Time to Talk About Solar Energy Reduction – pv magazine USA

July 5, 2024 Toby Couture and David Jacobs

From the pv magazine 24/06

Production curtailment is becoming an increasingly important issue for the energy sector, especially as the share of solar and other intermittent renewable energy sources continues to grow.

At low volumes, curtailment is rarely a significant problem for solar plant operators or for the financial viability of projects. This is largely because most jurisdictions still offer take-or-pay contracts that protect PV project owners, in part or in full, from revenue losses associated with curtailed electricity production.

However, at larger volumes, capping could undermine the economics of new solar projects by significantly increasing investment risk. Unlike in the past, when solar projects were financed through long-term contracts in the context of auctions or feed-in tariffs, many sites are now financed either through bilateral power purchase agreements (PPAs) or on a commercial basis, which involves selling power on the open market. Uncertainty about the volume of electricity that could be capped directly increases the cost of capital for PV projects and in turn puts upward pressure on the cost of solar. In addition, the perception that solar energy production is “wasted” could gradually erode public support for continued PV deployment, especially if capped volumes increase significantly.

Deep cuts

Data from select markets shows that curtailments are increasing. In Chile, solar curtailments have increased significantly in recent years, affecting 1.4 TWh of generation in 2022 – about 1.8% of annual electricity demand – and almost 800 GWh in the first five months of 2023. In Cyprus, PV curtailments increased from just over 3% of generation in 2022 to over 13% in 2023. In parts of Australia, curtailments increased from around 4% in the first quarter of 2022 to over 7% in the first three months of 2023, with some days curtailment levels approaching 20% ​​of total available PV generation. Curtailments are also increasing in parts of the United States: in Texas, 9% of utility-scale solar generation was curtailed in 2022. In California, more than 3% was curtailed in the same year. In Germany, the reduction in the use of solar energy amounted to almost 2% of total photovoltaic production in 2022.

At its core, curtailment is a symptom of an insufficiently flexible energy system. Fortunately, experience shows that curtailment can be avoided or significantly reduced through policy. Especially in the early stages of PV penetration – when up to 10% of energy generation comes from solar – other, cheaper flexibility options are often available.

At this early stage, the toolkit includes measures such as reducing the required operating hours of fossil fuel-fired power plants, increasing the flexibility of other sources of power generation such as hydropower or biomass, moving towards economic dispatchability, introducing intraday electricity markets, and improving demand forecasting and solar production.

A broader set of tools

With higher shares of solar generation, a broader set of tools is starting to emerge. Measures include increasing flexibility and demand response, introducing combined purchasing of solar-plus-storage systems, encouraging new business models such as virtual power plants and aggregators, introducing more dynamic electricity pricing, including locational pricing, and increasing the use of surplus electricity in the transport and heating and cooling sectors.

The underlying economics also help, as periods of electricity oversupply lead to lower prices, which in turn make electricity consumption more attractive. In South Australia, the power system experiences electricity prices below zero for almost 60% of the time between around 11:30 a.m. and 2:00 p.m. With the continued growth of solar power, and without significant increases in demand-side flexibility, markets like South Australia will begin to face recurring periods where daytime electricity prices are persistently negative between 10:00 a.m. and 4:00 p.m.

In response, the government and utilities have begun implementing measures to encourage greater flexibility, including the installation of demand-response pool heaters and air conditioners, variable electricity pricing and flexible charging of electric vehicles.

Not everything is negative

From an energy system perspective, curtailment should not be thought of as solely negative. It can also contribute to the flexibility of the energy system in a way that can be relatively easily activated to maintain system stability.

In fact, it may be cheaper for solar project operators – and for the system as a whole – to occasionally curtail PV production than to build large-scale battery storage facilities or power grids to ensure that solar production is never curtailed.

With solar power growing in virtually every country in the world, it is time for a broader debate about capping, how to contractually bind it, and how capping compares both technically and economically to other ways of balancing energy systems. As the world approaches the second terawatt of installed solar capacity and beyond, this debate will only gain in urgency and importance.

About the Authors: Toby Couture is the founder and principal of E3 Analytics, an independent renewable energy consulting firm in Berlin, Germany. He has 15 years of industry experience and has advised dozens of national and state governments worldwide on renewable energy policy, strategy and finance.

David Jacobs is Managing Director and Founder of International Energy Transition GmbH (IET). He has 20 years of experience in energy policy design, is the author of over 100 publications. He has advised decision-makers in over 40 countries.