Transitioning with a shining sun
Solar power is the fastest growing among all renewables. However, capacity could slow down the roll out of solar power and limit its potential. Cannibalization in renewables could trigger a lower capture rate, which in turn could lead to a slower deployment rate for solar panels. Securing supply chains for solar panels are essential to achieve Europe’s targets for solar power.
Solar power is the fastest growing among all renewables
Solar power is the most accessible renewable energy for households, which allows them to participate in the transition and shelter them from any surge in energy prices
Limited grid capacity could slow down the roll out of solar power and limit its potential
Cannibalization in renewables could trigger a lower capture rate, which in turn could lead to a slower deployment rate for solar panels
Securing supply chains for solar panels are essential to achieve Europe’s targets for solar power
When we think about the transition, the first image that comes to mind is those wind turbines we see when we drive on the highway, or those shining roof tops with solar panels. Indeed, in order for the transition to work, we need to build enough renewable capacity to replace conventional fossil fuel power plants and meet the expected rise in power demand triggered by the electrification of various sectors. Solar power is a key renewable source for the energy transition. It has many advantages and unique properties as it provides clean electricity that is relatively easy to deploy and close to demand. As such, together with wind, it will form the cornerstone of the future power system by providing around 70% of global power by 2050.
There is a distinction between utility and distributed solar generation, which coincides with on-grid and off-grid solar generation. Utility solar generation takes place in solar farms and they act as any conventional power supplier to the grid, while distributed or off grid generation mainly happens in a small scale, such as those panels installed on rooftops of houses and other buildings. In this note, we zoom into solar power focusing on current trends in Europe and globally, its role in the transition and the challenges facing this technology currently and in the future.
The current trends of solar power globally and in Europe
Globally, solar power has been the fastest growing clean technology, with solar deployments being the largest among all renewables in 2023. This is partly because of the decrease in the cost of solar panels as seen in the left hand chart of the figure below which shows the competitive position of solar panels among other clean technologies, along with the momentum in the uptake of distributed solar PV systems and supporting policies for large scale deployment. Accordingly, global capacity additions have been rising as seen in the right hand chart. Global solar manufacturing is set to reach 1000GW by 2024, with China grabbing the lion’s share with more than 75%. Moreover, in a recent IEA update on the renewable energy market, manufacturing for solar PV and wind is set to meet global Net Zero targets in 2030 ().
Prices of solar PV and wind have risen due to the increase in shipping costs and prices of basic materials in 2022. They reached their peak and subsequently decreases in 2023, but are still above 2020 averages. Even with these trends solar and onshore wind are still the most competitive and cheapest option for new electricity generation for most countries. In addition, the high electricity prices in most countries along with technological progress, that increases efficiency and reduces costs further, will increase the momentum and attractiveness of solar power.
The charts above set out the developments of solar energy in Europe. It shows an increase in European capacity additions since the start of the Russian Ukraine invasion (the left hand chart), along with the steep growth in solar generation (the right hand chart). The increase in the uptake in wind and solar in Europe was due to the need to reduce reliance on Russian natural gas. Relatedly, market forces, such as the increase in energy bills, was a main driver for the enhancement of small scale rooftops solar PV for final consumption. IEA reported that EUR 100 billion of savings have been made during 2021-2023 by EU consumers due to newly installed solar and wind capacity (). Accordingly, solar share in the power mix has been rising in many European countries, reaching 14.4% in the Netherlands and 12.6% for Greece in 2022, while the combined solar and wind share is expected to rise to more than 40% by 2024 for Spain, Germany and Ireland.
In term of policies, solar energy is a backbone for the EU’s Green Deal and Repower EU plan. The target shares for renewables in the reviewed European Renewable Energy Directive are set to 42.5% with an ambition to reach 45% by 2030. In order to achieve these targets a new framework for permits is to be developed, along with setting up Renewables Acceleration Areas (RAA). RAA are envisioned to have lower environmental impact and shorter permit delivery periods.
The role of solar in the transition
For Europe, investing in renewables is a strategic goal not only to reduce emissions, but also to provide energy security and achieve price stability. From the lens of the transition, solar has a unique property compared to other renewables: it can be deployed on a small scale with a competitive efficiency. That is, solar can be scaled up by households allowing them to take part of the transition themselves. The increase in the electricity price coming from the grid is one of major incentives for households to install solar PV to curb power bills.
The installation of solar panels by households has three fold transition benefits: first it contributes to additional renewable power supply; second, it absorbs some of the increase in demand coming from electrification off-grid, which eases congestion in the grid and makes it more flexible; third, it boosts electrification by home owners, whether by buying electric vehicles or heat pumps. All these channels would result in reducing emissions whether those coming from electricity generation or those by final consumption.
With regard to utility solar power, of course its major role is in replacing conventional fossil power supplies. Moreover, solar and wind power are essential prerequisite to boost and produce green hydrogen, which is envisioned to be an important pillar for a successful transition in Europe.
Challenges for solar power
Even with the great success for solar power so far, there are some challenges associated to it. A major challenge of solar is intermittency, which needs accompanying solutions, like storage to smooth fluctuations. In the following paragraphs, we lay down other challenges associated with solar power.
VRE curtailment
Variable Renewable Energy (VRE) curtailment is an issue that is mainly happening because of limited grid capacity, which cannot accommodate the rise in supply by renewable sources. The higher the curtailment rate, the worst the situation. A major issue is the time needed for planning and implementing grid extensions, which could be long due to permitting and coordination issues. Policies aiming to promote and increase storage capacity could be useful to reduce curtailment rates.
Spatial challenge for solar power
One challenge for the energy transition in the future is the scarcity of space. Renewable energy systems have their spatial limits as they claim more land for deployment, supporting infrastructure, and supporting technologies (storage, for example) compared to their fossil fuel based counterparts. In other words, fossil power installations have higher spatial power density (the amount of power produced per square meter) than renewables. Furthermore, limited space could hinder the deployment of renewables due to the competing spatial claims of many transformations such as circular economy, adaptation measures and housing. These issues are especially relevant for high densely populated countries such as the Netherlands where space is scarce and the development of the planned solar projects will have a high spatial claim.
Effects on bio-diversity
Another challenge to solar panel deployment is to achieve a balance with biodiversity conservation. There is a challenge to roll out utility solar power as these installations cannot be deployed everywhere and they have a crowding out effect on species. For example, solar panels in the fields may prevent light to pass through for plants to flourish underneath. This highlights the need for innovative solutions that allows for integrating solar panels with the local environment where they are installed.
Securing supply chains
As part of REpowerEU plan, Europe intends to double its solar PV capacity by 2025, and further install additional 600 GW by 2030. To support this plan, a rooftop solar initiative is put in place, with enhanced legal obligation to install solar panels on different buildings (public, commercial and residential). However, in order for Europe to achieve these goals, it should make solar panel supply chains more resilient. That is in part a resilience to raw materials used in solar panels produced domestically, and in another part a resilience to imported panels.
Cannibalization in renewables
Cannibalization happens when several renewable sources, with the same profile, generate at the same time depressing the electricity price, which in turn reduces the capture rate (the portion of the price paid back to producers) by generators. For example, in the sunny month of May 2023, the capture rate by solar producers in the Netherlands was around 55%. With more installed solar panels, the capture rate will be lower and incentives to install more panels will decrease and the transition will be slower.