Special Report: EU on track for solar grid parity by 2017

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This article is part of our special report Solar Power.

Solar photovoltaic (PV) power is set to achieve the environmentalists' holy grail of grid parity – the same cost price as fossil fuels – across the European Union by 2017, according to a UN expert.

But Sven Teske, a contributing author to the Intergovernmental Panel on Climate Change (IPCC)'s recent report on renewable energies, also warned that progress could be endangered by market uncertainty over the future of feed-in tariffs.

These tariffs are subsidies allowing fledgling renewable industries to compete with fossil fuels that receive up to 10 times more state aid.

In an exclusive interview, Teske, who is also renewables director at Greenpeace International, told EURACTIV that on current trends, he expected Spain, Italy, France and Germany to reach grid parity by 2015.

Attaining parity across the EU as a whole would take "five, maybe six years," he said, "and therefore we urge governments not to change their policy. We are almost there and what we need is a stable feed-in tariff policy".

In 2007, the EU's PV Technology Platform estimated that grid parity would only "apply to most of Europe by 2020". The European Photovoltaic Industry Association made the same prediction.

"Reaching grid parity will depend on the geographical situation, irradiation and the price of electricity," said Eleni Despotou, secretary-general of the European Photovoltaic Industry Association (EPIA).

"We have recently done a study that shows that in Italy we can reach grid parity in two years' time, in Germany in all market segments by 2017, Spain 2016," she told EURACTIV.

Stop-and-go policies undermining solar PV sector

But while the solar PV industry's rapid growth has surprised many observers, cuts to national subsidies have also startled the markets, leading some companies to look eastwards for opportunities in emerging markets.

The EU's climate action commissioner, Connie Hedegaard, told EURACTIV that EU nations should remember the Commission's 2020 targets for renewables when taking such decisions.

"Take care that you, the member states, are not doing anything retroactively that will just make people fear to invest in this area," she said. "It's in nobody's interests."

"That does not mean that if you've had the feed-in tariff once it can never, ever be changed. But you have to be very cautious and you have to give very, very long warnings."

Stop-and-go policies are exactly the sort that spook investors, said EPIA's Eleni Despotou, citing feed-in tariff cuts in France and Spain as examples.

"Governments may introduce a law [with] something wrong in [it] from the beginning. You may have very generous incentives in order to kick off the market and once the incentive is too generous, that of course creates some speculative bubbles."

"We used to have a leader in 2008 which was Spain and today it is just far behind – it is not a Gigawatt market," said Despotou, criticising Spanish cuts which had a retroactive effect.

Even with long warnings, market uncertainties caused by tariff cuts have apparently led companies such as First Solar to announce major new deals in China and Total to invest in the US.

Teske expected Europe's global market share to drop as a result.

He stressed that solar PV companies should also be allowed to provide as well as produce electricity because at present, utilities could double their overnight backup prices – when the sun is not shining – and so nullify the benefits of any feed-in tariff.

"The main focus should be on allowing all electricity to be fed into the grid at a certain minimum price," he said, "even if it's lower than the market price. You just need something reliable".

Arthur Neslen and Frédéric Simon

To read the interview with Sven Teske in full, please click here.

Eleni Despotou, secretary-general of the European Photovoltaic Industry Association (EPIA), said feed-in tariffs are the most efficient support mechanism to kick-off a market.

But she said support will also be needed once the solar PV sector reaches grid parity. "We can distinguish three phases: the precompetitive era, which is now, then the grid parity phase, and the post-grid parity era," Despotou told EURACTIV.

"We define ourselves as being between the first and second stage, so we need a feed-in tariff in order to kick off the market, but a feed-in tariff which really has a decreasing rate and follows the markets trends in order to phase it out."

"Let's say, by 2020 we believe that we may phase out financial support mechanism as such. However, we would need some other mechanisms – and for the moment, we are trying to define them – to trigger investments, to trigger installation and probably financial support as well."

Georg Zachmann, a research fellow at Bruegel, an economic policy think-tank, said subsidy cuts are understandable from a domestic policy stand-point as they stop the expensive deployment of renewables.

"The national benefits of renewables deployment – security of supply [...] and development of a competitive advantage – might not exceed the national cost of this policy," Zachmann told EURACTIV. "And in times of stretched budgets governments might decide to ignore the global effects of domestic deployment on technology cost reduction."

However, he said that "reductions in per kW subsidies that decrease profits of solar companies while keeping their incentives to conduct R&D are good economic policy" and might indicate that that solar is moving towards grid parity.

In the long run, the main goal of renewables subsidies is to bring down costs and less about supply security, Zachmann stressed. "This is critical, as bringing down the cost of renewable technologies is the most promising approach for getting conventional fuels out of the energy mix and thus reducing greenhouse-gas emissions."

The European Commission has so far refrained from setting an EU-wide tariff, following the renewables industry in saying that local markets need tailor-made support to be able to thrive.

But it does not rule out greater harmonisation in the future. "A convergence of financing, such as feed in tariffs, will be necessary in the medium or long term, when a truly European market is created," the Commission said back in January.

"This can include greater cooperation in setting tariffs, technology bands, tariff lifetimes, etc."

It said convergence could also include completely joining the support schemes, as planned by Norway and Sweden.

In a January communication, the Commission described retroactive subsidy cuts in countries like Spain as particularly damaging for investor confidence. "The Commission has already expressed concern about recent developments in certain member states in this respect and will continue monitoring this issue closely with a view to consider further action at EU level if necessary."

Despite its huge promise, solar energy currently provides less than 1% of energy sold globally, mainly due to its intermittent nature and low intensity. The main reason for this has been difficulties exploiting the resource on a large scale at a competitive price.

Solar electricity will become attractive when it falls below so-called 'grid parity', the point at which renewable energies become cost-competitive with conventional energy sources like fossil fuels.

Favourable regulatory regimes and rapid technological evolution in the industry helped the industry get onto its feet quickly. But many in the industry now fear that the sudden removal of tariffs, often, as in Spain, retroactively is damaging the industry's future prospects, particularly in Europe.

  • 2014: Commission to review Renewable Energy Directive, including support schemes and cooperation mechanisms.

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