Competitiveness of PV in Europe

Competitiveness of PV in Europe Eero Vartiainen (Fortum Power & Heat Oy) Co-authors Gaëtan Masson (Becquerel Institute) and Christian Breyer (Lappeenranta University of Technology) 32 nd EU PVSEC, Munich, 2.6.216

PV is truly competitive when PV LCOE is lower than the value of electricity that the prosumer is getting for the PV generation The levelised cost of electricity (LCOE) for PV is calculated with up to date capital (CAPEX) and operational (OPEX) expenditure data with future cost development based on historical learning rate (about 2%) and realistic projections for the future global PV cumulative capacity growth The value of PV electricity in each market segment is based on the average retail electricity price that the prosumer can save in the electricity bill by PV generation. However, any fixed or power-related fees are deducted because they cannot be saved by self-consumption of PV. The ratio of self-consumption of PV genaration is taken into account and the surplus generation which is fed into the grid is valued at the wholesale electricity market price minus a small (1%) administrative fee All subsidies are excluded in the analysis of true competitiveness 2

PV LCOE is compared with average value of PV electricity in three market segments in each of the ten countries Residential 5 kw p system with 5-15 MWh annual electricity consumption (average consumption 1 MWh/a and maximum power load 1 kw), selfconsumption ratio 25-75% (typical 5%) Commercial 5 kw p system with 2-5 MWh annual electricity consumption (average consumption 25 MWh/a and maximum power load 1 kw), selfconsumption ratio 5-1% (typical 75%) Industrial 1 MW p system with 2-2 GWh annual electricity consumption (average consumption 1 GWh/a and maximum power load 2 MW), selfconsumption ratio 5-1% (typical 1%) 3

Average turn-key PV system CAPEX prices in Europe 215-5 (w/o taxes) PV system price ( /kwp) 16 14 12 1 8 6 4 2 Residential 5 kwp Commercial 5 kwp Industrial 1MWp 215 22 225 23 235 24 245 25 4 Source: PV LCOE in Europe 215-25 (Vartiainen, Masson & Breyer, 31 st EU PVSEC, 215) In 215 real money

Average PV system OPEX prices in Europe 215-5 2 PV system OPEX ( /kwp/a) 15 1 5 215 22 225 23 235 24 245 25 5 Source: PV LCOE in Europe 215-25 (Vartiainen, Masson & Breyer, 31 st EU PVSEC 215) In 215 real money

Input data for selected European countries Irradiation for 3⁰S Performance Ratio VAT for electricity Share of fixed grid fee SWE Stockholm 116 8, % 25 % 6 % FIN Helsinki 116 8, % 24 % 3 % NED Amsterdam 12 8, % 21 % 1 %/1% FRA Paris 131 8, % 2 % 35 % BEL Brussels 12 8, % 21 % 3 % TUR Istanbul 168 77,5 % 18 % % UK London 116 8, % 5 % 1 % GER Berlin 12 8, % 19 % 1 % SPA Madrid 2 77,5 % 21 % 6 % ITA Rome 183 77,5 % 1 % 4 % 6 Source for irradiation: SolarGIS 2-year average for 3⁰ south-tilted surface (Geomodel Solar, 216); shares of fixed grid fees are indicative and are based on price listings of large utility companies; Note: fixed grid fee share is 1% in the Dutch residential sector

PV LCOE is compared with the average value of PV electricity Average value of PV generation P ave is defined by the equation: P ave = SC * P retail + (1 - SC) * P feed-in where SC = ratio of self-consumption of the PV production P retail = variable retail electricity price P feed-in = wholesale or other value of the electricity fed into the grid and where P retail is excluding any fixed monthly or annual and powerrelated fees in the customer bill. 7

Example of PV electricity value for a residential prosumer in Finland Average value of PV electricity Value of electricity ( /MWh) 12 1 8 6 4 2 1% 75% 5% 25% % Self-consumption ratio of PV production 8 Source: Eurostat 215 average prices for annual 5-15 MWh consumption Note: Value of surplus electricity fed into the grid is average spot market price in 215 1%

Residential electricity retail prices in Europe (excluding fixed fees) Retail electricity price ( /MWh) 25 2 15 1 5 Taxes and fees Grid cost Energy SWE FIN NED FRA BEL TUR UK GER SPA ITA 9 Source: Eurostat 215 average prices for annual 5-15 MWh consumption Note: Self-consumption tax deducted from Eurostat energy price in Spain

