Solar Energy Worry List

I found myself stumbling across a lot of discussion about solar energy the past few days.  There is both good news and bad news. San Francisco where I live is host to the U.S. Solar Market Insight conference which is officially sold out so conference organizer GTM Research has teased those of us not attending with online conference highlights.  GTM is doing the event in collaboration with the solar industry trade group, the Solar Energy Industries Association® (SEIA®). SEIA is crowing because it expects the US to install about 2,000 MW of new solar capacity in 2011 passing the 1GW annual capacity addition bragging rights mark after a much more modest 887MW installed in 2010 and only 435Mw in 2009.  So you see the good news about the continued growth of solar energy.

On the other hand Germany announced reductions in its feed-in-tariff subsidies of 15% for next year bringing total Fit reductions of 57% since 2004 as the market penetration increased and the price of solar PV panels has fallen more than 40% over the last year.  Italy and Spain are also expected to reduce their feed-in-tariff subsidies since austerity demands of the PIIGS countries that pay the subsidies directly out of tax revenue can no longer afford it.  Germany passes the FiT costs directly through to customers so the situation in Germany is slightly different but still unsustainable. The EU market is losing momentum and the American market is picking up driven by our renewable portfolio standards and the rush to get the US treasury tax grants and tax credits for fear they will not be renewed.

China’s market for solar energy and virtually any kind of energy capacity addition continued its relentless pace with expectations that China will install about the same solar capacity in 2011 as the US.

My friends in the solar energy business are worried and the things that keep them up at night go beyond the usual worry that Congress will not renew US tax grants and credits. They clearly expect loan guarantees to dry up after the Solyndra mess.  They worry about bankability and the implications of the European sovereign debt crisis on credit and access to capital and the balance sheets. But some of their worst fears revolve around hitting a technology wall on efficiency and performance.

  • It’s about Efficiency, Stupid.  Solar energy’s real potential is not measured by its installed capacity but by the improvements in output efficiency.  The best selling PV panels range from 16% to 20% efficiency on average.   But the newest H-class natural gas-fired power plants boast efficiencies of 60%+.   The bottom line is solar must find ways to boost efficiency to be cost competitive without subsidies.  UPDATED 11/19/11.  My original post was confusing efficiency and capacity so thanks to those who pointed out my mistake.  The best way to compare efficiency is on a $/watt or $/kW basis.  I still believe solar efficiency must improve substantially if it is going to lives up to its potential to be transformational.  Today falling commodity prices for PV panels is growing market share but we’re going to end up with a lot of the least efficient PV panels instead of focusing on driving up the efficiency while driving down the cost of the best technology to position solar for the future.
  • LCOE is the Bottom Line!   A continuing problem for solar energy even with falling prices of solar PV panels is the balance of system costs that often make up as much as 50% of the total cost of a solar system.  The US DOE Sunshot program is investing $145 million in technology and systems improvements in an effort to bring the cost of solar down to $1 per watt or less.  But the industry itself must do more to make this happen or face being priced out of the market when a level playing field without subsidies forces all energy options to compete on a levelized cost of electricity (LCOE) basis.
  • Scale is required for Sustainability.  The reality of competing in a global market for PV panels and wind turbines as with other ‘commodities’ is scale matters.  We are seeing a quickening consolidation in the renewable energy business with bigger, stronger players with deeper pockets acquiring good projects or good technology.  This is good for the solar and wind industry but it is not sufficient to make a scalable market.  At the same time the industry consolidates with fewer bigger players they need access to bigger markets and the ability to move the clean energy produced to load centers.  That will take building more transmission, adding power electronics and distribution automation to make the grids smart and enable the customer aggregation necessary to make demand response and delivered energy efficiency markets sustainable.
  • Low Gas Prices!  Low natural gas prices are not only savaging coal fired generation and eating the economic lunch of nuclear power, but they also are an existential threat to wind and solar energy.  If the states decide that it is time to declare victory when they achieve their existing renewable portfolio standards instead of following California’s 33% lead then the time for level playing field competition on grid parity prices will bring the day of reckoning for renewable energy closer.

And then there is this.  The graphic at the beginning of this story shows the installed capacity through 2010.  Solar is too small to even register on this graphic and despite wind energy growth and maturity its market share is just a small slice compared to the huge peak of natural gas fired power generation built and mostly operating  out there probably underutilized waiting for demand to recover along with our stalled economy.  It does not take a rocket scientist to realize that we have largely build the next generation of power plants—-and most of what we built runs on natural gas— cleaner than coal, low-priced, easily available domestic natural gas from unconventional sources .

If you are in the renewable energy industry and you think subsidies are at risk you’d worry too!

Comments

  1. Laszlo Lakatos-Hayward says:

    Gary,

    At one point in time in the last 24 months, grid parity was $1.5/W in California and $1.25/W in Hawaii. Ofcourse these were figures based on peak TOU prices not counting contracts for industrial and commercial players who obviously had volume discount.
    Given the tremendous gains gas supply made during that period, the grid parity costs must have come down as well. Any thoughts on how they compare today and for the next 24 months?
    We all love to use terms to describe the condition at hand, but data and facts still do wonders to the uneducated few out there like myself. I’ve seen $0.90/W as the new bogey that needs to be hit without subsidies. If this is in the ball park, then the precipice that the Solar PV market is walking on is a rickety old 2″x4″ across the good old Grand Canyon. We will need a black swan to get to 40% efficiency, rather then the incremental gains we are making today.
    Perhaps many already know this and I’m just sitting out in the dark. Can you turn the lights on for this topic if you have the insight?

    Thanks,

    Laszlo

  2. Charles Reese says:

    I am by no means a power expert and I appreciate the data you have laid out indicating that solar has challenges. I think your arguments are very persuasive if you assume that the US has the generation capacity today needed to carry us into the next decade. Living in the Northeast, I do not believe that is true. The cost of building a new gas-fired generation facility is not cheap and it is not easily decentralized. (I live a few miles from the Middletown, CT gas facility that exploded during start-up testing a couple years ago.) A nice aspect of solar is that it is easily decentralized and can be added in small increments. Regulatory agencies are moving faster toward demand-response pricing. When Americans face the reality of peak-hour energy cost, solar might not seem like such a bad option.

  3. Based upon the feedback I am getting I obviously have not done a good job of making my point about the importance of efficiency improvement as a necessity for long term solar energy success. Wade tells me I am confusing efficiency with capacity and that the better way of quantifying the relative efficiency of PV panels is on a $/watt basis. Thanks for keeping me honest on the appropriate metrics.

    My broader point is, I think, still valid. We seem to be on a plateau in the learning curve progress of solar energy stuck at about 15-20% efficiency. My point is unless that changes solar will likely under perform its potential. This becomes even more important as the efficiency of natural gas combined cycle plants improves with the market penetration of the new H-class units with 60%+ efficiencies.

Trackbacks

  1. […] Solar Energy Worry List (insightadvisor.wordpress.com) […]

  2. […] Solar Energy Worry List (insightadvisor.wordpress.com) […]

  3. […] Solar Energy Worry List (insightadvisor.wordpress.com) […]

  4. […] Solar Energy Worry List (insightadvisor.wordpress.com) […]

%d bloggers like this: