It’s no secret that solar PV module costs have plummeted in the last 24 months. The improvements in non-module balance of systems (BOS) and installation processes are now leading the total installed cost reduction assault with less publicized but equally significant developments in solar PV hardware, software, process and logistics.
One intriguing development has been Gehrlicher Solar’s development and use of ground mount installation robotics to reduce the cost of installation of solar PV modules in the field. (disclosure – this author works with Gehrlicher) A great video of this robotic system in use can be found here.
Over the last 15 year’s, Gehrlicher has lead this BOS cost reduction race on a number of fronts including quick install racking, cost reducing wiring harnesses and other BOS components under the Gehrtec® brand. The company recently installed 34MWp’s of ground mount hardware and solar PV modules in 10 months in Germany which is a stunning illustration of this BOS progress.
€1/Watt ($1.50/Watt in US) installed is just around the corner, stay tuned!
I had the opportunity to attend the US Department of Energy’s inaugural lecture series “Energy AllStars, What’s Our Energy Future” in Washington DC on January 19. Dr. Steven Chu, outgoing Secretary of DOE gave another one of his adroit and compelling presentations, which started with a comparison of how technology solved an environmental problem caused by transportation in the late 1800’s – namely that major American urban centers like New York and Detroit were being fouled with 3 – 4 million pounds of horse manure and 40,000 gallons of urine per day by horse drawn carriages. A technology transition—the rise of the automobile—solved this problem in less than 30 years.He went on to show how the dire issues facing us as a result of climate change and its cost to insurance companies and taxpayers presents another technological and economic solution transition opportunity: this time with clean energy and energy efficiency. Dr. Chu’s presentation is one that the President Obama should give to the nation.
As compelling as Secretary Chu’s presentation was, the one that followed, by the energic and former Governor Jennifer Granholm of Michigan, really got my attention. She outlined her experience of being powerless, despite valiant efforts, to stop manufacturing flight from Michigan and the resulting collapse of the middle class. But the Governor then outlined her Clean Energy Jobs Race to the Top proposition that is modeled on the highly successful Department of Education’s Race to the Top program. This program leveraged $4.5B in American Reconstruction & Reinvestment Act (aka stimulus package) funding by making competitive grants to state governments that instituted education reform and showed progress in many categories of improved education statistics. It’s a successful program that has received bipartisan accolades.
As Governor Granholm outlined, the beauty of this program is that it becomes non-partisan – who would say no to funds that are being offered on a structured basis that provides real value to each state? It respects the states and federalism while it builds on the leadership already demonstrated by many states on climate change, clean energy, and energy efficiency.
Her Clean Energy Jobs Race to the Top program would be on an opt-in basis working with a funding level similar to the Department of Education program. The price for entry would be to establish both demand side and supply side strategies. These include enacting a state level clean energy standard of something like 80% by 2035, establishing innovation centers via industry and education partnerships, and producing technology and clean energy that is indigenous to each region. Each state would do an analysis of its strengths and weaknesses and hone in on a strategy that would leverage their region’s unique capabilities. The overall goal is to show how many jobs can be created.
With the government stimulus program over, the question is how to fund a program like this given the current sad state of Capitol Hill. Governor Granholm posited 2 ideas that would be difficult but could be achieved. One is to leverage philanthropic foundations such at the Bill & Melinda Gates Foundation, Google and others, where they provide capital that can then be matched by other private and government sources. The second, and I think the most interesting, is to repatriate some of the large amount of corporate money now offshored in tax havens with a program that would have low tax basis for investing in the program, resulting in enormous business opportunities that would benefit all of US industry.
Clearly there are many questions and challenges to this proposition but the basic framework she provided is clever, could have legs and create massive change with little money spent. To paraphrase the Governor, “Truly, we have an obligation as a nation to fix the problem of the hollowing out the middle class and to achieve energy independence by creating clean energy jobs.”
Gem of a video here showing the progress of PV solar energy proliferation in Germany. (runs fast, so freeze frame to digest statistics) Now 21% of the energy mix, renewable energy in Germany has provided 380,000 jobs and a road map for other countries to follow. Over the last 12 years of successful policy implementation, PV solar energy (near 10% of German energy) has eliminated the energy peak in Germany which is reducing costs and environmental degradation considerably while increasing energy security.
