Paving the way for subsidy-free solar

Innovative unsubsidised solar projects are emerging across the world. But they have subsidies, and two countries, to thank.

Unsubsidised solar – large and small – is here, thanks to subsidies.

Chile: Large scale solar

Chile has high electricity prices in part due to some reliance on burning oil to prop up its electricity sector. The country has an energy-intensive economy due to it being host to large extractive mining operations including copper mining and processing.

And that's where opportunity lies, as seen by solar pioneer Sunpower and its owner French oil giant Total. Together they're going to build a large scale 70MWe solar photovoltaic power plant using Sunpower's monocrystalline solar modules, known for being the highest efficiency units on the market.

Bangladesh: Small scale solar on a massive scale

A world away from Chile is Bangladesh. Bangladesh has a huge rural population that is without the basic central infrastructure we are used to in the West – and they're unlikely to get it for a long time. Step in Muhammad Yunus, a social entrepreneur who, in partnership with banks and the government, sets up a micro-credit loans program with commercial returns to get solar to Bangladesh's millions of unlit households. Today 1.5 millions households – rising to five million by 2015 – have a solar system for lighting, telecommunications, computers and, in some instances, light industrial purposes such as sewing. Again, this has all been installed without subsidies.

So if it is unsubsidised where do the subsidies come in?

The Chilean solar plant is unsubsidised and will trade on the spot market of the Chilean central grid as a merchant facility. However, there is no way that this project would have got up if solar photovoltaic prices were where they were in 2007, 2009 or 2011. This is a project that has got up on 2013 pricing and what has driven that pricing drop is the important bit of this story.

The story of the subsidies that got solar over the line is a story of the combined efforts of over 100 countries, states and provinces from around the world that have supported solar over the past decade. The two countries that really stand out from the pack in making the Chilean solar plant happen and emancipating Bangledesh's rural poor are ... Germany and China. 

Germany

It all started in Germany with the Renewable Energy Sources Act – EEG. Thanks to the German Greens in particular, and Hans-Josef Fell putting pressure on coalition partner the SDP (Germany's labour party) German investors who installed solar were given grid access priority and paid a premium for any power they produced from solar. This sent installations soaring, prices of equipment plummeting, the feed-in-tariff to be ratcheted down and caused industry to meet the challenge through increased efficiency and labour streamlining.  

China

Along came the Chinese who saw the opportunity to take advantage of the market that Germany had created and that other countries had replicated. The Chinese thought big, with low interest state loans and the latest tooling technology (which they initially purchased off the Germans, Austrians and Swiss) they built the biggest factories, producing more panels and cells than ever imagined before, and they achieved massive price reductions and sent production and sales volumes skyward.

So Germany's feed-in-tariff, US tax credits, Australian RECS, SRET, LRET and Chinese government loans have got large scale solar up in Chile and will have five million households electrified in Bangladesh by 2015. As an aside, has this accidentally become the biggest foreign aid effort in the history of mankind?

So if unsubsidised solar is already here why should we support solar incentives?

Chile has achieved unsubsidised solar as have some remote island nations and other resource poor locations with small populations. But this does not mean that unsubsidised solar is available everywhere. However, it is close.

Building solar in regions where unsubsidised solar is will assist in bringing further economies of scale to the technology, but even those locations could do with a very small incentive to speed up (put the foot on the accelerator) and get more panels on the ground (or roofs for that matter). The cost of incentives where some market opportunity already exists for solar would be very minimal for very significant return and other places like Australia can afford to give more stimulus, dovetailing with research to garner more long term gains from innovation and knowledge economy aspects of the solar technology development cycle.

The learning curve that the solar industry has been following (The Moore's law of the solar photovoltaic industry) is that with every doubling of global installed capacity prices drop around 30 per cent. A few remote locations and one or two countries where solar is over the line will not achieve the market volume to get the next massive cost reduction which is what will cause a significant number of the world's markets to be in the money for subsidy-free solar.

So it is essential that we have support mechanisms in-place in Europe, Australia, the US and even countries like Chile where you can get some solar up today, subsidy-free, to drive cost reductions further – because driving cost reductions is why we as a society choose to invest. When we invest in solar with incentive mechanisms – such as portfolio standards, certificate schemes and feed-in-tariffs – we invest in these cost reductions so that the 99 per cent of the panels that will be installed in the future subsidy-free come in well below the cost of any other electricity producing technologies.

Furthermore, we shouldn't be envious or crying foul at China's national government backing solar by raising the WTO trade dispute card, etc. Solar would not be in commercial play today without China's cost reductions as a catalyst to drive the programs all over the world to cheaper and more economic outcomes.

Chinese Reds, German Greens, micro-bankers (not sure what colour they are) in developing countries and imitators in dozens of jurisdictions all over the globe have been giving the world a solar future through a small period of incentives (subsidies) combined with innovative financing schemes.

Solar will be cheaper than all other sources after these subsidies have really only been seriously in place for less than 15 years. This means that electricity (take your blinkers off for a moment if you're anti-solar) will be cheaper for all, for all time thereafter. This is so close that it is going to occur in all our lifetimes, most likely at some point between 2016 and 2020. And I for one am really looking forward to it.

Matthew Wright is the executive director of Zero Emissions Australia.