1 Solar Energy’s Potential to Enlighten Germany’s Electricity Price Term Paper, spring 2011 Energy Economics an Policy Nicolas Trinks ETH Zürich What happens if German households maximize their potential PV capacity? What is the potential and how does this affect the costs for electricity generation?
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Solar Energy’s Potential to Enlighten Germany’s Electricity Price · values of 800-1200 kWh/kWp are frequently measured for c-Si PV. In the desert of Sahara, for instance, values
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Solar Energy’s Potential to Enlighten
Germany’s Electricity Price
Term Paper, spring 2011
Energy Economics an Policy
Nicolas Trinks
ETH Zürich
What happens if German households maximize their potential PV
capacity? What is the potential and how does this affect the costs for
electricity generation?
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Solar Energy’s Potential to Enlighten Germany’s Electricity Market ........................... 1
The red numbers are the average values that I’m going to refer to. The costs
including the transportation and distribution costs are based on 3.5 c/kWh which is
what German households had to pay in 2009. The values of the right column are now
referred to as the cost for electricity. In this context, the term grid parity gets a
different meaning with regard to the costs for electricity generated by PV. At a 10 %
discount rate (or interest rate), costs amount to 70 c/kWh and would be 73.5 c/kWh if
the distribution and transportation costs were included. This is about ten times more
than what is usual for peak loads which are on an average of 25 % more expensive
than the costs for the base loads like coal and nuclear energy. The costs for
electricity are shown in tab.4. There are three scenarios, both based on the shares
for resources from fig.7:
Share of peak lodas c/kWh
CO2 Reduction 17.1
Cost Reduction 17.0
2008 7.2 Tab.4: calculated costs for peak loads generated by PV with 10 % interest rate
“2008” gives the cost for tab.3 combined with fig.74. “CO2 Reduction” maximizes the
amount of renewable sources (wind, hydro) whereas “Cost Reduction” respects the
merit order; both consist of 15 % PV generated electricity. The difference between
the scenario with peak loads generated by PV and the actual mix for generation is
immense whereas the difference between the last two is minimal which means the
scenario producing less CO2 should be preferred. As seen earlier, interest rate has a
considerable influence on energy prices. Therefore, the “CO2 Reduction” scenario is
presented using a 5 % interest rate for PV only, assuming national institutions
support such investments as the kfw (Kreditanstalt für Wiederaufbau) does, for
3 The publication gives the costs in USD, an exchange rate of 1 € = 1.4 USD is applied.
4 Cost for oil generated electricity are assumed to be the same as for gas and “others“ amount to
estimated costs of 8 c/kWh
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instance5. At 5 %, the cost for electricity would amount to 22.1 c/kWh plus 3.5 c/kWh
(transportation and distribution costs).
Share of peak lodas c/kWh
CO2 Reduction “5 % i.r. PV” 9.4 Tab.5: calculated costs for peak loads generated by PV with 5 % interest rate
4.2 Growing Over Time – PV on Its Way to Supply Peak Loads
The cost of 9.4 c/kWh for electricity generation and distribution is 30 % higher than
the calculated cost for 2008. But taking into account the price of 15.7 c/kWh indicates
the margin with which the suppliers act on the market. This brings us to the next
model. The model shows the potential development of PV in Germany and the
impact over time for households having PV modules on their roofs.
First, we want to see how long it takes to achieve the aim of peak loads entirely
generated by PV (15 % of total electricity supply) while the total demand increases by
1 %6 per annum and PV’s growth is 40 %/a. The result is 5.02 years which means, if
Germany had continued installing PV modules at the current global growth rate in
2010, the aim would have been achieved in the beginning of 2016.
Now, we turn to the changes in costs of electricity, choosing 22.1 c/kWh for PV.
7.2 c/kWh is the average cost of the residual technologies, with reference to tab.4. A
learning rate (LR) of 20 % and a life time of 25 years for the PV modules are
considered.
Fig.11 shows the development, using nominal values for reasons of clarity.
Shift to “sunny” Peak Loads happens softly
Fig.11: Evolution of costs and portion of peak loads generated by PV
5 kfw offers interest rates starting at 3.19 % per annum;
http://www.kfw.de/kfw/de/Inlandsfoerderung/Programmuebersicht/Erneuerbare_Energien_-_Standard/index.jsp 6 1 % is about the average annual increase referring to the 18 % increase between 1991 and 2008,
this percentage also reflects the increase in households demand.
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The black line indicates the point when the aim is achieved – when 100 % of the
peak loads are generated by PV. At that point, costs for PV have dropped according
to the learning rate to 13 c/kWh. Interestingly, the costs for electricity would only
increase by 6 % to 8 c/kWh, in case the learning rate applies, but by about 32 % to
10 c/kWh if costs for PV remain at the current level. This model does not consider
increases in costs for the residual technologies. The effect would be obviously
positive for the competitiveness of electricity generated by Solar energy.
