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by Christian Sperling / 3 December 2019
Market value factors of electricity coming from solar panels.

Face towards the Sun: An Analysis of PV Market Value Factors

How will the market value of electricity from photovoltaics develop over the next few years? In our blog we explain the results of a fundamental study by r2b energy consulting on the market value of photovoltaics in the coming years.

A glance at the figures for the development of renewable energies in Germany is currently a little disillusioning: in addition to biogas plants, which had a hard time since the introduction of the EEG in 2017, the number of new wind turbines in the first half of 2019 has fallen by 82 percent compared to the same period last year. The German Wind Energy Association (BWE) reports only 35 turbines commissioned in the first half of the year. 

In the field of photovoltaics, some thick clouds have at least disappeared: The 52 gigawatt cover for photovoltaic expansion will probably be dropped in accordance to the climate package, issued by the federal government this fall. This should significantly reduce the expected market slump in 2021/22; due to the abolition of the government-funded subsidy experts had already a decrease in the number of PV add-ons by 50 percent. But what does this mean in concrete terms for the planning and cost recovery of future solar projects? How will electricity from photovoltaics be able to hold its own against other energy sources in the future? 

We at Next Kraftwerke - after all the largest PV electricity trader in Germany - have therefore commissioned r2b energy consulting from Cologne to carry out a fundamental study on these and other questions relating to the future of photovoltaics in the electricity market.

The Sun always Shines with PV?

The trading department of Next Kraftwerke commissioned r2b energy consulting with the difficult task of taking a proven and sound look at the future of the electricity market. The focus was on the development of the market value of photovoltaics in various expansion scenarios - a key point for strategic decisions in electricity trading and product planning. 

The experts therefore used the concept of a fundamental study for their research, which, unlike a conventional study, does not use statistical data that may have been collected under dubious circumstances. Instead, a fundamental study is based on a very large collection of data, in this case practically all data from the energy market and the energy industry, on climate change and on other socio-economical factors that the analysts were able to get hold of. 

On the basis of this comprehensive evaluation, a future scenario is calculated that can best be compared with a computer simulation. As an example, each individual power plant is recorded with its feed-in power and its possible commissioning and decommissioning dates. The model can then forecast how much electricity, for example by a power plant in Belgium, will be fed into the grid on 21st of May in 2021 at what price.

Which Factors Really Decide the Development of Photovoltaics?

Two factors are decisive for the development of new products from the electricity of each energy source: How does the wholesale price for electricity develop in general and how does the price for electricity from a specific energy source relate to this wholesale price?

While forecasts for the wholesale price are still quite simple - analysts can derive from the stock market trend into the future - the situation is different for the value of PV electricity due to the fluctuating feed-in. The sun does not always shine with the same intensity and sometimes not at all – the high volatility of the feed-in then leads to different market values in different expansion scenarios.

The More Panels, the Less Merrier Prices

If there are many PV systems in one market, they produce a lot of electricity at the same time in good weather conditions. This immediately lowers the exchange electricity price on the intraday market, but has an even stronger influence on the market value of the PV electricity generated per kilowatt hour. Other energy sources can achieve significantly higher market values in PV scarcity situations, i.e. in rainy weather, fog or simply at night.

According to the r2b study, the market value of PV systems is calculated in a simplified way by using two factors: the analysts divided the calculated, forecast price for PV electricity at a given point in time by the assumed baseload or wholesale price. As a result, they received a factor that describes the ratio of the PV electricity price to the wholesale price. 

As an example: One megawatt hour of electricity costs 100 euros in wholesale and there is a PV market value factor of 0.9. Multiplied this results in a price of 90 euros, which solar power producers can expect in relation to wholesale prices.

The International Perspective Is Decisive

According to the analysts, any consideration of the electricity market has to bear in mind that our electricity market is situated in a heavily interconnected European power grid. Let us hypothetically assume that Germany has a lot of installed PV and France has very little installed photovoltaics: If a European long-term fair weather period occurs, as in the summers of 2018 and 2019, a lot of cheap PV electricity will flow from Germany via the Rhine to France, and this at very low prices due to the oversupply. Although there is no oversupply of PV in France in this scenario, the market value per PV system drops there due to the very cheap German PV electricity. 

Of course, factors outside the development of photovoltaics also play a role: the very weak development of wind energy, for example, was well below the assumptions of the study. Possible fluctuations in oil, coal and gas prices due to conflicts and political crises are also factors of uncertainty. For all CO2-emitting energy sources, the costs of international and currently discussed national emissions trading for heat and transport are further variables. But at least one thing is clear: If fossil raw material prices rise, this will have a positive impact on the PV market value.

"Here Comes the Sun" Is Still no Funeral March

Due to the study by r2b energy consulting, the electricity traders of Next Kraftwerke were able to substantiate their assumptions for a secure and lasting basis for the marketing of solar power in PPA models. Since the first PV systems will fall out of public funding at the beginning of the 2020s, there is a strong need for viable marketing concepts. We can now provide our customers with a solid and well-founded assessment of the revenue opportunities and, based on the study data and our own surveys, realise sustainably successful PPA contracts in the PV sector.

Since the study results are quite sensitive data from our company's point of view, precise figures unfortunately had to be omitted from this article. However, we can clearly say that the future for the generation of electricity from photovoltaics - not only in Germany - looks quite sunny.

Christian Sperling

Christian Sperling

Content Marketing Manager