Wind feels the heat as solar turns the screw on cost

Until recently, leading wind companies were far more likely to express concern about gas or nuclear than solar. But the conversation is changing quickly, as the list of competitive tenders in which solar has unexpectedly topped wind grows longer.

Recent tender wins have put wind on notice that 'little cousin' solar is a force to be reckoned with, writes Karl-Erik Stromsta

An unlikely subject is inducing greater levels of anxiety at wind industry gatherings around the globe these days: solar energy.

Until recently, leading wind companies were far more likely to express concern about gas or nuclear than solar. But the conversation is changing quickly, as the list of competitive tenders in which solar has unexpectedly topped wind grows longer.

Solar’s extremely strong showing in Mexico’s first two renewables tenders this year stunned many in the wind business. More recently, solar unexpectedly trounced wind in a widely trailed tender in the US northeast, where little utility-scale PV exists today. Looking ahead, many developers expect solar to compete fiercely in Alberta’s upcoming renewables tenders.

“The number of markets where solar is competing head-to-head with wind is increasing,” Gabriel Alonso, chief executive of EDP Renewables North America, told a recent wind industry conference in New York. “And it will increase even more as time goes by, there’s no question in my mind.”

Speaking several weeks earlier in Hamburg, Lars Bondo Krogsgaard, chief executive of German wind-turbine maker Nordex, said he views solar as a bigger long-term threat to the wind industry than coal or gas.

“For the world it’s a fantastic thing to have renewables technologies competing like this,” Krogsgaard said. “But when you look at the way the cost curve is coming down [for PV], it’s quite a scary pace from our perspective.”

The most obvious reason for solar’s growing competitiveness is price. Until very recently, wind and solar were not even in the same league when it came to cost, which explains why there is twice as much wind capacity installed globally today as solar. But solar is closing the gap.

A Lazard analysis from 2011 put the levelised cost of unsubsidised wind power in a range of $30-$79/MWh, while the cost of large-scale solar fell between $109-$124/MWh. In other words, the world’s cheapest solar projects could not compete with the dearest wind farms.

Solar a 'scary' competitor to wind in growth markets: Nordex CEO

But the same analysis last year put the cost of solar at a dramatically reduced $58-$70/MWh, while wind had stayed roughly the same, at $32-$77/MWh. And if the results from recent tenders in places like Mexico are any indication, Lazard’s next set of figures may be even more flattering for solar.

Without question, wind too continues to grow ever more competitive within the broader energy market. Record-setting bids in recent offshore wind tenders in Europe, for example, underscore the industry’s huge remaining potential for cost improvements.

Yet wind’s cost edge over large-scale solar is dwindling or even disappearing in many places. And PV, as the less mature technology, has an easier path to ongoing reductions.

“Solar used to be wind’s little cousin,” says Kevin Walsh, head of the renewables group at GE Energy Financial Services, which invests in both wind and solar projects. “That’s certainly changed.”

On top of falling prices, solar holds a number of other advantages that may grow more important with time, industry experts say. For starters, the inherent modularity of PV means it’s easier for developers to work around grid constraints in densely populated regions like the US northeast.

In New England’s recent tender, for example, smaller solar projects sited closer to population centres won out over much larger wind projects in northern Maine that would have required substantial new transmission.

“Even in places that I’d primarily consider wind markets, we’ll see solar being developed because of the smaller pockets of interconnection and transmission capacity [solar developers] can take advantage of,” Alonso says.

Solar may also derive more near-term benefits than wind from the falling cost of energy storage, some in the renewables business believe.

Although still a niche market, the proliferation of residential solar-plus-storage systems is allowing homeowners in places like California and Germany to consume more of their self-generated solar power – a proposition as potentially menacing to large wind farm owners as to other centralised power plants.

And batteries will increasingly offer utility-scale solar projects the ability to extend their generation profiles by several hours – say to 7pm-10pm, which is still a valuable time to sell electricity. That same extension is less valuable for wind farms, which generate much of their power at night.

There’s one realm, however, where big developers say wind has a clear advantage over solar: profits.

Although many wind developers have branched out into solar – from EDPR to Pattern to RES – the relative ease and speed of building a solar project means there are fewer barriers to entry, eroding profitability, industry sources say.

The biggest challenge for solar developers is “making money”, says Glen Davis, chief executive at RES Americas, the Colorado-based unit of UK developer RES. “We like to say solar’s flat; the ability to distinguish one project from another is less obvious in solar than in wind, so the ability to monetise your development skills is harder.”

Alonso agrees. “It’s an area where we have difficulty differentiating ourselves,” he acknowledges. In the US solar market, “we’re not only competing against the RES’, the Patterns, the Invenergys, the NextEras – we’re competing against really small players”.


NOV 28 2016
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