directions for the solar economy: pv-roadmap 2020 · through decentrality and system services,...

Directions for the Solar Economy: PV-Roadmap 2020Competitive, environmentally friendly, decentralized –The solar economy as a central pillar of a sustainable energy supply

A study by Roland Berger Strategy Consultants and Prognos AGfor the German Solar Industry Association

Abridged version

Directions for the Solar Economy:PV-Roadmap 2020Competitive, environmentally friendly, decentralized –The solar economy as a central pillar of a sustainable energy supply

A study by Roland Berger Strategy Consultants and Prognos AGfor the German Solar Industry Association

Abridged version

Impressum:

Roland Berger Strategy ConsultantsMies-van-der-Rohe Strasse 680807 MunichAuthors: Torsten Henzelmann, Jochen Schönfelder, Philipp Hattrup, Caroline Peters, Andrea Wiedemann

Prognos AGGoethestrasse 8510623 BerlinAuthors: Jens Hobohm, Frank Peter, Leonard Krampe, Stefan Mellahn, Fabian Sakowski

2 | A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

I. Introduction and background

The photovoltaic sector in Germany has developed dynamically over the past years. At the end of 2009, the cumulative installed capacity was 9.8 GW; at the end of 2010 it will be approximately 18 GW. Within the solar economy, numerous companies have developed which manufacture and install products for this growth industry – from machines and plant construction to modules and system compo-nents. Many of these companies have become leaders on the global market. In this sense, the political and social project of supporting renewables technologies to the point of commercial maturity, for example with the Renewable Energy Sources Act, has yielded positive results. The photovoltaic industry itself, with its consistent reduction of costs, has also contributed to this development. In the face of the coming challenges, in particular in competition with Asian suppliers, and in light of the expected global growth of this economic sector, Roland Berger Strategy Consultants and Prognos AG, together with the German Solar Industry Association, have jointly developed a vision for the photovoltaic industry in Germany. From this vision are derived concrete targets until 2020 as well as measures that are neces-sary to reach these targets.

II. Photovoltaic vision 2020

The vision of the German PV industry is based on the claim that the sector can guarantee competitive, affordable, safe and clean power generation from solar energy by the year 2020. The solar industry will be a key pillar in the system trans-formation to clean and independent power generation based on 100% renewable energies in Germany and around the world. By cutting CO2 emissions, the expan-sion of photovoltaics is making an indispensable contribution in the struggle against climate change. In addition, photovoltaics contributes decisively to the security of the power supply and to the protection of resources.

PV electricity combines distinct advantages: Decentrality – in other words, PV electricity is generated close to consumers, it is easy to install and maintain and it offers unlimited availability. In generation it is virtually without competition from other uses and takes place at times of the day with high demand – so that it covers demand peaks. These advantages ensure affordable and sustainable power generation that can be easily integrated into the overall power system and makes a signifi-cant contribution to the power supply.

The photovoltaic industry in Germany is currently technology leader, and by offe-ring competitive costs it will maintain this position on a global scale. There is high global demand for photovoltaic products "Made in Germany,” produced for export in Germany.

3 | PV-Roadmap 2020

III. The nine key targets of the German photovoltaic industry

To tap the significant potential that photovoltaics holds for environmental and climate protection, for the security of the power supply and for Germany as a business location, nine targets need to be met:

1. Cut systems prices by more than 50% by 2020 - Solar power will become largely competitive in Germany before the year 2020, thereby achieving independence from support measures in certain relevant market segments. System prices will be more than halved by 2020 in order to meet existing EEG (Renewable Energy Sources Act) provisions. As a first milestone, grid parity, i.e. the point at which solar power generation is equal in cost to household electricity tariffs, will already be reached in 2013.

2. Install 52 to 70 GW of photovoltaic capacity by 2020 – With an installed capa-city of 52 to 70 GW and a resulting share of approximately 10% of the annual gross power consumption by 2020, photovoltaics becomes a key pillar of energy supply in Germany. In following years, the photovoltaic industry realizes further growth potential.

3. Limit apportionment for solar power on electricity tariffs to about 2 euro cents/kWh – In 2010, approximately 8 GW of photovoltaics were installed in Ger-many; in 2011 approximately 6 GW are expected to be installed. In order to reach the expansion scenario of 52 GW by 2020 as outlined in the German government’s national action plan for renewable energy (NAP), an annual increase of 3 GW of photovoltaic capacity on average must be attained in the following years. To reach the dynamic expansion scenario of 70 GW by 2020, an increase of roughly 5 GW per year is necessary. In both scenarios, based on the current EEG degression corridor, it is possible to limit PV apportionment to about 2 euro cents / kWh on electricity tariffs. The share of solar power in the EEG apportionment is at approximately 50%. This translates to an electricity cost burden of less than 2 euros per month per person in an average household.