4.3 25 Years of Receiving after One Investment
As I talk about Solar energy provided by residential applications, the incentives for
the households to invest in PV modules remain to be discussed. The investments
according to the preceding model, starting with costs of 1.61 €/Wp in 2011,
considering the learning rate would amount to the following values in the
corresponding years:
year Billion €
2011 10.9
2012 13.8
2013 17.4
2014 21.9
2015 27.6
2016 0.6 Tab.6: Investments for realization of the project
Today, the German government pays about 31 c/kWh as a feed in tariff and 19
c/kWh for using one’s own Solar generated electricity. But as the government
alludes, it has no interest in investing considerably more money for renewable energy
resources in the future. In the following, I shed light on what private investors can
expect from owning a Solar modules on their roofs. Being pessimistic, no subsidies
are considered, except the reduced interest rate of 5 %.
The advantages of owning a PV system, are that they basically don’t have to pay for
their electricity and they are paid for the amount that they do not consume
themselves because their houses are grid-connected and they supply the surplus to
the market. Possible risks are, for instance, the risk of damage and the absence of
expected profit and thus a risk of capital. And unlike other investments, the PV
system cannot be sold after its life time, or at least for a disproportionately low price
like selling it to be recycled. The only value of this investment lies in generating
electricity which can be sold.
The following model assumes a constant price of 23.7 c/kWh, a discount rate of 5 %
per annum, as usually 1 MWh/kWp and an increase in the households own
consumption of 1 % per annum. The calculation was done on the basis of
Witzmann’s study referring to the three different categories (countryside, village,
suburb). The average household’s consumption was 3690 kWh/a for the “village”
category and 20 % more for “countryside” and 20 % less for “suburb”. “Total profit”
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means profit plus savings. For clarity, savings, (total) profit and (total) profit-
investment are given as cumulative values in order to indicate the year when the
household’s profits gain over the initial investment. An important assumption is that
households are paid 23.7 c/kWh for the electricity that they supply, which means they
do not have to pay taxes or fees to the power companies. The former is more realistic
as the government is expected to not pay feed in tariffs and could express its interest
in less polluting energy sources by renouncing taxes.
If the savings, which means the money that the household does not have to spend
on electricity, are considered, the household makes profit after 4 years in all three
categories (because it is a linear model). Tab.7 serves as an example, showing the
financial value of owning a PV system in the “countryside” category. In this case, a
household earns (being paid for surplus+not paying its own electricity) about 5800 €
each year, after investing 41 500 €.
Saving and Earning Money with PV system on the roof
investment [€] -35423 -23485 -6001 16765 44562 77149 114300 155796 201430 251006 304336 Tab.7: Calculations of a household’s investment in a PV system for the “countryside”
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5. Conclusion
Today, the only potential for Solar energy lies in providing electricity for peak loads,
which amount to 15 % of the generated electricity, because of the immaturity of
cheap energy saving technologies. PV applications on German roofs on the other
hand have a high potential, allowing 25 % of the total electricity being generated by
PV.
“Sunny” peak loads would not necessarily yield in higher electricity prices. Having
peak loads coming from households and not directly from one of the four main power
companies (E.on, RWE, EnBW, Vattenfall) could possibly avoid higher prices: the
costs of Solar electricity affect only slightly the total costs as we have seen in fig.11.
We also have seen the margin of the prices (15.7 c/kWh) which gives space for
introducing more expensive electricity than the current electricity which is generated
at 7.2 c/kWh. Further, if less electricity is supplied directly by the main power
companies, the decreased demand could result in lower prices as well.
And even with receiving of 23.7 c/kWh without any other subsidy but 5 % interest rate
and tax-free selling, the households make profit after 4 years. An investment of about
92 Billion € over 5 years would be necessary to materialize this project.
Enhanced CO2 emissions caused by the increasing electricity demand of households
could be buffered by such a short-term solution. Other renewable resources, like off-
shore wind parks, would require extensions of the circuit lines and take far longer
than the 5 years assumed for this project. The positive environmental impact of
greener energy solutions could avoid future environment-related damage costs which
could be economically more profitable than cheap energy prices (Zwaan, 2003).
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References
A. Nozik, presentation, 2004.
IEA, Technology Roadmap. 2010. Solar photovoltaic energy.
DESTATIS:
Bundesministerium für Umwelt. 2010. Erneuerbare Energien in Zahlen: national und
internationale Entwicklung.
DESTATIS. 2009. Energie auf einen Blick.
Bundesministerium für Umwelt. 2010. Energie in Deutschland.
Bundesministerium für Umwelt. 2011. Erneuerbare Energien 2010.
Witzmann, Rolf. 2010. Abschätzung des Photovoltaik-Potentials auf Dachflächen in