dinsdag 15 maart 2011

Does it make sense to subsidize large scale power plants?

More and more markets in Europe are seriously reducing the feed-in tariffs for large scale power plants. It seems like a trend and the focus is to stimulate residential PV application.
That in itself makes sense. Solar electricity produced on your private roof competes well? with relatively expensive electricity from the grid. In many European countries the cost of electricity for a household is almost twice as high as for commercial customers. Hence, it makes sense to stimulate the application of PV by private home owners. And especially in countries like Italy and Germany with relatively high grid electricity prices. In these countries the residential market segment will be the first that achieves grid-parity.

Volume is what we need
Nevertheless, the success of European PV market growth is partly based on the many megawatts installed in large scale PV power plants. Think of the thousand-plus large scale power plants in Spain. Think of the many multi-megawatt ground-based projects in Germany, The Czech Republic, France and Italy, and the big roof projects in Germany and Belgium. These power plants helped to generate volume in system and module sales. And volume is what this industry needs. To get lower production costs we need economy of scale in module production. In order to make big steps quickly, we need large projects. After all, it could take one experienced EPC less than one year to design and build one 50 MW project. But 50 MW in the residential market equals more than approximately 17,000 PV projects of around 3 kWp. That takes slightly more effort and a few more small contractors to sell, design and install all these systems. These hundreds of small PV contractors are not created, educated and ready to install overnight. It needs a good strategy to create jobs, but it is still more difficult to create a voluminous market quickly.

Big investors exhaust the budgets; not the best message to your voters
So why are governments changing the rules during the game, cutting back earlier and more strongly on the FiT for big projects? The main reason is that the markets are growing too fast and available budgets are exhausted too soon. The total cost spread over the rate payers increases too much. And most big projects are investments by big (foreign) investors making an attractive return on investment. So, rate payers’ money flows into the pockets of big financial parties - these days not the best selling proposition towards your (potential) voters.

Financial institutions should learn to embrace and love PV
Nevertheless, we need these big projects - for the creation of market volume and thus rapidly growing industrial production volume, which will lead more quickly to lower production costs and system prices. For the future we also need banks, investors and the financial world to build up a broad experience with big PV projects. We need them to embrace, love and trust solar PV. Once they love big projects, they will start to streamline their processes to do smaller and smaller projects as well. And on the other hand, once they learnt to do a subsidized 50 MW power plant, they will sooner do an unsubsidized 100 MW plant. And so we will see much bigger projects coming up.

Need for cheap quickly installed PV power
And, we should not forget that the market for big projects will soon grow quickly. It’s not just in the USA that utility scale project development is taking off. China, India and, soon, (South) Africa and South America will embrace big PV power plants. It will be the major PV market segment. These countries are very hungry for new power to meet the rapid growth in electricity demand. They need more energy soon, quickly installed, green and cheap. Large PV plants are and will be the best solution.

Big money makes the PV world go round
If Europeans don’t build up the experience (engineering, financing, management, etc) and business infrastructure in their home markets, they might lose the opportunity to compete with the Americans when offering their services elsewhere in the world. Europe needs to have big financial investors, funds and banks all getting used to PV. We need them to educate and develop our domestic PV business infrastructure and our market. This way we can soon sell our experience and services in much bigger markets beyond Europe. Money makes the world go around. And big money makes the PV market grow quicker, makes cost and prices go down quicker and will sooner bring us bigger PV business.

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