Germany is demonstrating that a large number of distributed renewable inputs from solar and wind can be integrated successfully into the grid infrastructure without stability or reliability issues. This is a common misconception about intermittent generation sources that, after 12 years of operation, the German market has proved otherwise.
Germany is also demonstrating that the distributed generation model works and is real threat to established utilities working in the standard centralized model used the world over. While its easy to be in the solar energy and say that we may
have the utilities on the run in the near future as distributed generation makes in roads, that one side “we win” mentality is a no win proposition. It would be prudent for utilities and the renewable industry and government to work together on policy and a road map that takes into account the enormous past and current investment of the utilities in existing infrastructure while following an economic and technological road map that leads to a smooth and profitable transition to a distributed generation model for all stakeholders.
Some interesting snippets from Energy Rebellion, the producer of the video:
. . . . . . . solar gold rush that lead to investments around the globe was mainly driven by demand in Germany up until recently. The first effects of this rush is prices for PV-solar systems have fallen by up to 70% and continue to decline.
. . . . . . . today industry experts claim that photovoltaic & multi-kWh energy storage will become the cheapest source of electricity even in OECD countries within the next 10 years. This will lead to a very fast structural change of the entire world economy.
. . . . . . . . large scale market development has just started, but with 24.5 GW of PV-Solar capacity installed on more than 1 million roofs in Germany, the first signs of this new industrial revolution can already be observed. For example even during the dark & windy winter month of January, PV-solar produced up to 7 GW or 10% of peak-load demand in Germany. When a deadly cold wave brought the fossil & nuclear dominated energy system of France close to collapse, German PV-solar kept many gas & oil fired power plants offline, which significantly lowered the spot-prices at the European Energy Exchange.
With the PV industry, nothing is as it seems. The industry is influenced by a myriad of technological, business, economic and competitive forces both inside and outside the industry. Current media rhetoric holds that the industry is crashing (more on this erroneous assertion in my next post) and the finance community is fleeing the industry. The latter claim couldn’t be further from the truth.
While working on various PV project developments over the years, I often heard from finance entities that they viewed solar PV energy as highly risky, which created a higher cost of capital and demands of higher IRR’s, among other negative effects. As one partner from a large national bank said, “We know how to finance a combined cycle natural gas plant – the entire product comes from GE or other well-known sources and the technology risk is well understood. With PV projects, there are a number of different component brands which make up the generation asset along with a number new variables that we don’t know or understand. It has our risk antennae up significantly.”
But in the past 12 months, and most recently at the REFF 2012 in Manhattan, I am consistently hearing from marquee finance entities that they now view a PV generation asset no differently from other assets, as the risk and business models are now well understood. This is a major milestone for the PV industry, and when combined with the inflection point of declining solar PV energy cost at retail parity with brown fuel generation cost, bodes well for the continual growth of the solar energy in the next 5 years and beyond.
The standard PV panel design is essentially a 30+ year old packaging scheme, whether you are talking about crystalline technology or thin-film (glass on glass). It is a form factor that has served the industry well up to this point, but as my readers know, I believe it is keeping the pace of PV adoption from increasing further. I have long been a proponent of new, lightweight, aesthetically pleasing, and easier-to-install PV modules. While flexible thin-film has enabled some interesting products from a limited number of vendors, desirable economics and durability for these products is a long way off.
Enter Armageddon Energy with their unique, well thought-out product, the SolarClover. Clover is a completely new form factor which packages high performance mono-crystalline PV cells on a hexagonal , extruded plastic-aluminum sandwich backing, with a unique polyamid front sheet. Heavy, costly glass and metal framing is eliminated and the resulting product is unbelievably light. The hexagonal modules are then placed on a simple metal tripod racking system which utilizes 3 quick bolts for assembly. Each tripod has a micro inverter and holds about 450kW of rated output, takes less than 10 minutes to assemble and less than $100/kW to install. Industry average for residential solar installation is $300+/kW to install. Plug and play solar deployment has arrived.
