Sustainable Growth for Solar PV in the Asia-Pacific Region: Proactive Planning is Key

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1 1 Sustainable Growth for Solar PV in the Asia-Pacific Region: Proactive Planning is Key Rising electricity demands in the Asia-Pacific region have to be met in order to ensure access to electricity supply and to enable economic growth, but environmental impacts must also be considered. Presently, electricity generation in the Asia-Pacific region is dominated by fossil fuels (China 80 %, India 75 %, Australia 91 %, South Korea 62 %, Thailand 91 %). However, a shift towards low-carbon alternatives is necessary to alleviate concerns regarding the climate change threat. Such a shift requires investment in renewable electricity generation, as well as maximising the potential benefit from upgrades in grid infrastructure. In addition to climate change and other environmental concerns, investments in solar photovoltaic (PV) systems and other renewable energy sources are part of electrification strategies for providing low cost electricity via distributed energy resources. In many places in Asia, PV-generated electricity is becoming cost competitive with that generated by fossil fuels. Investments in solar PV are also part of the innovation and industry development strategies in the global race for clean technologies. Considering solar PV more closely, it can be seen that the solar share of clean energy investments has soared (in China it is 13 % of US $45.5 billion in clean energy investments, in India the figure is 31 % of US $10.2 billion, in Australia the figure is 43 % of US $4.9 billion, and in South Korea the figure is 70 % of US $333 million). 1 In order that the potential in such investment levels in solar energy in the Asia-Pacific region is fully realised, proactive planning is essential. Stakeholder risks and benefits The solar energy business comprises a complex mix of stakeholders, with various technical, commercial, social, and economic risks and benefits at play. To ensure reliable, secure, and sustainable integration of PV into the wider Asia-Pacific power grids, lessons should be learned from the successes achieved and mistakes made in international markets. In the Asia-Pacific region, PV integration is in its infancy, while the US and European markets, especially those of Germany, Italy, and Spain, are the most mature solar PV markets. Numerous lessons can be learned from the growth and bottlenecks experienced in these more established 1 PEW Charitable Trusts (2012): Who s Winning the Clean Energy Race? 2011 Edition, EnergyRace-REPORT-2012.pdf

2 2 markets. With proactive planning and thinking from all the stakeholders, it should be possible to avoid some of the numerous bottlenecks in the Asia-Pacific region. However, in order to achieve this, we need to understand the different concerns of the stakeholders in the solar PV value chain. The stakeholders concerned include electricity consumers, ranging from households to commercial and industrial customers with larger power demands, the developers and financiers, the utility/grid operators, and government entities. Each stakeholder has a different perspective and objective. What the consumer wants and local constraints The average member of the public in any country is concerned with the price that they are paying for electricity and that it is provided reliably, but has limited insight into the regulatory or technical concerns of high penetration of solar PV into the power grid. For commercial and industrial consumers, fluctuations in the cost and availability of electricity are the main concerns. In many parts of the Asia-Pacific region, basic supply of electric power is not guaranteed at present. For example, households and industries in the Zhejiang province in China endure power outages during most of the summer months due to mismatch in power production and demand. While power production capacity is not necessarily insufficient, fuel may be either too expensive or unavailable to keep up with demand, and transmission capacity is lacking. In Western nations, government-backed energy efficiency schemes and slow economic growth mean that power demands are currently levelling off. In Asia, however, industrial power demand is increasing at an annual rate of over 10 %. In tandem with the growing supply issue, existing and continuous power supply requires that the electricity supply is of high quality, reliable, and affordable. Another challenge relates to the specific living conditions and particular urban structure, which may constrain the choice of technical solutions locally. For example, the average consumer in China does not live in a community of sprawling single-family homes, but rather in larger, often high-rise, multi-family dwellings, with roof space limited by placement of heating systems and water storage. This leads to greater demand for ground mount or commercial roof mount PV systems with less residential involvement. Ensuring technical and financial performance The first technical stakeholder in the path to solar deployment is the developer, who is normally responsible for engineering, procurement, and construction of the PV site. The developer is concerned about the bottom line financially. This concern can be impacted by many factors, including: cost of equipment, available solar resource at the site, complex permitting requirements leading to delays and additional costs, stringent