4. Invest at least 5% of sales in R&D – The German solar industry is intensifying research and development (R&D) in order to accelerate cost reduction, attain operative excellence on a global scale and assert its position in the face of international competition. To this end, the PV industry will increase its R&D expenditures and, in the medium term, will reach the R&D expenditure level of the machinery and plant engineering industry, which is 5% of sales.


5. Secure at least 12% share of the growing world market for German pro-duction – There is high global demand for German photovoltaics pro-ducts: By 2020 the German industry will have reached an export quota of more than 80% and will be able to maintain a global market share in the double-digit range (at least 12% in 2020) for photovoltaics "Made in Germany”, given strong global growth of markets and production volume. In the field of photovoltaics, the German machinery and plant engineering industry will retain its position as global leader. Together, the companies in the industry will achieve an export turnover of 14 billion euros (6 billion euros in 2010).

6. Build up approx. 8.5 GW of PV production "Made in Germany" – Through its investments, the photovoltaic industry shows its commitment to Ger-many as a production location. It is expanding German module produc-tion and all upstream production in the value chain from about 3 GW to about 8.5 GW. Similarly ambitious targets exist for all other technologies (e.g. inverters) along the value chain.

7. Employ at least 130,000 people around German PV technology – In the long term, photovoltaic technology will secure, directly or indirectly, approximately 130,000 jobs, even if the annual installation volume in Germany declines.

8. Generate a net economic contribution of at least EUR 25 billion by 2030 – By investing in continuing production expansion and innovation, the overall economic balance will be stable by 2020, and in the longer term decidedly positive – by 2030, given the fulfillment of the national action plan for renewable energies, there will be a cumulative net effect of at least EUR 25 billion. Taking into account savings reached by avoiding climate change impact, this amounts to a cumulative positive effect of at least 56 billion euros. Moreover, the dependency on imported fossil fuels is significantly reduced.

9. Make photovoltaics a key component of the future power system – Through decentrality and system services, photovoltaic systems make a significant contribution to the expansion of an environmentally friendly, safe and affordable future power system.

5 | PV-Roadmap 2020

IV. Overview of measures in the roadmap

The vision and nine key targets of the photovoltaic industry can only be attai-ned if crucial measures are initiated and implemented over the next ten years. The prerequisite for success are actions by the photovoltaic industry, together with additional key stakeholders, in various fields.

On the business side, these stakeholders also include, in addition to the pho-tovoltaic industry, all other renewable energies, as well as the companies from grid operation, power supply and power generation (see figure 1). It is crucial for the successful implementation of the vision that stakeholders from outside the business community be incorporated, in particular from the political sphere and the scientific community.

The stakeholders must become active in three main fields of action:

A. Support and steer the expansion of renewable energies: The objective is to enable, through support mechanisms, a continued growth of PV installations in Germany amounting to at least 52 GW by 2020. The growth of PV installations must be steered in such a way that it can be integrated into the German power grid and energy system. Furthermore, the product character of photovoltaics – for example the provision of system services – should be further developed through appropriate incentives and thereby integrated in the electricity market.


B. Achieve system integration of photovoltaics – and of renewable energies on the whole: The expansion of photovoltaics and of renewable energies leads to a system transformation, from the central power supply that has existed thus far to a decentralized supply structure. Until now, power grids are set up for centralized power supply. The increasing connection of fluctuating and decentrally fed-in in renewable energies leads to new challenges that require an adjustment of the supply system.

C. Make necessary technologies available: In order to make the quickest possible progress in fields of action A and B, but also to limit the con-version costs and to remain competitive on the international market, new technologies must be made available at an early stage. This requires measures in the area of research and development.

Stakeholders and fields of action form a matrix into which the measures can be positioned (see figure 2).

As a third dimension, the time factor is of great importance. The measures must keep pace with the process in such a way that they achieve the neces-sary results in due time (see figure 3).

7 | PV-Roadmap 2020

The interplay of stakeholders, fields of action and implementation periods results in a roadmap of measures for the implementation of the Photovoltaic Vision 2020. Over 20 measures are included in the roadmap, by which the vision and the nine key targets of the German photovoltaic industry can be implemented (see figure 4).


