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100% PV without thermal back up? Just cut storage costs by 90%…

By Jed Bailey | April 18, 2018

 

Firming up solar PV becomes important as PV’s market share increases. In a previous article, I compared the cost of high-penetration PV systems using two theoretical cases in Barbados: scaling PV to meet peak demand with thermal back up, and scaling PV to meet a full 24 hours of electricity demand using Li-Ion batteries for storage.  That article suggested that PV+thermal offered clear savings compared to thermal alone, and that fuel prices had to be in the range of US$25 per MMBtu before PV+storage was cheaper than PV+thermal.

PV and battery costs are coming down rapidly, however, and oil prices are on the rise again.  So how far do PV and battery costs have to fall to make a 100% PV system cost competitive (in this very simplified example)?

Figure 1 shows the original comparison of thermal, PV+thermal, and PV+storage in black, then repeats the calculation using successive reductions in PV and storage costs (ranging from a 10% to a 90% cost reduction). The diamond marker for each cost level indicates the fuel price (and delivered electricity cost) at which the cost of PV+storage equals the cost of PV+thermal.

Figure 1: Future cost of firm power from thermal, PV + thermal, and PV + storage

Reducing the cost of PV does not have a large impact of the blended cost of PV+thermal. Every 10% reduction in PV costs results in a US$1.30 per MWh reduction in the blended electricity cost—the same effect as reducing the fuel price by US$0.26 per MMBtu.

Reducing the cost of storage, however, can have a more dramatic impact on the electricity cost. Every 10% drop in battery price reduces the blended cost of electricity by US$14 per MWh, equal to reducing the fuel price by US$2.76 per MMBtu. This is not surprising as the current cost per MWh for storage is roughly 8x the cost of PV.

In this example, reducing PV and storage costs by 50% from the baseline level would allow PV+storage systems to be competitive with PV+thermal when fuel prices are greater than US$11.50 per MMBtu.  That is a high price for fuel in most parts of the world, but at the cheaper end of delivered natural gas (shipped as LNG) or fuel oil for small islands like Barbados. Dropping PV and storage costs by 75% from baseline makes them competitive with PV+thermal at fuel costs just over US$5 per MMBtu, making it competitive with natural gas in most markets in the world. A 90% reduction in cost would make PV+storage competitive against PV+thermal at fuel prices as low as US$1.40 per MMBtu—lower than everything but the cheapest stranded natural gas.

Can PV and storage costs get that low? In this article I noted that historical PV cost curves suggested PV costs could fall just over 50% from 2017 levels by 2021 and 80% by 2025, but it would likely be increasingly difficult to maintain the pace of cost reductions. For storage, Lazard’s 2017 cost of storage analysis suggested that Li-Ion battery costs could fall 10% per year for at least the next 5 years. That implies a 35% cost reduction by 2022. If the trend were to continue into the future, Li-Ion battery costs would be half of 2017 levels by 2024. Like PV, the expected storage cost reductions are from a manufacturing learning curve—a technological breakthrough could speed up the pace, but is not required to hit these numbers.

In short, this (relatively extreme) example suggests that 100% PV systems backed by storage will be more expensive than thermal-backed PV for most markets for at least the next decade. In the meantime, falling storage costs will enable systems of steadily longer duration, especially in markets with very high fuel costs.

Other technologies can also help support high PV penetration. Systems with a mix of different renewable energy technologies, demand response capabilities, and storage capacity can make higher PV penetration economic sooner than pure PV+storage systems.  The need for new thermal capacity, and the markets where thermal retains its advantage, will steadily shrink.

 

 

 

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