Commercial electricity retail prices in Europe (excluding fixed fees) Retail electricity price ( /MWh) 18 16 14 12 1 8 6 4 2 Taxes and fees Grid cost Energy SWE FIN NED FRA BEL TUR UK GER SPA ITA 1 Source: Eurostat 214 average prices for annual 2-5 MWh consumption Notes: Self-consumption tax deducted from Eurostat energy price in Spain and Italy; 4% of EEG fee deducted from taxes and fees in Germany

Industrial electricity retail prices in Europe (excluding fixed fees) Retail electricity price ( /MWh) 16 14 12 1 8 6 4 2 Taxes and fees Grid cost Energy SWE FIN NED FRA BEL TUR UK GER SPA ITA 11 Source: Eurostat 214 average prices for annual 2-2 MWh consumption Notes: Self-consumption tax deducted from Eurostat energy price in Spain and Italy; 4% of EEG fee deducted in Germany and electricity tax in Finland from taxes and fees

Average spot market electricity price in Europe 215 5 Spot market price ( /MWh) 4 3 2 1 SWE FIN NED FRA BEL TUR UK GER SPA ITA 12 Note: Value of surplus PV electricity fed in to the grid is assumed to be average spot market price 1%; Surplus PV value for residential and commercial prosumers in Spain is

Residential PV LCOE vs electricity value in Finland PV LCOE & electricity value ( /MWh) 18 16 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 6% nominal WACC 4% nominal WACC 2% nominal WACC CAPEX with % nominal WACC OPEX 75% self-consumption 5% self-consumption 25% self-consumption 13 Source for retail prices: Eurostat 215 averages for 5-15 MWh annual consumption, fixed components excluded; All prices in 215 real money

Residential PV LCOE vs retail electricity price in the UK PV LCOE & electricity value ( /MWh) 18 16 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 6% nominal WACC 4% nominal WACC 2% nominal WACC CAPEX with % nominal WACC OPEX 75% self-consumption 5% self-consumption 25% self-consumption 14

Residential PV LCOE vs electricity value in Italy PV LCOE & electricity value ( /MWh) 24 22 2 18 16 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 6% nominal WACC 4% nominal WACC 2% nominal WACC CAPEX with % nominal WACC OPEX 75% self-consumption 5% self-consumption 25% self-consumption 15 Source for retail prices: Eurostat 215 averages for 5-15 MWh annual consumption, fixed components excluded; All prices in 215 real money

Commercial PV LCOE vs electricity value in Finland PV LCOE & electricity value ( /MWh) 16 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 1% nominal WACC 7% nominal WACC 4% nominal WACC CAPEX with 2% nominal WACC OPEX 1% self-consumption 75% self-consumption 5% self-consumption 16 Source for retail prices: Eurostat 214 averages for 2-25 MWh annual consumption, fixed components excluded; All prices in 215 real money

Commercial PV LCOE vs electricity value in the UK PV LCOE & electricity value ( /MWh) 16 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 1% nominal WACC 7% nominal WACC 4% nominal WACC CAPEX with 2% nominal WACC OPEX 1% self-consumption 75% self-consumption 5% self-consumption 17 Source for retail prices: Eurostat 214 averages for 2-25 MWh annual consumption, fixed components excluded; All prices in 215 real money

Industrial PV LCOE vs electricity value in Finland PV LCOE & electricity value ( /MWh) 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 1% nominal WACC 7% nominal WACC 4% nominal WACC CAPEX with 2% nominal WACC OPEX 1% self-consumption 75% self-consumption 5% self-consumption 18 Source for retail prices: Eurostat 214 averages for 2-2 GWh annual consumption, fixed components excluded; All prices in 215 real money; electricity tax deducted from the retail price

Industrial PV LCOE vs electricity value in the UK PV LCOE & electricity value ( /MWh) 14 12 1 8 6 4 2 215 22 225 23 235 24 245 25 1% nominal WACC 7% nominal WACC 4% nominal WACC CAPEX with 2% nominal WACC OPEX 1% self-consumption 75% self-consumption 5% self-consumption 19 Source for retail prices: Eurostat 214 averages for 2-2 GWh annual consumption, fixed components excluded; All prices in 215 real money