3 3 interconnection 2 requirements, lack of available capacity for interconnection, uncertainty regarding reliability of components, need for qualified personnel for installation, and operational concerns. In addition to these concerns, once development is complete, the operators of the solar PV plant also face the issues of pollution and dust in urban areas, potentially limiting PV generation capabilities and increasing operational and maintenance costs. Developers and financiers will require independent verification of performance and construction to ensure the expected positive returns on investment. Financiers, such as independent investors, venture capitalists, or commercial banks, may have general concerns about the technology, interconnection, or construction, but they tend to be limited to being comfortable that the PV system performance meets energy production expectations and gaining the return on their investment within a reasonable timeframe. Bankability reviews of components and thorough due diligence studies of the PV systems can ensure that expectations are met. Maintaining the quality of technology Developers and financiers rely on the quality, reliability, and affordability of technology from manufacturers. Consolidation among solar module manufacturers has primarily affected Western companies, and there has been a shift in the manufacture of PV modules to Asia. China, for example, has seen an exponential rise in module manufacturers, propelled by subsidies and, more recently, a growing internal market. Six out of the top ten global solar manufacturers are currently Chinese. However, the international political landscape for solar PV has changed, and the global market now has a substantial technology surplus and idle manufacturing facilities. This situation, in combination with technology learning as a result of cumulative output, has resulted in a dramatic reduction in the cost of PV equipment over the last two years. This decrease in equipment cost has greatly reduced the cost of solar generated electricity, to the point that it is at parity with other generation forms in many areas in Asia. However, in the context of surplus and lower cost equipment, quality and reliability needs to be rigorously monitored to be maintained. As reliability and security of electricity supply move to the forefront of concerns, PV module manufacturers need to verify safety and performance, and facilitate efficient inverter integration. In opening up markets to new technologies, it is essential that all equipment meet international codes and standards. This reduces the risks in attempting to achieve successful projects and builds trust in the PV components. 2 The term interconnection refers to connecting renewable energy sources to the power grid, as opposed to the off-grid application of renewables.

4 4 Assessing the right location and infrastructure needs Two players, the utility/grid operator and the government/regulatory agencies, are positioned at the top of the solar PV integration pyramid, and without them there is no interconnection market. These two players must plan the electricity generation structure and deal with the power system integration challenges at the location of interest. The benefits of solar PV as distributed generation include the following: 1) Solar PV is scalable. This means that it can be installed as distributed energy resources close to where the power demands are located, thereby precluding the need for grid expansion. Alternatively, it can be built as a larger scale power plant and located where the solar resources are best and the cheapest land spaces are available. 2) Solar PV is easy to install and requires minimum maintenance. This is because the solar system is modular and has few moving parts that wear out. 3) Unlike fossil fuels, whose prices are highly correlated with each other, solar PV has no fuel cost and thus the long-term financial risks of energy supply portfolios are reduced. In order to harvest the benefits of solar PV as distributed generation, proactive planning is essential. Depending on the location and existing power system structures, solar PV development, like other generation capacity, must consider the possible needs for development of the electricity grid infrastructure. Experiences from the European and US markets show that the utility/grid operator and the government/regulatory agencies are pivotal in overcoming transmission and permit bottlenecks. Solar resource is generally widely distributed, and this allows for installation of PV power plants close to load centres, thereby reducing the demands on the electric transmission grid. The electricity grid should be designed to allow for the effective installation of distributed PV power plants. For large PV power plants, the situation is similar to that for other central generation systems, and the transmission system might require reinforcement in order to accommodate the interconnection of variable resources. For example, the Chinese power grid has already been stressed by the West-East transmission pattern. While the densely populated areas of southern and eastern China are experiencing rapid growth in energy demand, most of the new power production capacity is being built in the North and West of China. If planning does not accommodate infrastructure development, the integration of large-scale renewables, including solar PV, may result in the transmission bottlenecks being even more pronounced. Ambitious grid expansions have been planned, but these require forethought, organisation, and planning facilitated by the government/regulatory agencies, not just for the foreseeable future but also for long-term integrations. Studies in California and Hawaii have provided strategic assessments of where renewables would have the most economic and technical benefits to the transmission

