The GWPF has recently published data and analysis calling into question claims of falling capital cost in the wind industry. Reports of rising costs for solar panels in India suggest that the widely discussed fall in costs in the photovoltaic sector may also prove to be either temporary or largely illusory.
One of the replies made to Dieter Helm’s recent Cost of Energy Review is that his criticisms of the last decades of policy support for renewables were largely irrelevant, and at best backward looking, since the costs of renewable energy were now falling sharply. Sir Ed Davey, former Secretary of State at the Department of Energy and Climate Change, and personally responsible for much of the astonishing and growing cost burden placed on consumers, has been quoted in Utility Week as remarking that Professor Helm’s “predictions of the past proved wrong and the cost of going green have fallen dramatically which undermines his central thesis. It’s answering yesterday’s questions not tomorrow’s questions.”(“Dieter Helm’s cost of energy review – blueprint or blue sky?”).
However, as Gordon Hughes, Capell Aris and I have observed in our recent work on offshore wind costs, the evidence for significant reductions in capital cost in that sector does not appear to be strong. Indeed, if anything the costs are rising as the industry moves into deeper water. The very low bid prices in the recent round of Contracts for Difference are to be understood as “options” gambling on a carbon price, which as it happens Dieter Helm, like the sensible economist he plainly is, much prefers to direct income support subidies such as Obligations and FiTs and FiTs CfDs.
In the case of solar there are also grounds for doubt. Only last month the UK government very incautiously claimed that solar no longer needed subisidy. On closer examination the scheme in question turned out to be an in effect subsidised battery storage scheme, with solar as only one of its charging options (“Forget this Spin Too: Solar PV Is Not on the Brink of Being Subsidy Free”).
Now the Financial Times is reporting that very low bids for solar power in India may also prove to be a false dawn: “India’s record low solar power deals prompt sustainability fears: Boss of Acme Solar behind groundbreaking park bid expresses regret as costs rise”. Indeed, the FT reports Mr Upadhyay, of Acme Solar as on record to the effect that “he would not make the same bid again, saying prices had since been pushed up by a worldwide rise in the cost of panels and the Indian government’s new sales tax”:
“When we made our bid, we factored in a price for every solar panel of 30 cents per watt of power, but since then it has risen to around 35c.”
The FT offers no comment on the price increase, but it seems entirely reasonable to suspect that the recent PV cost falls were predominantly the result of over-capacity in China’s photovoltaic industry, and that these increases are the beginning of the inevitable correction. That correction would not have to go far to be very important, as the Indian case shows. As is obvious to anyone who has thought about the issue, the physics of renewable energy is heavily against it being cost competitive with conventional energy. Vast capital structures are needed to gather and concentrate the thin flows of sun and wind and deliver the energy output as reliable supply to a consumer. The equipment has to be very cheap indeed to overcome this fundamental fact. By that standard the cost reductions claimed for solar and even for wind are relatively small. Now it seems that modest though they are, they may be more apparent than real.