RELEASE: Solar Value Deflation Could Undermine California’s Renewable Energy Goals
Berkeley, Calif. — Today, the Breakthrough Institute released a report analyzing solar value deflation in California from 2014 to 2020. In Quantifying Solar Value Deflation, author Zeke Hausfather — Director of Climate and Energy — analyzed six years of hourly generation and price data from the California Independent System Operator (CAISO), finding that the value of solar has fallen by around 37% since 2014 relative to other sources of electricity.
Zeke Hausfather, Director of Climate and Energy, is available for additional comments.
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 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.
The wholesale cost of utility-scale solar in California in 2020 was approximately $27 per megawatt-hour (MWh) sold, similar to the price paid to solar producers of $26 per MWh in power purchase agreements (PPAs). However, the actual levelized cost of energy (LCOE) generation from solar was around $45, which is about 40% higher than the PPA costs due to the combination of a federal investment tax credit (ITC), various state-level incentives, and indirect investor subsidies. California solar is currently subsidized by around $900 million per year, based on the difference between PPA and LCOA costs.
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. Value deflation will likely prove more problematic in a first-mover like California than in other later solar adopters, given the already high levels of solar penetration and ambitious near-term expansion plants. California’s solar installation rate will only increase as Senate Bill 100 calls for full decarbonization of the power sector by 2045.