V. Fields of action and measures in detail

V.1 Field of action "Support and steer expansion of renewable energies"

The measures in this field of action focus on four main aspects:

Strengthen decentrality: The decentralized nature of power generation through photovoltaics relieves the transmission grids and enables an inde-pendent power supply, especially in combination with other renewable energy sources. Accordingly, the measures are aimed at achieving an even closer connection between power generation and consumption on a decen-tralized level, for example through incentives for more direct consumption.

Achieve spatial distribution: The expansion of photovoltaics must be dis-tributed equally across Germany. This allows a reduction of costs for grid extension at distribution network level, since regional concentrations of photovoltaic installations are avoided. At the same time, it prevents from requiring transmission grid capacity from the south to the north in the medium to long term. An equal distribution reduces the occurrence of spatially-concentrated overproduction in periods of high irradiation. As a result, seasonal storage capacity for photovoltaic power alone will not be necessary in the medium to long term.

Change the product character of photovoltaic and RES electricity and bring about greater plannability: Incentives must be designed in such a way that renewable energies have a better match to the requirements of the over-all system. A cost-optimized expansion will succeed if renewable power generation increasingly takes over services that are necessary for the system stability of the power supply and for an optimal extension of the grids. This also must be taken into consideration when planning support mechanisms.

Retain the principle of absolute priority for renewable energies: It is neces-sary to retain the basic, essential provisions of the EEG (for example the principle of priority) that are required for further expansion. This is explicitly underlined through a corresponding measure.

This is the background of the measures set out for the support and steering of expansion (see figure 5).

9 | PV-Roadmap 2020

Expand direct consumption incentive: The 2009 EEG (Feed-In-Tariff) amendment promoted the strengthening of direct consumption. This element should be retai-ned, as it motivates investors to also consume the electricity that they generate decentrally. This enables peak loads to be absorbed better, and it provides relief to the grids. In addition, the electricity consumed directly is no longer remunerated, which reduces the burden on electricity tariffs through the EEG apportionment. Overall, it is recommended to continue the current support mechanisms and to incorporate large scale installations in the support program, which might require a differentiation in the tariff system for direct consumption by system size (due to different electricity tariffs of large-scale consumers). Furthermore, shared consumpti-on in a neighborhood, which allows shared use of installations by consumers on the same street, in a homeowners association or in multi-family houses.

Differentiate between remuneration rates based on irradiation and reduce them ac-cording to the market development: Currently, remuneration rates are reduced each year; recently a degression has been introduced which is based on market growth. In the medium term, this is meant to lead to a target corridor with an annual pho-tovoltaic deployment of 2.5 – 3.5 GW. The degression is intended to motivate the photovoltaic industry to undertake further efforts in cost reduction. However, the current arrangement lacks a steering mechanism for an improved spatial distribution of photovoltaics expansion, and this has led to strong growth in southern Germa-ny. Against this background, the recommendation for the next amendment is to introduce a differentiated remuneration through a reference yield model, based on irradiation levels, and to retain the market-based degression in its present form.


Integrate ground-mounted installations with high direct consumption: Since the last amendment, ground-mounted systems, with the exception of those on conversion areas, are not subject to EEG remuneration anymore. Large installations, however, hold considerable potential, as their installation is the least expensive and they provide significant relief to consumers as they require the lowest level of support. The aim should be to lift restrictions on areas for ground-mounted systems if a significant share of the produced electricity is consumed directly.

Support stable power generation: One important aspect is the achievement of stable power generation from all renewable energy sources. On the one hand, under the existing system, adjustable renewable energies such as biomass, biogas or hydro-electric power are supported on the basis of their yearly electricity generation. As a result, the installations produce electricity even when there might be no demand and electricity prices at the electricity exchange are at a low or even negative level. On the other hand, there are currently hardly any incentives to operate installa-tions that combine different fluctuating renewable energies, which would enable more constant power generation and a closer correlation with demand. For this reason... > ... options for supporting capacity availability should be developed in more

detail and incorporated into the next EEG amendment;> ... a bonus for combined power plants should be introduced, which

also allows increased participation in balance energy markets.

