Schneider Electric, said. This is essential for decarbonizing power sector. It also offers great consumer benefits. It’s time to embrace this transformation.”
Kick-starting the market
Experience shows that solar adoption mainly occurs when there is an economic case for the households and businesses investing in the technology, usually in the form of high internal rates of return (IRR) or short payback periods. To create favorable market conditions for deployment, policymakers are creating targeted incentives in regions that have not reached these tipping points.
One such example is France, where existing incentives mean that residential solar can earn internal rates of return of around 18.5% (a five-year payback), and commercial installations achieve 10.4% IRR (or a nine-year payback). This has stimulated gradual growth in the market, to about 500 megawatts of installations in 2020.
It is important to avoid an unsustainable boom in the initial stages of market development. Policies should consider the fact that solar costs will continue falling over time and provide moderate support to accommodate these changing dynamics.
Solar for new-build homes and businesses
The economic case for adding solar during construction of new buildings is particularly strong. Because so-called “soft costs”, such as marketing and sales, labor and construction costs can be decreased while the benefits are the same, this is why it is so compelling to add solar during new building construction. In California, the economic case for adding residential solar on existing homes is already good at 20% IRR, but the new report estimates that this figure is twice as high, at 40% IRR, when solar is added at the point of construction. In France, the IRR for residential solar could be boosted to 28% when added during new construction.
Introducing energy storage and flexibility
As solar markets develop and mature, policy makers and regulators must gradually shift their emphasis toward unlocking flexibility and encouraging the adoption of energy storage. High levels of solar adoption can cause excess energy production and possibly even destabilize the power grid. This stage is where energy storage is valuable as it allows renewable electricity to be stored for later use. “The evolution customer-sited solar is the addition of some form of flexibility which has the potential to unlock a higher penetration of solar,” Yayoi Skine, BNEF Head of Decentralized Energy, stated. “Batteries are the most obvious form, but energy storage can take many forms including shifting demand or using electric vehicles.”
To encourage storage, there are several tools: adjusted export rates (payments to solar owners for exporting energy to the grid), time of use retail electricity rates (which reflect lower generation costs during daytime), payments for storage that provides grid services (sometimes called aggregate payments), and the implementation of demand fees (mainly for business customers). These tools are intended to increase energy storage while also reflecting grid and generation costs.
In California, for example, reducing export rates to 35% of retail tariffs, while it would damage the economics of solar overall, would shift the emphasis over to solar systems paired with storage, which would still generate a 13% IRR. For commercial and industrial installations, adding so-called aggregation payments for batteries would boost IRRs to 22.8%, making solar-plus-storage a more attractive option than solar alone. This report examines these mechanisms in detail and presents individual use case analysis for France (Spain), Australia (U.S.), California (U.S.), and New Jersey (U.S.), to show markets at different stages. You can access the full report by clicking on this link.
BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our experts assess the options for adapting to the energy transition in power, transport and industry sectors. Our experts help policy and finance professionals, as well as commodity trading and corporate strategy to navigate the changes and create opportunities.
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About Schneider Electric
Schneider’s purpose is to empower all to make the most of our energy and resources, bridging progress and sustainability for all. This Life is On . we call it.
Our mission is to be your digital partner for Sustainability and Efficiency.
Our mission is to drive digital transformation through the integration of world-leading energy and process technologies, end-point-to-cloud connecting products, controls and software across all lifecycles. This enables integrated company management for homes, buildings and data centers as well as infrastructure and other industries.
We are the most local of global companies. We are advocates of open standards and partnership ecosystems that are passionate about our shared Meaningful Purpose, Inclusive and Empowered values.
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