SolarClover shipment packaging is IKEA style flat cardboard boxes – an entire 1kW AC system fits into a standard contractor van, in one truck roll. And while it’s tempting to look at this product for the DIY market in an outlet like Home Depot, Armageddon is targeting professional tradesmen like roofers, plumbers and electricians to handle installations. The company provides a clever and patented low cost tool for determining siting applicability – shading, roof orientation, etc. – called the Clover Analysis Tool (or CAT) which substantially lowers the challenges for experienced contractors already servicing the general residential market place but with limited solar energy experience.
SolarClover is centered on providing visually pleasing PV systems to the smaller size residential market where a standard 1kW to
2KW Clover system can add enormous cost reduction to electricity consumers with high utility rates, especially in places where peak demand charges are present. Pricing is currently just under $6/Wac with the expectation that scale-up of manufacturing and operations will reduce cost substantially.
Mark Goldman is the high energy founder of Armageddon who clearly has a strong product development and marketing capability and understanding of this market niche. “We’re focused on the utility consumer who only needs a small PV system, and we wanted to provide those consumers with a system that can be easily installed by their current contractors and is a really elegant addition to the architecture of their home. We look at the electric grid as a system we’re optimizing for the small residential consumer who will experience significantly lower electricity bills and a quick return on their solar investment.”
Interestingly, Solar Clover has real applicability in the military market in operational and forward deployed environments where simplicity, light weight, quick set up and break down, and high performance are key attributes. More on this later.
Solar Clover is not without its technology and market challenges. They include things like solar cell packing density, snow loading durability and a small installation cost (difficult for installers who are used to commanding larger invoices). These are engineering and marketing issues common in new technology commercialization and Mark has a solid roadmap to mitigate and overcome these challenges as volume increases and his technology partners innovate along with him.
This is exactly the kind of form factor innovation that the industry needs to significantly broaden the appeal of PV through lower cost, ease of installation and aesthetics. Early adopters, this is your product and who knows, maybe this is what I will put on my own roof during a planned renovation.
The US PV industry as a whole is grappling with the solar import tariff petition by Solarworld which presents an interesting set of American made, American protectionist, and
wider global trade issues. A great recap with citations of this complex situation which may result in substantial tariffs on solar PV modules that contain crystalline solar cells made in China can be found here.
Within the US federal agency PV market there is another set of complex American content regulations called the Buy American Act (BAA). (Not to be confused with the now expired and poorly written ARRA Buy American clause which governed rapid release of stimulus funds) The BAA requires that products purchased by the federal government must contain 50% or more US content, with finally assembly done in the US. It sounds simple, but is highly complex to execute, with numerous contradictory requirements and a number “if this, but not this, then this” situations.
Solar PV modules that are sold to federal agencies fall under the BAA. Fortunately, when it comes to crystalline PV modules, determining which modules are BAA compliant is slightly less complex. The following is meant to clarify the basic situation but does not dive down into the many permutations and “what if” scenarios.
To gauge whether a solar PV module is a fully BAA compliant product, the bill of materials (BOM) needs to be examined. As the example industry average BOM to the left demonstrates, if the solar cell is not made in the US with final assembly in the US, the module cannot be BAA compliant. This is because the solar cell makes up at least 65+% of the completed module, depending on module design and provider.
While it’s fairly clear from this example which solar PV modules should be BAA compliant, the situation is confused by wording sometimes found in solicitations from US government agencies, such as: “ Products and materials employed to fulfill this project must be Buy American Act compliant but applied in a manner consistent with United States obligations under international trade agreements.” These trade agreements include World Trade Organization Government Procurement Agreement (WTOGPA), General Agreement on Tariffs and Trade (GATT) and other international trade agreements all of whose products are treated equally with American made goods provided certain requirements are met. A good overview of the laws can found here which includes a list of countries with whom the US has signed agreements. Notably for the PV industry, China is not included.
