Wind & Solar Energy. Rivalry or Collaboration?

Many things have changed since our ancestors prayed to the elements, the sun, the wind and the rain. However, what stays constant is the debt we owe them for our wellbeing and modern way life. On a more practical level, the current use of renewables in the form of cheaper Solar and Wind energy affirms their trust in the elements and more importantly highlights the rising demand for non-depletable sources of energy.

Despite the reduced price of solar energy, choice between Solar and Wind as a technology type remains a prominent question. The price for the wind has declined significantly during the last few years and raised lots of discussions about the increased practicality of using Wind as a technology type despite increasingly economical solar. Questions around the two technologies include:

  • Could solar be entirely replaced with wind. Which technology type fares as a better choice for baseload capacity?
  • Which of them will be more beneficial for us or maybe their mix should be considered?

Let’s get answers to these questions in our article by evaluating the statistical model for such countries as Germany, Spain, France, and the UK.

Wind & Sun

#1 Among the Renewables

Starting out from a year ago with the noticeable decline of the levelized cost of energy (LCOE) wind economics have drastically changed. The need for subsidies have also significantly changed. Together with the development of corporate power purchase agreements (PPAs), these were the main reasons why the wind energy “entered the game” and got all the chances to occupy the top place among the renewables.

However, a new risk to wind substantiated in the form of lower development costs for solar PV. Such decline has led this technology to overtake wind energy in some regions as it was more beneficial from an economic point of view. It has caused the acceleration of solar PV regarding annual global installations and questioned the suitability of wind use. Whether it is a rivalry between wind and solar energy or it will be more efficient to mix them and turn from competitors to companions? After analysing the situation in Germany, France, the UK, and Spain, it was concluded that the best results could be achieved while using the generation mix of the wind and solar. It will minimize the investment costs and act as complementary technologies, providing us with the best results available for today and increasing the weight of all renewables.

According to the LCOE forecasts for the wind onshore and offshore, we can see that the wind onshore is already profitable without subsidies although we expected it not earlier than in 2020. At the same time, the wind offshore is expected to become profitable without subsidies till 2023 (analytics expected to reach this in 2027).

Cost of electricity by source

Such significant profitability of wind together with solar PV without subsidies gave rise to the development of the corporate PPAs for renewable sources in European countries. The PPAs are expected to act as a powerful catalyst for the growth and development of the renewables, thereby pushing the installations beyond the government targets. A significant rise in comparison with the previous year has seen in C-PPA volumes, that was supported by falling LCOEs. Altogether, the PPAs’ growth, LCOE’s decline, and recovery of some key markets have resulted in high activity in the wind industry, causing the unexpectedly high levels of backlogs among wind turbine manufacturers. Analytics expect this growth to be continued in 2019 and 2020 because of the high number of installations in the US and the recovery in the German market.

What are the profits?

We have already mentioned in the previous paragraph that the new wind installations are already profitable in Europe without subsidies. What about the numbers? Until 2019 the LCOE for wind onshore is expected as c.€13/MWh cheaper comparing with the average price for power in Europe. It is an excellent result as in the initial forecast it was estimated that the LCOE would be c.€3/MWh more expensive than power prices. Changes that caused such a turnaround over the past year have been caused by the significant decline in the turbine prices together with the increase in power prices. Such price bouncing acted as the primary driver of the improvement of profitability for wind with no subsidies.

Types of Energy

About the wind offshore, the results are also expected to be positive. For 2023 analytics expect LCOE for the wind offshore to be c.€2/MWh cheaper in comparison with an average price for power in Europe. As well as with the wind onshores, the previous forecast was not so good, and initially, it was expected to be c.€6/MWh more expensive than the power prices around Europe.

Energy prices in Europe

Evaluating these results, we expect such a significant difference between the LCOE for wind and power prices act like a catalysator for the wind installations. Because of the lower LCOE for wind, every new facility can displace more expensive thermal capacity that will noticeably lower the wholesale power price and directly affect the electricity bills.

The improvement in wind profitability without subsidies has started the development of long-term Power Purchase Agreements that are going to become the main drivers to support the renewables growth and development. Corporate PPAs between utilities and corporates are extremely important for renewable installations, and there are several reasons for this:

  • PPAs reduce the possible earnings changeability in the project for the period they are signed. As a rule, this period lasts from 10 to 25 years;
  • The signing of PPAs makes earnings “independent” from any power spreads and commodity prices. The only driver of possible earning surprises are the wind load factors that in the majority of cases are stable during 10-25 years;
  • The reduction of the earnings changeability is one of the decisive factors for the wind developers as it allows significantly reduce the cost of financing a project.

Taking into account these advantages, we can expect C-PPA to keep on growing and accelerating the development of wind and solar PV in Europe.

