In an increasing number of regions in the United States, solar (and wind) power can produce electricity at the same cost – or lower – than more traditional fuels, like coal or natural gas.
We call it reaching "grid parity" here in the business.
The catch, however, is what happens when government subsidies are removed from the calculation.
That's why what happened at the end of September in the UK may be a sign of things to come across the pond here in the United States.
See, the British just brought a new solar power project online without relying on subsidies. Only the market will dictate what this power plant gets paid.
And the way they did it shows where the solar industry and energy markets in the United States are headed next…
The British Just Opened the First Subsidy-Free Solar Power Plant
On Sept. 26, the UK's newest solar farm, the Clayhill, opened near Flitwick in Bedfordshire. It is the very first in the country to operate with no government subsidy, with its developer Anesco instead relying only on the market value of its power generation.
Following the Conservative Party's election victory in 2015, quick and significant subsidy cuts hit the solar industry. Yet the opening of Anesco's plant may indicate things are changing in the UK.
With the Trump administration's declarations creating a debate over ending any remaining U.S. renewable power subsidies, what is unfolding in the British countryside may be a model for what is going to happen in the American market.
In some of the areas of the United States where solar has achieved grid parity, subsidies have already been removed from the equation.
But the question of public sector assistance to solar power has remained an integral element of the conversation.
And there's another aspect to consider when looking at the actual cost of generating power.
Due to the intermittent nature of the power flow from either solar or wind, an increasing reliance on renewables will still require redundant backup power sources.
Because when the sun isn't shining or the wind isn't blowing, no power is generated – but the demand is still there.
That means some of the traditional electricity generation that may be "replaced" by solar will still have to be attached to the grid as insurance against solar power shortfalls or peak period demand.
And this makes the issue of how much solar power generation costs without subsidies that much more important…
The Main Cost-Saving Didn't Come from Solar Technology
Now, there are several factors that have allowed subsidy-free solar generation to be feasible in the UK.
At the top of the list is the still-falling cost of solar panels. Anesco has magnified that cost advantage by engineering further cost savings through the supply chain.
By using more efficient components and minimizing construction costs through measures including not burying cables underground, the firm managed to reduce costs by a third.
According to Anesco technical director Lily Coles, a combination of these apparently innocuous moves made a significant difference. "If you look at another solar farm there's nothing fundamentally different, it's just the use of different components and different technologies," she told BusinessGreen last month. "We looked at design, we looked at technical specifications, we looked at the very latest technology, and all the different costs of all the various components."
But the real breakthrough that has enabled subsidy-free solar is found elsewhere, in the falling cost of battery storage.
That suddenly removes the need for solar developers to sell their power as it is generated, regardless of the price they'll get.
Rather than selling into the grid during the middle of the day when demand is low, developers can store generated power in batteries and wait until the evening peak before releasing their power to the grid, taking advantage of peak prices.
The 31,000-panel, 10-megawatt (MW) solar farm contains a 6-MW battery.
In addition to meeting storage needs for the provision of power during peak demand times, this setup can also earn the company revenue for providing other services to the UK national grid, such as frequency response support to help stabilize the broader power system.
The Clayhill solar farm will provide power for 2,500 homes and is acting as a template for at least five more sites Anesco is planning to develop in the next 18 months. However, a number of barriers remain to the model's rapid acceleration across the industry.
Clayhill Is an Exception – for Now
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.