Energy Tipping Point in Europe?

In the last article, I wrote about the current market landscape for the solar industry. While the recent developments will lead to sustained growth of the global solar industry, we expect to see a rejuvenated market in Europe due to the looming grid parity.

Grid parity is defined as the stage at which governments no longer need to subsidize an innovative concept since it has become competitive to survive on its own in the economy. In the context of energy, fossil fuels is a great example of innovation that has long received and continue to benefit from subsidies around the world. For solar energy to become truly competitive, the electricity price that is generated by solar needs to be equal to or lower than the current retail electricity price. In Spain, for example, the solar grid parity has already been accomplished, effectively driving down the electricity price to zero at one point without relying on any government subsidies.

Before China became the superpower of solar, eight of the world’s top ten solar companies were German. Since 2012, China has overtaken Europe in terms of the total solar power installed, the gross output in manufacturing across the value chain, and the contribution to research and development of new solar technology. Import controls on Chinese solar panels, as high as 64.9%, were enforced to protect the quickly diminishing European lead in solar technology over China.

With that being said, Europe is arguably in the next phase of development for solar. While emerging markets such as Turkey contributed most to total solar installations in Europe with 1.79 GW in 2017, matured markets in Europe such as Germany and Spain look towards optimizing the economic environment for solar energy to reach grid parity.

  • EU’s clean energy package legislation will allow EU citizens to produce, consume, sell and store renewable energy. Imagine trading electricity, being self-sustainable and having local ownership of renewable energy.
  • EU is phasing out subsidies and the solar projects are becoming safe investments for the private sector investors. There are a dozen unsubsidized solar projects (ranging from 2.5 MW to 221 MW projects) in Europe.
  • Power Purchase Agreements (PPA), which is a popular business model used in the United States, is becoming the norm in Europe to support unsubsidized solar projects. Selling electricity to corporate organizations for a fixed long-term (15–20 years) gives another stream of revenue to European project developers that have previously only relied on leasing and selling solar panels.
  • Energy Storage is becoming cheaper as the total solar PV CAPEX is becoming cheaper. Adding more Energy Storage Solutions (ESS) to the PV systems will improve grid stability and make consistent output of energy with fewer interruptions.

Europe is positioning itself to be the next investment hotbed for solar projects. Private procurement of financing versus government-backed financing, followed by healthy returns from the PPAs, will boost investors’ confidence in looking more into larger-scale renewable energy projects. And as solar assets become more profitable over time, all eyes will be on the asset owners who have the healthiest solar portfolios in Europe.

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Justin Jeehoon Park is a Business Analyst at Targray focusing on Solar and Energy Storage. Graduated with an M.B.A. from McGill University- specialization in Data Analytics and a B.A. in Political Science from UCLA. He previously founded an initiative that provides employment resources for newcomers and conducted research on North-South Korea Relations. In addition, he is a returned Peace Corps volunteer (Cameroon 2013–2015) and worked with Syrian refugee youth in Canada.