5 5 system, defining beneficial regions for interconnection. Proactive planning for siting of renewables could relieve, or delay, some of the grid expansion. Another issue emerges as penetration levels across the system increase. There is a need to account for the impact of renewables, such as solar PV, on reliability and performance so that the security of the power supply is ensured. Utilities rely on standards to address the increasing penetration of renewables. Standards in the EU and the US have formed the backbone for interconnection, and allow streamlined and sustainable integration for all stakeholders. For both utilities and regulators, the development of reliability and interconnection standards is an essential piece of the interconnect puzzle. Utilities require accurate modelling, monitoring, controllability and observability, as well as capable operation personnel to accommodate high PV penetration. Proactively addressing these issues will allow expedited development. Facilitating development with effective policy Governments and regulators are able to facilitate the implementation of renewable energy. The development of solar PV has been, and to a large extent continues to be, driven by targeted policies and incentives that trigger developments in different market segments. These may range from solar PV residential building mounts to non-residential and utility-scale PV developments. This will change dramatically as the cost of PV-generated electricity drops to parity with other generation sources, and economic decisions will dominate. Asia-Pacific countries have proposed, revised, and published various renewable energy targets in recent years. In China s 12th Five Year Plan ( ), the 2015 solar PV installation target was increased to a 15 GW capacity target, which is 50 % higher than the previous target. This was the second time during 2011 that China revised its 2015 capacity goal. In Australia, the renewable electricity target for 2020 is 20 %, a doubling from today s level. In India, the solar power target in the National Solar Mission programme is 20 GW for the year In order to reach these targets, the countries in the region are using combinations of supportive policies to encourage solar PV development. Support policies include a mixture of subsidies, pricing mechanisms (feed-in tariffs), renewable portfolio obligations, tax policies, and renewable energy technology research, development, and demonstration programmes. Achieving grid parity will greatly facilitate the achievement of these targets. Utilities must plan their renewable energy portfolios and the timing of investments to meet policy targets and adapt proactively to present and future support policies. However, while targeted policies continue to be

6 6 important, in many countries in the Asia-Pacific region, a key market driver of solar PV development is the concept of grid parity. Grid parity is said to occur when the levelized cost of solar power reaches the same level as that of conventional power. This phenomenon is both location-specific and end-use application specific. For certain locations, the cost reductions of solar PV seen in recent times, in combination with high electricity prices, have indicated that grid parity may be reached in the near future; e.g. in parts of Australia, grid parity is discussed as achievable by 2013, and in India by Markets and deployment of solar PV traditionally follows the ebb and flow that is controlled by policies and incentives, such as feed-in tariffs. Understanding this, and working with the flow, will allow smooth and controlled expansion. However, with grid parity approaching at many locations, the vulnerability towards fluctuating policies is decreased. Proactive planning is key The solar energy business is a complex mix of stakeholders, with technical, social and economic risks and benefits at play. For solar PV integration to be successful, it is important that the different concerns of the stakeholders are understood. Challenges span the entire value chain, from assessing public wants and local constraints, ensuring technical and financial performance, maintaining the quality of technology, and assessing the appropriate location and infrastructure needs, to political frameworks facilitating the development. By proactive planning for solar PV integration in the Asia-Pacific region, the key bottlenecks that have been experienced in other industries and nations can be mitigated and avoided.