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Friday, April 13, 2018

Brazil: Solar auction prices drop 20% in 3 months

Brazil average annual solar  irradiation. (Source)

There have been numerous reports recently of large drops in solar PV contract prices, in Mexico, in Chile, in the UAE, in India.  Brazil is the latest, as PV Magazine reports.

Brazil’s government-run energy agency, Empresa de Pesquisa Energetica (EPE) and the Electric Energy Trading Chamber (CCEE) have allocated around 806.6 MW of PV capacity in the A-4 energy auction, which was held today. 

According to information provided to pv magazine by Rodrigo Sauia,  president of Brazilian solar association, Absolar, the final average price for the selected solar projects was around 118 BRL ($35.2)/MWh.

In the same auction of this kind, which was held in mid-December, the final average price for solar had been 145.78 BRL ($43.9)/MWh, while total allocated solar power had reached 574 MW (AC).

[Read more here]

Prices have fallen 20% in 3 months!  Extraordinary.

Why such a rapid rate of decline?  Well, the cost of the panels is plunging.  And because investors, regulators and utilities are getting to know solar better, the cost of finance is falling.  This reduces the cost per MWh.  (High interest rates favour coal because the present value of the cost of fuel in future years is low.  Since half the cost of coal is the fuel, this makes coal appear cheaper.)  With renewables, most of the cost is up front, because there is no fuel cost.  So falling interest rates, because of lower risk and greater familiarity,  reduce the cost per MWh. 

Finally, when countries like Brazil, Chile, Mexico, South Africa and India introduce reverse auctions to buy power, because they are contracts with the government, the developers can borrow cheaply.  The competitive auctions have led to plunging contract prices.

Will this rate of decline continue?  Probly not.  Although the panels will go on falling rapidly in price, there are other costs.  Land, the cement bases, the stands, permitting, the inverters (transformers), connection to the grid.  These costs aren't falling nearly as fast as the panels.  But for coal it hardly matters.  New solar farms produce power which is overwhelmingly cheaper than from new coal power stations, and in many countries, cheaper than existing power generated from coal power stations.  And that's without a carbon tax.  Even modest price declines in solar from now on will still drive out coal.  And if the price declines continue at previous rates the world will start shuttering coal power stations  in the next 2 or 3 or 4 years simply on economic grounds.  For example, continued  price declines of just 10% a year mean solar will halve in costs over the next 6 years.  What is already an attractive economic case for solar will become even more compelling.

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