Summary of when true PV competitiveness is reached with 5% self-consumption in residential segment Residential Nominal WACC 5 kw p % 2 % 4 % 6 % Stockholm 22 225 232 24 Helsinki 219 224 23 238 Amsterdam Parity Parity 219 223 Paris Parity 216 221 226 Brussels Parity Parity 218 222 Istanbul Parity Parity 217 221 London Parity Parity Parity 218 Berlin Parity Parity Parity Parity Madrid Parity Parity 218 222 Rome Parity Parity Parity Parity 2

Summary of when true competitiveness is reached with 75% self-consumption in commercial segment Commercial Nominal WACC 5 kw p 2 % 4 % 7 % 1 % Stockholm 216 22 227 234 Helsinki 216 219 226 233 Amsterdam Parity 216 222 228 Paris Parity Parity 219 225 Brussels Parity Parity 217 223 Istanbul Parity Parity 218 224 London Parity Parity Parity 22 Berlin Parity Parity Parity 219 Madrid Parity Parity Parity 216 Rome Parity Parity Parity Parity 21

Summary of when true competitiveness is reached with 1% self-consumption in industrial segment Industrial Nominal WACC 1 MW p 2 % 4 % 7 % 1 % Stockholm 222 226 233 243 Helsinki 218 221 227 235 Amsterdam Parity Parity 218 223 Paris Parity Parity 218 223 Brussels Parity Parity 216 221 Istanbul Parity Parity Parity 219 London Parity Parity Parity 216 Berlin Parity Parity Parity 217 Madrid Parity Parity Parity Parity Rome Parity Parity Parity Parity 22

Sensitivity of true competitiveness on various parameters in Finland with residential 5 kw p PV system and 5% self-consumption Self-consumption 75/25% Nominal WACC /4% Feed-in 5/ /MWh Retail price +/-2% Irradiation +/-15% CAPEX -/+2% OPEX -/+5% PR +/-1% points Lifetime +/-5a Fixed grid share /6% Degradation /1% p.a. Learning rate 25/15% -8-4 4 8 12 16 Sensitivity of true competitiveness (years) The effect of the various parameters is calculated for the residential case in Finland with 5% self-consumption, 215 average retail electricity price, 26 /MWh value of surplus electricity, 3% fixed share of grid cost, 2% nominal WACC, 2% annual inflation, 3 years PV system lifetime, Helsinki average irradiation, 8% initial performance ratio,.5% average annual degradation, 2% learning rate, and base case CAPEX and OPEX scenario. This would lead to true competitiveness in the year 224. 23

Sensitivity of true competitiveness on various parameters in Finland with 5 kw p commercial PV and 75% self-consumption Self-consumption 1/5% Nominal WACC 5/1% Feed-in 5/ /MWh Retail price +/-2% Irradiation +/-15% CAPEX -/+2% OPEX -/+5% PR +/-1% points Lifetime +/-5a Fixed grid share /6% Degradation /1% p.a. Learning rate 25/15% -8-6 -4-2 2 4 6 8 Grid parity sensitivity (years) The effect of the various parameters is calculated for the commercial case in Finland with 75% selfconsumption, 214 average retail electricity price, 26 /MWh value of surplus electricity, 3% fixed share of grid cost, 7% nominal WACC, 2% annual inflation, 3 years PV system lifetime, Helsinki average irradiation, 8% initial performance ratio,.5% average annual degradation, 2% learning rate, and base case CAPEX and OPEX scenario. This would lead to true competitiveness in the year 226. 24

PV is already competitive in most countries and market segments Competitiveness will follow even in Finland and Sweden (moderate irradiation and low electricity prices) within 1 years as PV LCOE declines PV self-consumption ratio is the most important factor in the absence of feedin tariffs for the surplus electricity since the wholesale price is very low. Battery storage will improve the competitiveness in the future. Increasing fixed grid costs do not dramatically affect PV competitiveness as the share of grid costs is relatively low, typically 2% or less of the total retail electricity price Biggest threat to PV competitiveness are the various legal, tax and regulatory changes which decrease investor confidence and increase the financial cost 25

Acknowledgements The study has been carried out under the framework of the EU PV Technology and Innovation Platform (ETIP PV) Steering Committee.