Two major studies, one by Deutsche Bank and the other for the National Bank of Abu Dhabi (NBAD) by the University of Cambridge and PwC, demonstrate something that just a few years ago would have been considered wildly optimistic: solar power rapidly gaining a cost advantage over fossil fuels, with no end in sight to this ongoing, apparently inexorable, trend. We strongly recommend that you read both reports, as they're chock full of fascinating data and insights. However, the following are nine key findings from the two reports.
- The total "solar addressable market" is huge: According to Deutsche Bank, the world electricity market is expected to double, to $4 trillion, over the next 20 years. Deustche Bank adds that "if the entire global electricity generation were to be from solar, [the] existing installed base (of solar) would need to be expanded by 120x." NBAD notes that, "[a]lready, more than half of the investment in new electricity generation worldwide is in renewables."
- The amount of money involved is staggering. Over the next 20 years, Deutsche Bank expects "the electricity market to double to $4 trillion and expect the solar industry to increase by a factor of 10," with the solar industry "expected to generate $5 trillion of cumulative revenue," and "global solar penetration rates to increase to 30%" by 2050. According to NBAD, "US$48 trillion of investment in energy infrastructure is needed in the next 20 years: the bulk of it in non-OECD countries...More than 50 per cent of investment in new generation capacity worldwide is in renewables...US$260 billion a year has been invested in renewable energy technologies worldwide for the past five years."
- Tremendous changes are taking place: According to Deutsche Bank, "the solar industry is going through fundamental change and the opportunity is bigger than it has ever been before." According to NBAD, "Renewable energy technologies that can realise these opportunities are proven, cost-effective and available today," so that "[w]hen we look to the future, it is very clear that renewables will be an established part of the global energy mix.""
- Solar prices are plummeting and will continue to do so. According to Deutsche Bank, "the cost of solar has decreased significantly over the past few years and this trend could continue for the foreseeable future," with "over 50% of countries under review...likely at grid parity today."
- Even if oil prices fall, solar power can still thrive due to its own rapid price declines. According to Deutsche Bank, "Solar can still grow in a low-oil-price era, in part because most countries generate less than 5% of their electricity from oil." In addition, "solar system costs have declined at ~15% CAGR over the past 8 years and we expect 40% cost reduction over the next 4-5 years as a solar module costs continue to decline, panel efficiencies gradually improve, balance of system costs decline due to scale and competition..." Meanwhile, the NBAD study finds that "photovoltaic technologies are competitive today with oil at US$10/ barrel and gas at US$5/MMBtu."
- Solar power storage is getting close to large-scale viability. According to Deutsche Bank, "Batteries delivered at an economically competitive price are the holy grail of solar penetration, and we believe the industry will begin deploying on a large scale within the next ~5 years or less." According to NBAD, "The cost of energy storage is expected to drop to US$100 per kWh in the next five years, against US$250 now," so that "in the next few years utility scale solutions will be deployed that further minimise concern around what was until recently seen as a major inhibitor to the uptake of renewable generation."
- "Renewable energy technologies are far further advanced than many may believe." According to NBAD, "solar photovoltaic (PV) and on-shore wind have a track record of successful deployment, and costs have fallen dramatically in the past few years. In many parts of the world, indeed, they are now competitive with hydrocarbon energy sources."
- Key solar markets. According to Deutsche Bank, the key solar markets in thew orld include the USA (50GW+ solar capacity by 2017?); China (" will continue to be one of the most important markets in the world over the next several year"), Japan, India (" the government has targeted ~100GW of solar by 2022."), Germany ("We expect the majority of installations to come from the small scale rooftop segment going forward, given the country’s high electricity price."), etc.
- Scale, Capital, Technology and Diversification: Deutsche Bank believes that the keys to winning in the solar power sector include four things: Scale, Capital, Technology and Diversification. With regard to capital, Deutsche Bank adds, "the successful IPOs of some of the recent YieldCo offerings is a significant positive for the overall solar/renewables sector and a key catalyst enabling the sector's transition from subsidies to grid parity." NBAD stresses that "Realising the opportunity will require collaboration between policymakers and financial institutions."