What does cheap solar mean for utilities?

Solar is now viable at $50 a megawatt hour, half the wholesale price. Many investors don’t realise just how cheap solar has become, because the fall in price has been so dramatic. John Martin, CEO at New Energy Solar talks about this here, and what it means for utilities in Australia and abroad.

John says: “Large utilities are naturally going to go with the cheaper source energy, regardless of whether it's green or not. Right now, solar is definitely the cheapest source of energy”.

Solar is already capable of providing a significant part of the energy mix, and this will only increase as storage batteries improve. This short video with transcript digs into this powerful theme that has emerged. 

Edited transcript

“10 years ago, solar (without a subsidy), needed electricity prices that were about five times the actual wholesale electricity price to compete with fossil fuel sources. So, 10 years ago, you needed an enormous subsidy to make solar viable.

The situation today is very different: We've had a [90%] decline in solar panel prices since 2009 now, to make a solar project viable, you need electricity prices of about $50 a megawatt an hour, compared to the wholesale electricity price in Australia of $80-100.

So now we're in the position where, in a decade, you've gone from something that needed an enormous subsidy to something that's actually cheaper than the current wholesale electricity price.

Large utilities are naturally going to go with the cheaper source energy, regardless of whether it's green or not. Right now, solar is the cheapest source of energy. The debate in Australia has missed this change because it's happened so rapidly, talking about these huge subsidies is a conversation from a decade ago. Right now, it's not correct. Even in places without large solar resources like the Northern US and parts of Europe, solar can compete without subsidies.

The big energy retailers and utilities (as intermediaries) will be ok as long as they transition to this renewable future. They're still going to sell energy. They want to make a margin between where they buy and sell energy. It's just that the energy is going to come increasingly from renewable sources.

These retailers and utilities can meet their goals in making a profit, servicing customers, doing it in a green way. I think the AGL approach, i.e. replacing ageing coal-fired power stations with a bundle of renewables and batteries and pumped storage, is their natural path.

I think those entities that will have a challenge are those involved in coal-fired electricity generation. That sector is in decline and its going to be increasingly replaced by renewable energy. But in Australia, most coal-fired generators are part of an overall utility and are likely to be naturally phased out over time (e.g. like what is planned by AGL Energy and Origin Energy).

The only other businesses that principally sell coal-fired electricity generation are the Queensland Government owned electricity generators. They'll likely have a challenge.

Renewables are already a key component of electricity generation, even without breakthroughs in storage technology. We believe you can handle a system that's comprised of 30% or 40% renewables, and we see that happening in other global markets already.

I believe that by 2040, batteries and storage technology will continue to progress meaningfully, and I think the capacity exists for renewable energy plus storage capacity to provide all electricity.

I've seen forecasts suggesting a doubling or tripling of electricity demand by 2040. This demand will depend on how important electric vehicles become. Because electric vehicles is not just cars, it's trucks, trains and planes, as well.

The replacement of all oil-based transport with electric-based transport could have an enormous impact on electricity demand. I think by 2040, the capacity will exist to meet this increased demand with renewables and storage, and at a lower cost than we do at the moment. 

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The significant growth of the global solar industry in recent years has created a new mainstream infrastructure investment class – large-scale, stable, cash-flow producing solar power stations that generate emissions-free power on the back of technological innovations driving cost competitiveness. Find out more 

This video has been conducted with New Energy Solar Manager Pty Limited (ACN 609 166 645) (Investment Manager), a corporate authorised representative (CAR No. 1237667) of Walsh & Company Asset Management Pty Limited (ACN 159 902 708, AFSL 450 257), and investment manager for Walsh & Company Investments Limited (Walsh & Company) as responsible entity for New Energy Solar Fund (ARSN 609 154 298) (Trust), and New Energy Solar Limited (ACN 609 396 983) (Company). The Trust and Company together are referred to as New Energy Solar.

The video is general information only and does not consider any particular investor’s circumstances. It is based on the opinion of the speaker alone and is not intended to be a research report. The information should not be relied upon to make an investment decision without seeking further information and/or advice from a financial adviser and considering whether any investment is appropriate in the circumstances.

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