Soaring energy prices in Europe are driving homeowners towards clean energy. With consumers now potently aware of the risks associated with a fossil-fuel heavy grid, rooftop solar and battery storage installation rates are set to boom through the coming year.
In Germany, it is reported that as many as one in six households are now planning to fit a new rooftop PV system, in a move to protect themselves from the rapid increase in the country’s cost of living.
The rise in energy prices predates Russia’s invasion of Ukraine. As economies have recovered from Covid-19, heavy stimulus packages have sent demand for energy into overdrive. Demand has risen faster than supply, much of which was shut-off through the pandemic and can only be brought back online slowly. Supply has also been constricted due to several large plants being offline at once, due to delayed maintenance proceedings following Covid-19.
Greater demand for LNG in Asia – compensating for a 200% rise in China’s domestic coal prices, as well as a particularly cold preceding winter, saw natural gas inventories across Europe far below their five-year average ahead of the upcoming winter season.
In October, wholesale electricity prices of €90 per MWh in Germany have surpassed records set in 2008, while natural gas was trading at a price four-times greater than it was a year before.
And then Russia invaded Ukraine. Europe’s sanctions on Russian energy supplies – including proposals to completely phase out Russian oil imports and reduce gas imports by two-thirds by the end of this year – have a particularly large impact on Germany, given its huge reliance on Russia for up to two-thirds of its natural gas, which is crucial in facilitating its electricity exports.
As of March, an average household using 20,000 kWh per year (including gas for heat) would have to pay a record €3,305 for their annual energy needs, according to Check24 – marking a 62% rise since December. Retail electricity prices now sit at a staggering €420 per MWh – up more than 25% from six months ago when they were already high.
Germany – and the rest of Europe – have been racing to find replacement sources for this energy, including fossil fuel imports from elsewhere, delayed retirement of coal and nuclear plants, while securing agreement for future hydrogen supply from countries like Canada, Chile, Japan, Morocco, Saudi Arabia, the Netherlands, and the United Arab Emirates.
These strategies, however, are looking too far into the future, and have neglected the immediate moves that can address the triple threat of Russian imports, rising energy prices, and climate change. Without accelerating onshore wind permitting and household insulation, little will be done to alleviate the financial woes of the country’s energy users.
At the current cost of electricity, it makes an increasing amount of sense for customers to go it alone. The cost of rooftop solar in Europe has fallen by 82% since 2010. And while Germany is not the sunniest country by any means, and its rooftop solar LCOE of €186 per MWh is more than double that found in the likes of Spain, the cost advantage it has over retail prices is huge.
With a 5 kW system installed on a rooftop, households in Germany can satisfy nearly half of their energy needs for the next 25 years, for less than €11,000. The savings from the system means that it pays for itself in around 11 years – less than the 12.9 years that Rethink Energy believes is required before the mass adoption seen in locations like California and South Australia. The payback period is now less than this threshold in Spain, Germany, and Italy, among other European countries that can now expect to see a huge uptake in rooftop solar.
Several states in Germany have already made solar panels mandatory on the rooftops of new buildings, seeing installation rates rise 10%.
The European Commission has also drafted a similar suggestion that could make rooftop solar included in all new buildings across the bloc, with publication of the proposals set for publication around May 18. The plan is likely to include increasing the bloc’s solar capacity target to 1,000 GW by 2030, up from 166 GW today, with measures to ensure that 75% of the required panels are manufactured within the EU itself. It would also require member countries to, within 2022, start initiatives limiting rooftop solar permitting time to three months.
Beyond this, the cost of solar will continue to fall. Rethink Energy expects the LCOE of rooftop solar in Germany to fall by 47% over the next 10 years, making it a no-brainer for installation on nearly all rooftops. With an increasing adoption of EVs and electrified appliances, maximizing the value of this will depend on the ability of homes to store the energy that the solar produces during the day. With rapidly falling costs for battery storage, the LCOE of solar-plus-storage systems will fall at around 14% per year over the next five year. In both Germany and Spain, the 12 year payback period of these systems – which can provide homes with 24/7 clean and grid-independent energy – will be reached in 2026, marking a new-era of decentralized home energy production.