As there is currently no guidance for which modules comply in which circumstances, it may be helpful to think of the situation in tiers, which prioritize the intent of the BAA act:
Tier 1 BAA Compliant PV Modules: Solar cells are made in the US with US final assembly
Tier 2 Trade Treaty Compliant PV Modules: Solar cells made in treaty country with final assembly in US
Tier 3 Trade Treaty Compliant PV Modules: Solar cells made in treaty country with final assembly in treaty country
This is admittedly a simplified explanation but puts the majority of module companies in easy to understand buckets.
Unfortunately there is no official BAA module list vetted independently under direction from a qualified agency. The US Department of Energy has provided a vetted list of lighting products which meet BAA and performance claims, so that government procurement and industry have a clear guideline on which lighting products are acceptable for a given procurement. An agency such as DOE or DoD energy should create a similar vetted list for PV modules, given the expansive planned use of PV in the next 10 years.
This topic is becoming increasingly important as PV systems are deployed in public private partnerships such as PPA, ESPC, UESC and other models where the government buys the energy from the system but not the system itself. This type of procurement puts the onus on the project awardees to self-certify BAA compliant modules with no guidance, oversight or penalties from the procuring agency.
And with many non- trade compliant PV module companies boldly claiming BAA compliance with modules made completely outside the US but with simple junction box installation in the US, now would be the time to put a vetted BAA qualified list in place before the problem escalates both programmatically and publicly.
While there has been much excitement about the sheer size of the Pentagon’s plans for deploying renewable energy, a recent study from DoD’s Office of Installations and Environment on solar applicability on bases in the California, Colorado and Nevada bases offers both optimism and caution for deploying solar in DoD agencies.
Of specific interest, 7000 megawatts (MW) of solar energy (about seven nuclear power plants) can be produced on only four military bases located in the California desert. This is enough energy to meet two thirds of the current DoD wide electricity consumption.
The year-long study, conducted by the consultancy ICF International, looked at seven military bases in California and two in Nevada including Fort Irwin, Naval Air Weapons Station China Lake, the Marine Corps’ Chocolate Mountain Aerial Gunnery Range, Edwards Air Force Base, Marine Corps Logistics Base Barstow, Marine Corps Air Ground Combat Center Twentynine Palms and Naval Air Facility El Centro.
It finds that, even though 96 percent of the surface area of the nine bases is unsuited for solar development because of military use, endangered species and other factors, the solar-compatible area is large enough to generate more than 30 times the electricity consumed by the California bases, or about 25 percent of the renewable energy that the State of California is requiring utilities to use by 2015.
The caution here is that assumptions are routinely made about the land-mass that is available on military installations and extrapolations to solar energy market size without any regards to mission compatibility with base question. This includes missions such as live ammunition training, maneuver training, test and evaluations and a multitude of other vital activities. This study shows the fallacy of making high level extrapolations of land-mass-to-market size for the renewable energy industry.
According to the study, the largest amount of economically viable acreage is found at Edwards Air Force Base (24,327 acres), followed by Fort Irwin (18,728 acres), China Lake (6,777) and Twentynine Palms (553 acres). ICF found little or no economically viable acreage on the other California bases (Barstow, El Centro and Chocolate Mountain) or the two Nevada bases because the military’s use of the land is incompatible with solar development.
As usual with any military renewable energy report, the study finds that private developers can tap the solar potential on these installations with no capital investment requirement from DoD, and that the development could yield the federal government up to $100 million a year in revenue or other benefits. Private developers can draw on California incentives and subsidies to make these projects economically feasible. But in places like Texas where there are no state subsidy programs and bases pay a blend rate of $0.05/kWh, the solar viability extrapolation may result in a much smaller market unless DoD can find common ground with developers on providing monetary benefits for energy security. More on this in my next blog.
With the collapse of publicly traded solar stocks in the last 4 months, the general business press has been buzzing with speculation about mergers and acquisitions. But these articles have missed some basic industry drivers and circumstances that may point to minimal M&A activity. A good example includes a recent Bloomberg article about how First Solar is a take over target for GE and Siemens as FSLR’s share price has fallen from $156 in Q1 2011 to $36 today losing enormous value.