Furthermore, in the area of support measures and steering of expansion of renewables... > ... commercialization mechanisms should be adjusted for the green electricity

privilege (for each unit of energy purchased directly from RES, another unit will be freed up from the apportionment), so that direct selling of energy no longer leads to sharp spikes in electricity prices for the remaining end con-sumers; this can be achieved, for example, through a portfolio factor (in other words, a set minimum share of all renewable energies in direct energy sales), through an adjustment of the 50% criteria as well as a limitation of apportion-ment exemptions;

> ... an incentive for decentralized storage systems should be created, since decen-tralized storage enables increased levels of direct consumption and at the same time creates market incentives for companies to fast track the development of competitive, marketable storage solutions;

> ... smart metering should be introduced, as this can contribute to improved control of direct consumption and feed-in from PV systems;

> ... provision of balance energy should be supported and a working capacity mar-ket should be created; following this system change, operators of conventional power plants will no longer only be remunerated for power generation, but also according to reserve capacity.

11 | PV-Roadmap 2020

V.2 Field of action "Achieve system integration for photovoltaics – and for renewable energies in general"

In the field of action "Achieve system integration for photovoltaics – and for renewable energies in general," the measures are focused on the three following core points:

Provide system services through renewable energies: In the future, renewable energies must be able to provide more system services. The groundwork for this must be laid. This is es-sential, on the one hand, to guarantee grid quality and safety. On the other hand, it lessens the need for adjustable conventional power plant capacity for those specific system services. In order to achieve this, installation concepts in the photovoltaics industry must be adjusted and market mechanisms for the provision of systems services must be developed further.

Enable decentralized grid structures: The expansion of decentralized photovoltaics will continue to put high demands on the grids. However, targeted system changes such as reactive power capacity as well as other innovations can help keep the costs of expansion to a minimum, or even avoid them altogether.

Improved steering of load and generation: Renewable energies will increase system comple-xity. That is why communication and steering systems must be established which allow a better coordination of load and generation. This will enable the overall energy system to optimize its "operating mode" in the future and react more flexibly to change, for example through weather conditions and consumer behavior.

This results in the defined measures for the grid integration of renewables (see figure 6).


Restructure balance energy markets and open them for renewable energies: Until now, renewable energies have played little role in providing system services. On the one hand, many of the renewable systems are not completely equipped for that purpose from a technical standpoint; on the other hand, there are market-side limitations that hinder participation in markets for system services. These include in particular the long lead-time involved in the commercialization of system services. The result is that more conventional power plants than necessary are employed, and, as a result, the more afford-able renewable power generation is even temporarily switched off. Since this is not economically viable, the recommendation is to prepare photovoltaic systems for added system services by using relevant inverter technology, for example the already available capability of inverters to utilize reactive power control, as well as to design marketing mechanisms for balance energy with a more short-term range, so that renewable energies can participate in these markets on the basis of more resilient day-ahead-prognoses.

Establish inverters capable of reactive power: The continued expansion of decentralized PV systems will make a further selective strengthening of decentralized distribution networks necessary – also as the foundation for a more decentralized electricity system. However, targeted measures can reduce the costs of this necessary expansion, as they replace conventional expansion measures such as the strengthening of existing transmission lines or the repla-cement of transformers. For this reason, photovoltaic systems should contri-bute to voltage stability through reactive power supply, and dynamic voltage regulators for local distribution grid substations must be brought to commer-cial maturity at an early stage so that conventional expansion measures can be reduced.

Establish information systems to steer generation and load: A temporary shutdown of smaller PV systems to ease peak loads should only occur if the necessary systems for steering generation and load are available in the form of information and communications technology. Accordingly, the expansion of intelligent grids should be promoted and the resulting potential for steering load and generation should be systematically utilized.

By using intelligent grids, e-mobility and PV production can complement each other, since fluctuating power generation can be stored and made available at a later point in time. With the expected growth of e-mobility, this holds great potential.


V.3 Field of action "Make technologies available"

The field of action "make technologies available" is defined by two main aspects:

Prepare for system change to 100% renewables: In the long term, the share of renewable energies will continue to rise. This will lead to new challenges for the seasonal balance of generation and load. Research should already be working toward developing new solutions so that these are available in the future at a reasonable cost.

Secure and maintain competitiveness: In the global race for leadership in the future-oriented industry of photovoltaics, German companies are facing serious competition from Asia. Through targeted support and promotion, the industry must be moved into a competitive position that secures Germany‘s long-term economic benefit.

This is the background for the measures in the area of technology (see figure 7).


