Citigroup: Energy diversification a necessity, solar’s rise a certainty

A leading investment bank has predicted a bright future for the global solar market, with continued rapid expansion driven by “pure economics.”

In a new report from Citigroup, the bank outlines several key reasons why the outlook for solar is so positive, including improvements in efficiency and cost of capital, cheaper manufacturing, approaching grid parity, and the need to diversify and hedge against fossil fuel risks.

“We believe global solar growth will be driven by economics, fuel diversity and emerging financing vehicles as well as some country specific legislative overlay,” Citi analysts argue in the report.

“Moreover, this growth looks set to continue for the long term, as solar takes an ever greater share of energy generation, helped by improving economics against fossil fuels.”

The report, Energy 2020: The Revolution Will Not Be Televised as Disruptors Multiply, says that many of the US utilities it has surveyed have highlighted the need to diversify into other generation sources to hedge against a change in the current low gas price environment.

“So besides pure economics, from a utility perspective, the need to diversify is crucial to remove the volatility and possible upward movement in gas prices over the longer term,” Citi notes.

According to the report, solar growth will come from established markets such as China, Japan, US and UK, as well as emerging markets in India, Latin America, and the Middle East.

And it dismisses forecasts by the International Energy Agency – which predicts 662GW of solar by 2035 and $1.3 trillion of investment – as “highly conservative”.

“High electricity rates and some of the best solar economics in the world (i.e. Latin America) coupled with a need to diversify into other fuel mixes should translate into substantial growth opportunities over the next few years.”

It notes that solar has reached socket (residential) parity in many global regions at the residential level, with more to come – the UK as early as 2018, Japan between 2014 and 2016, and South Korea between 2016 and 2020.

And it says that utility-scale parity is also expected over the next few years.

“For economics, look at the levelised cost of electricity (LCOE) – a key metric of comparing various energy sources. We believe globally, solar will become increasingly competitive with natural gas peaking plants and CCGTs as LCOE trends downward over the long-term and regulators and policy encourages fuel diversity.”

Citi says that the lower solar LCOE is driven by lower financing costs and improved solar efficiencies while natural gas prices continue to increase.

© 2014 Solar Choice Pty Ltd

Giles Parkinson

Giles Parkinson regularly contributes unique content to Solar Choice News. Giles is the founder and editor of clean energy industry news service RenewEconomy. He is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the founding editor of Climate Spectator.
Giles Parkinson