While I have tremendous respect for what FSLR has accomplished and believe that high performance thin-film will be a factor at some point in the longer term, rapidly changing market dynamics have caught up with the company. Manufactured costs of crystalline silicon PV modules have dropped much more rapidly than thin-film as a category or FSLR could match. Indeed, FSLR’s stated guidance was to decrease manufacturing cost by $0.05 per Watt during the last 18 months compared to a $0.20 – $0.35 per Watt decrease by a variety of crystalline providers.
Solar thin-film as a general category is lower in efficiency, which requires more land/space, balance of systems (inverters, racking, wiring, permitting, administration) and as such, requires a module sale price differential from a crystalline module of approximately 30% to remain competitive. Currently the delta between the 2 module technology types is only 6% – 10% in the spot and long-term contract markets respectively.
The thin-film business model as a general category in the current environment is broken. (exception may be Solar Frontier) While First Solar has their downstream project development and EPC capability glossing over the module manufacturing cost problem, this will continue to be a problem for the foreseeable future. And with behemoths like Samsung, LG, Hyundai and now Foxconn about to enter the market with aggressive low cost capabilities and significant resources, the pace of cost reductions will continue.
I would be more than surprised if GE (especially since GE has its own thin-film effort with an integrated BOS approach) or Siemens or similar entities would buy FSLR with the current market dynamics in play. If the price becomes low enough, they may have interest in FSLR’s substantial project pipeline but that would need to be significantly lower than the current $36 price.
Overall, acquisitions in the PV module manufacturing industry don’t make much sense even at the current low valuations unless there is valuable IP present or there is a substantial project pipeline as a result of downstream integration. This is because the barriers to market entry are quite low. Manufacturing equipment used throughout the supply chain is generally American and European made off-the-shelf production machines with willing and able companies such as Applied Materials ready to supply. Additionally, most Asian solar manufacturers have no brand value established worth purchasing. Foxcon’s entry in the PV industry is a good example where no existing company or capacity was purchased, opting instead for the latest, highest efficiency manufacturing platforms available while partnering with an existing Chinese poly silicon company for raw material supply.
US Department of Defense agencies are leading the nation on the renewable energy front. With plans to have 25% renewable energy use by 2025 and spending $15.2B on DoD energy in 2010, this is a significant and growing market place for the solar energy industry.
DoD energy is segmented into basing power (mostly electricity), operational energy (mostly liquid fuels) and non-tactical vehicle energy.
Operational energy is consumed in forward-deployed situations such as Iraq and Afghanistan among other locations globally. While a significant amount of diesel
and JP-8 fuel is used to provide localized power and transportation (Marines = 200,000 gallons per day in Afghanistan), batteries are large part of the picture for soldier power.
A great piece in Outside magazine, “The Marines Go Renewable”, tells the story of how the marines are leveraging renewables, particularly solar, to keep their quick and lethal response capabilities. The main issue has been the Marines outrunning their fuel support systems, requiring a slow down and diminished effectiveness. The problem is the result of their using 3X the amount of batteries and fuel since 1998 to power electronics (command, control & communications) now common in front line operations. Photovoltaic solar technologies in various quick deployment and size configurations have enabled the average marine to reduce the amount of batteries and fuel required on the front line by almost 50%, which has significantly increased speed and effectiveness.
A great quote from the article: “Seeing a picture of a grinning Marine standing next to a still-functioning solar panel riddled with bullet holes makes it difficult to cast renewables as an effete liberal preoccupation.”
Personally, seeing some of the products in use, such as foldable and packable solar PV chargers, has been satisfying, as I worked on these initial products back in 2004. At the Natick Soldier Systems Center, some of the first foldable and portable solar chargers took shape and the skepticism among most of the DoD energy elites and military was strong. The idea that batteries could be replaced by portable PV was a hard sell. As one uniformed person said, “when in a kill or be killed situation, batteries are the only way I trust to stay alive”.
Fortunately, these PV products have demonstrated that soldiers are more secure and can operate more efficiently and lethally. They are now being deployed widely both in the Marines and the Army. A good example is their prominence in Katherine Hammack’s, (Assistant Secretary of the Army, Installations, Energy and Environment) recent Army energy transition presentations, which can found here. (3 minute mark)