ICYMI: MIT Technology Review - The lurking threat to solar power’s growth

Berkeley, Calif. This week, a new report titled Quantifying Solar Value Deflation in CA by Zeke Hausfather, Director of Climate and Energy at the Breakthrough Institute, was featured by James Temple in MIT Technology Review examining the effects of solar power value deflation on California’s efforts to rapidly expand solar capacity and meet its climate goals.

In 2015, the Breakthrough Institute’s Jesse Jenkins and Alex Trembath published a two-part analysis (here and here) suggesting there would be economic limits to build out of intermittent renewable energy. Hausfather’s new report represents the first documentation of this effect using actual trends in wholesale prices in CA.

Zeke Hausfather, Director of Climate and Energy, is available for additional comment or interview.

As solar energy generation is produced during a short period of the day and storage capacity allows for minimal carryover, it is susceptible to value deflation. California’s solar generation grew to around 20% of total electricity generated in 2019. As California is a world leader in solar generation, effects of value deflation are felt more acutely. Declines in midday power prices reduce the value of solar — particularly in the Spring and Fall months when solar generation is high, and the energy consumption is low.

“California is a little sneak peek of what is in store for the rest of the world as we dramatically scale up solar,” said Hausfather.

“The state’s average solar wholesale prices have fallen 37% relative to the average electricity prices for other sources since 2014, according to the Breakthrough Institute analysis, which will be published on July 14. In other words, utilities are increasingly paying solar plants less than other sources overall, due to their fluctuating generation patterns,” James Temple reports in MIT Technology Review.

California experiences the most significant amount of solar value deflation during the Spring months — roughly 50%. Solar energy production is higher during the Summer months, but so is the need for daytime energy, leading to limited deflation of 20%. High solar value deflation – if not properly addressed – risks increasing Californian’s electricity bills as the state moves away from fossil fuels.

“Lower prices may sound great for consumers. But it presents troubling implications for the world’s hopes of rapidly expanding solar capacity and meeting climate goals,” again, MIT Technology Review.

“So far, heavy solar subsidies and the rapidly declining cost of solar power has offset the falling value of solar in California. So long as it gets ever cheaper to build and operate solar power plants, value deflation is less of a problem.”

“But it’s likely to get harder and harder to pull off that trick, as the state’s share of solar generation continues to climb. If the cost declines for building and installing solar panels tapers off, California’s solar deflation could pull ahead in the race against falling costs as soon as 2022 and climb upward from there, the report finds. At that point, wholesale pricing would be below the subsidized costs of solar in California, undermining the pure economic rationale for building more plants, Hausfather notes.

“The state’s SB 100 law, passed in 2018, requires all of California’s electricity to come from ‘renewable and zero-carbon resources’ by 2045. By that point, some 60% of the state’s electricity could come from solar, based on a California Energy Commission model,” reports MIT Technology Review.

Though the rates of value deflation are concerning, the effects can be mitigated by the falling costs of solar and the deployment of complementary technologies: grid-scale storage, long-distance HVDC transmission, and load shifting through efficiency and demand response. The use of clean firm generation (energy sources that are not reliant on weather conditions) can also help reduce costs of solar, reducing the solar capacity required to meet demand year-round due to seasonal differences in output.

“The California solar market offers a reminder that the climate clock is ticking,” reports MIT Technology Review.

Previous research from Zeke Hausfather and the Breakthrough Institute on clean energy can be found below.