Support and promote the photovoltaic industry in research & development and investments: The German photovoltaic industry is committed in its targets to Germany as a business location for this technology of the future. However, Germany has an unequal competitive standing compared to participants from Asia, who receive major support through industrial policy. Chinese companies in particular receive assistance in the form of direct in-vestment grants, state-granted credit facilities at favorable conditions and tax credits. In order to secure production in Germany now and in the future...> ... industrial policy measures should be undertaken which promote

investments in Germany to a greater degree than has so far been the case. Political stakeholders must systematically accompany the industry on its course, and there must be a joint commitment on both sides toward the development of Germany as a production location. In the process, clear agreements should be made and milestones should be set out;

> ... research & development should receive greater support so that compa-nies can continue to develop the best products and production processes in the world.

At the same time, forecast models must be improved in order to enable the predictability of photovoltaic production on a more short term and qualitatively better basis while taking possible direct consumption into consideration. Forecast models that have already been made available by the PV industry need to be utilized by grid operators. The cost reduction potential of storage solutions – both centralized and decentralized – is only just beginning to be fully utilized. Cost reduction and continued development are necessary in the medium and long term to absorb significant swings in renewable power generation, both in the course of the day and those occurring seasonally.

VI. Milestones on the path to an era without financial support

With the planned reductions of the system price by 2020 – prices could drop from today‘s average of EUR 2.70/Wp to about EUR 1.40/Wp – and selected PV installations will not require financial support anymore. The major lever is a significant share of direct consumption. Households that reach a direct consumption level of 60%, for example, could do without sup-port starting in 2017, and would be in a better financial position with a PV system than without. This target is feasible, for example, for a multi-family house using one shared system. From that point on, PV systems become self-supporting. The recommended measures systematically pave the way for this moment insofar as the direct consumption provision creates incentives for more decentralized consumption close to the system, including in conjunc-tion with shared neighborhood PV consumption.


In the future, with the help of intelligent devices and grids, there will be an even better steering of power consumption ("local load management") – a significant reason for the build up of smart grids. And a support program for decentralized storage solutions will promote their further development, make them cheaper and allow again higher direct consumption (see figure 8).

These considerations underline that the present energy system is facing challenges. Decentralized generation systems will take over an increasingly significant share of supply, so that less centralized generation will be neces-sary. The "classical" energy suppliers and power plant operators will lose production and marketable volume.

Against this background, the differing positions become clear – regarding the support of renewable energies and their expansion, but also regarding ques-tions such as the absorption capacity of the grids in terms of a decentralized feed-in can be better understood. There is an increasing conflict potential between producers and distributers of renewable and conventional energies. The parties involved should engage in a constructive dialogue in order to find a common path to a changed electricity system. Potentially, political stakeholders would have to moderate the process.


VII. Conclusion

Over the past years, the photovoltaic industry has undergone significant de-velopment in Germany, and now has excellent prospects for the future as a central pillar in the struggle against climate change and for a clean environ-ment. Many consumers have recognized the advantages of the technology and have invested in a PV system in Germany. In this area Germany is a global leader, and over 130,000 new jobs have been created. Given a further expansion of production, the industry will be able to make a decidedly positive contribution to the German economy.

The intensive growth and accelerated course toward system transformation with 100% renewables brings about new challenges. The photovoltaic indus-try, with its vision, its targets and its program of measures, has created the framework for making a contribution of its own toward energy transformati-on. In the coming weeks and months, it will be of crucial importance to discuss the insights with other stakeholders and to develop concrete plans for the implementation of individual measures.

Each stakeholder must do his part so that Germany can build up an energy system of the future, and at the same time safeguard photovoltaics as an industry of the future in Germany. Currently, the parties involved in energy supply have differing standpoints on the expansion of and support for rene-wable energies. In particular through the use of decentrally installed pho-tovoltaic systems close to the consumer, the "classical" electricity suppliers and power plant operators lose marketing potential. Power plants will also become less productive due to their shortened operating time. However, at least in the medium term, conventional electricity supply cannot be aban-doned, especially when it comes to providing balancing power. A construc-tive dialogue between partners is therefore necessary in order to overcome the challenges of system transformation.

"Directions for the Solar Economy: PV Roadmap 2020" provides the basis for a constructive dialogue. With the defined targets, the photovoltaic industry steps up to its responsibility and is now committed to implementation. In the process, Germany has the possibility to assume the role of global leader in the integration of renewable energies – an experience from which many of the involved industries can benefit from in the future, in Germany and around the world.

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