The combination of increased use of solar energy and new technology makes it possible for everyone to become both producers and consumers of solar energy – and this situation would lead us to start talking about procumers, game changers on the energy market.
Solar PV – Attractive business investment
Solar PV has evolved from a niche technology with off-grid solutions and a very limited market – very unattractive business for investors – until the mid-2000s when the solar PV industry entered a phase of rapid and sustained growth in globally installed capacity, driven by:
- Falling technology cost
- Strong support mechanisms
- Rising electricity prices
- Rising consumer engagement
The strong support mechanisms in the European market created a wave of demand that developed a solar PV industry, a growth that has gradually shifted from an European business to include China and the US in a global market. In 2015 investments in solar PV accounted for nearly half of all investments in renewable energy globally. By 2020 global installed solar PV capacity is expected to triple relative to today’s level, and reach about 700 GW.
The solar resources in Norway
Developments of Solar PV market are lagging behind neighboring markets. At the end of 2015 the total installed capacity was:
- Norway – 15 MW
- Sweden – 160 MW
- Denmark – 790 MW (holiday home off-grid segment)
Do this situation exist because there is less sunshine in Norway than in rest of Europe? No – the solar resources in Norway are comparable to those of central Europe. Lower solar insolation is compensated by cooler ambient air tempratures, which increase solar PV system efficiency. So the development of the Norwegian solar PV market is significantly less attractive than in the neighboring markets because of the economic factors – rather than the solar resources.
The economics of solar PV in Norway
The economics of solar PV in Norway are significantly less attractive than in neighboring markets:
- Low electricity prices – 50% below EU average.
- High technology costs – 60% above EU average.
- Low levels of financial support
In addition to neighboring markets – the absence of a simple and consistent regulatory framework makes it more difficult for potential customers to move from idea to investment decision. Yet – the last two years there have been an higher activity in the commercial building segments, why?
The main reason is that adopters look beyond economics when opting for solar PV investmets. For today’s adopters economics are only one of several sources of motivation – curiosity play a role in the decision to go solar – curiosity about:
- New technology
- Environmental benefits (Local RE Production/Local employment)
- Emotional values (sustaiability strategy)
- Self-produced renewable electricity (avoid electricity network bills)
The support mechanisms has contributed to lowering the up-front investments cost of solar PV in Norway, but in spite of this the profitability of solar PV in Norway remains low, due to record- low electricity prices and high technology cost.
Rising electricity prices – opportunities for the Norwegian solar PV market
The economics of solar PV in Norway are set to improve significantly over the next 15 years, making solar PV relevant for the majority of the market. There are to major reason for this:
- Electricity prices – By 2030 retail electricity prices are expected to nearly double relative to todays’s level (Statnett longtime forecast). The spot prices would increase from 20 EUR/MWh in 2015 to 60 EUR/MWh in 2030.
- Electricity network bills – Investments in the distribution and transmission electricity grids are estimated to increase the electricity network bills with 25% by 2025 relative to today’s level (2015).
At the same time – technology prices are expected to fall by 30-40% relative to today’s level. This is driven partially by a global trend of continous cost reduction for modules and inverters, as well as cost reduction of installation, as the market and solar industry mature.
If this analysis is correct – the payback time for residential solar PV systems in Norway are set to fall to about 10 years (subsidy free payback time). With existing investment support in place, a 10 year payback is expected already sometime around 2023, falling to 7-8 years in 2030.
Transformation of the market
The rising of electricity prices and the falling of technology cost in the solar PV market would be the key factors that gives birth to the Norwegian procumers.
- Consumers – will become procumers; today’s passiv consumers will become active producers of electricity from renewable energy sources – with options:
- Sales of electricity to grid/power-network
- 100% self-suppliers of electricity (cost-cut of electricity network bill) Solar PV
- Combination of solar PV electricity production and energy storage (Hydrogen)
- Private grids/power network (small society solutions – Solar PV + Hydrogen)
- Solar PV electricity production for Hydrogen production (energy storage and sales)
- Companies – investment and use of local produced RE/storage of RE (SME procumers)
- SME’s most reduce their electricity costs
- SME’s can’t afford increased electricity bills
- Automation of the production would increase the need for electricity
- Reduction of electricity cost by investment in RE-systems
- Possibility of becoming 100% self-suppliers by investment in RE-systems and storage of energy (Hydrogen-production/Battery)
- Energy producers – must create strategies to meet the transformation of the market
- Export of renewable energy (long term contracts – «Battery strategy»)
- Investment in small Solar PV installation (market segment)
- Solar PV as electricity suppliers (add to portifolio – smart home/electric vehicle)
- Not very happy with giving RE producers access to the grid/power network
- Need to develop customer loyalty solutions
- Facing low margins and high marketing cost
- Solar PV Systems – Sustainable market growth and new business opportunities
- Delivery models – all in one systems solutions with complementary services
- Financing – making it possible to produce electricity without access to upfront capital/Providing capital to SME investment in building solar PV systems
- Maintenance – Solar PV Service suppliers
- Market integration – Connection to Solar PV eco-systems/Energy sales
- Storage solutions – Battery or Hydrogen solutions
- Key question information – covering technology, cost, support, finance etc so that customers could understand the cost-benefit equation of Solar PV.
- Standardization – the need to deal with multiple actors and bureucratic rules:
Procumers – the game changers
The Solar PV market will continue to grow, as profitability improves over the coming years. As key stakeholders the network companies and regulators should assess to what extent the existing capabilities are sufficient to support the development of Solar PV. At the same time, they should consider how they can help simplify the process for customers as individuals and for SME/Industry as a whole.
Solar PV commercial customers, individuals and SME’s, look upon Solar PV as a sustainable energy strategy – and they would soon be joined by lager players wanting to enter the market. The procumers has start to ask questions that makes it necessary for actors in the energy sector to define the roles they wish to have in the emerging market. The procumers asking key questions as:
- What are the direct and indirect benefits of Solar PV for me/my business?
- Can I /we /my business start renewable energy production?
- Can I/we/My business start energy production and sell it?
- Can I/we/My business start energy storage (battery, hydrogen) from RE systems?
- How will technology cost and energy prices develop in the future?
- How can solar PV benefit my competitive positioning in the market?
- What are my retur on investment?
A profitability analysis alone does not provide a complete answer to all the procumers questions, but the Norwegian solar PV market shows growth and the profitability analysis gives answers that indicates that the market would increase over a relatively short periode of time. The procumers would stay in the market driven by both rational-economic facts and non-economics considerations – this couls change the whole energy market in Norway. The procumers could become game changers.
It is therefore important for commercial and public actors to initiate a strategy process around solar PV – with a view to prepare for the future developments of Norwegian solar PV.