Teamwork of the Wind and Solar

In many cases, things work better together. It may be a set of details which function as one harmonious mechanism or a team of colleagues reaching much better results than each of them separately. It refers to the wind and solar also. By working together, these technologies can complement each other and reduce the volatility significantly. From the rival competitors they have turned into the players of one team, different parts of the one whole, directed at reaching the same goal – to create the powerful renewable power plant. Using the wind and solar as the one mix can reduce the volatility of the output significantly due to their seasonality.

We have used an hourly model for four countries to estimate the optimal generation mix that will minimize the cost of the system installation and maximize the amount of demand supplied by renewables. We have studied such countries as France, Spain, Germany, and the UK. Let’s see what we’ve got.

cutting Europe electricity prices

1. France. Having reviewed the hourly load factor for solar, wind, and hydro, the following conclusions were made:

  • The balanced mix of wind+solar. Comparing the combination of wind+solar with the line including the sweet spots, a balanced mix of wind and solar is considered as the best option for the efficiently increased renewable output.
  • Sweet spot = 50-100 GWs of solar + 75-300 GWs of wind. 50-90% of the electricity demand in France is supplied by the hydro, so the ideal formula of the wind and solar mix consists of 50-100 GWs of solar and 75-300 GWs of wind.
  • The balance of wind and solar till 2023. The corresponding sweet spot of the balanced wind and solar installations in France is expected until 2023.

2. Spain. Among the main conclusions achieved after reviewing the hourly load factor for solar, wind, and hydro are:

  • Solar PV is preferable than wind for up to 35 GWs. Comparing the mix of wind+solar with the line including the sweet spots, the solar installations are considered as a better option than wind but only up to 35 GWs. In case of reaching the 35 GWs level, the wind installations will provide the more economically efficient result for increased renewable output.
  • Sweet spot = 35 – 40 GWs of solar + 20-100 GWs of wind. 50-90% of the electricity demand in Spain is supplied by the hydro, so the ideal formula of the wind and solar mix consists of 35- 40 GWs of solar and 20 -100 GWs of wind.
  • Overestimated need for solar till 2030. According to the achieved analytical data, Spain’s goals for 2030 underestimate the need for wind and overestimate the need for solar power plants.

3. Germany. After evaluating the hourly load factors for wind, solar, and hydro in Germany, we have got the following results:

  • The balanced mix of wind+solar. Similar to France results, in Germany, a balanced mix of wind and solar is considered as the best option for the efficiently increased renewable output.
  • Sweet spot = 64- 180 GWs of solar + 100-460 GWs of wind. Assuming that no more wind offshore is built in Germany, the ideal formula of the wind and solar mix consists of 64 – 180 GWs of solar + 100-460 GWs of wind.
  • The balance of the wind and solar till 2030. To minimize the costs and to reach the balance of the wind and solar till 2030, 107 GWs of solar PV and 150 GWs of wind will be required.

4.The UK. According to the results of the hourly load factor for solar and wind, we can conclude that no more solar PV is needed in the UK.

  • Wind for increasing renewable output. For today, the most efficient way to get the positive results is the installation of the wind power plants to 100 GWs. No further solar is required in the UK.
  • Sweet spot = up to 40 GWs of solar + up to 170 GWs of wind. 50-90% of the electricity demand in the UK is supplied by the hydro, so the ideal formula of the wind and solar mix consists up to 40 GWs of solar and up to 170 GWs of wind.

Expert View (ENIAN): Additional Considerations – Solar and Wind coupled with Storage

An additional consideration when looking at the complementarity of Wind and Solar is the addition of storage to each of these technologies and how they subsequently impact the levelized cost of electricity. For example BNEF reported in 2018 that Wind+Battery and Solar+Battery storage systems in an emerging market such as India have ranges of $34MWh-$208/MWh, $47/MWh-$308/MWh – the median for these ranges is falling fast and the learning curves from Lithium ion battery technology have shown that BNEF’s own lithium ion battery price index shows a drop from US$1000/kWh in 2007 to US$200/kWh in 2017.

As storage within the Solar and Wind energy mix becomes more mainstream – the long term development costs are expected to drop with Solar and Wind complementarity dynamic changing once again.

Phillip Bruner – CEO and Founder of ENIAN.

Main Conclusions

Summing up everything reviewed in the article, we can make the following conclusions:

  • The perfect generation mix consists of solar + wind;
  • Wind is the cheapest technology when adding base capacity;
  • For each country in Europe the unique combination of the wind and solar is required for the best result;
  • The balance of wind and solar will provide significantly better results for Germany and France;
  • Choosing the right combination of solar and wind will minimize the costs significantly.

Renewables are our future. Investing in wind and solar development, increasing the installations according to the needs of each country, and contributing to the renewables’ growth, we can achieve the incredible results that may change our lives for better.

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Alexej Pikovsky

Passionate about investing in private and public companies and a successful track record across different industries and geographies. German Academic Foundation Scholar and Research Affiliate at the Centre for Global Finance and Technology at Imperial College London. Addicted to reading and sharing industry deep dives. Enjoy!