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Solar will exert a downward force on electricity prices

Posted by James Page on 22 December 2011 at 10:09 am

There is still a day left to submit responses to the consultation on solar feed-in tariffs.  Which is just as well as those in the industry have been a tad busy until now.   

Ironically my submission will centre on a point I also made in relation to nuclear power four years ago, although there the issue was that nuclear would do nothing to reduce our insatiable demand for electricity.

The government has attempted to calculate the upward effect on electricity prices resulting from feed-in tariffs,  but there is also a downward force. Very few things in economics are predictable, but any increase in supply of electricity will reduce electricity prices, other things being equal. In countries where there is a large amount of solar (in Germany a fifth of the electricity can come from from solar on a good day) the effect is already significant. What’s more it will continue decades after the feed-in payments have come to an end, thanks to the longevity of solar panels.

Such effects are difficult to quantify but electricity exported to the grid in the UK only attracts 3p from small installations and typically 5p from larger schemes. So for the electricity distributors it is a cheap commodity. Assuming there is at least some competition in the market savings will be passed on to the consumer.

According to Photon magazine (August 2011 ‘Downward Trend’) there are already times in Germany when supply can exceed demand to the extent that even when fuel-burning power stations are switched off there is still an excess, at which point prices plummet. Like the digging of the channel tunnel, PV panels are ‘sunk costs’ – they cost next to nothing to run.  Photon say solar has reduced the price difference between peak and base load power from 25% to 10% in four years.

Solar has a great future for us, if we want it.

Photo by Divine Harvester 

About the author: James Page is a chartered engineer and is head of engineering at Joju Solar. All views expressed are his own. He stores solar energy under the kitchen floor.

If you have a question about anything in the above blog, please ask it in the comments section below.

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