“Why are solar companies going out of business as the industry grows? The explanation is fairly simple, and it may continue to happen over and over again.”
The headlines above are from a recent article on Motley Fool. It s a familiar headline given the recent solar industry turmoil and the election falsehoods reported in the media. But the thesis like this one that the industry is in some self inflicted death spiral is just plain wrong.
The actual answer IS simple and straight forward:
- Solar energy and other renewables are competing with highly subsidized fossil fuel energy This is not new news. During its remarkable accent, the solar industry has been driven to meet a subsidized utility cost basis (kWh cost) that then ripples negatively across the entire solar industry supply chain.
- Fossil fuel subsidies run between 10x to 20x more than the amount renewable energy receives depending on sector and timeframe. Numerous articles on the specifics of the subsidy imbalance can be found here and in an older post on this blog.
- Of course the fossil fuel industry doesn’t pay for negative externalities – its been using ground level air and earth’s atmosphere as a garbage dump for particulate and GHG emissions. This represents an enormous economic burden to society via healthcare, environmental damage, climate change and general quality of life which is paid for in non-energy cost sectors. In other words, we are certainly paying for it, just not on the energy bill.
- And while the solar industry has done a great job of reaching near grid parity in certain markets despite this subsidy imbalance, a number of studies have shown that if you level the subsidy playing field – WITHOUT factoring in negative externalities, solar can be the same or lower kWh cost depending on locale.
- While a barrier to new, large balance sheet entrants, current efforts from Elon Must/Lyndon Rive and their SolarCity, as we ll as Sunpower, First Solar and many others to go large scale to solve immediate pressing global climate change problems, the fossil fuel subsidy largesse limits the success of these efforts.
- The enormity of the subsidy imbalance problem is global in nature and is well understood to be holding back a rapid transition to clean energy generation.
I always find it amusing when I hear free market fundamentalists opine on the renewable energy industry when they state that they would never invest in a sector that relies on subsidies to exist. The entire energy industry is not a pure market and has always been highly subsidized and regulated.
So, how much longer will societies around the world take to regulate a level playing field so the all important energy sector can meet the Paris climate accords targets?
Poll: More than three-quarters of Americans say next president should speed up adoption of renewable energy
Originally posted on solarserver.com, the author of this piece.
As Americans count down to Election Day, more than three-quarters (78 percent) believe the winner of the presidential race should prioritize the faster adoption of renewable energy, according to the seventh annual “Sense & Sustainability” study released on September 13th, 2016 by G&S Business Communications (G&S, New York).
According to the poll, more than 4 in 5 Americans (85 percent) believe customers benefit from having alternatives to conventional power utilities, such as distributed energy resources that include rooftop solar and wind.
In addition, more than three-quarters (77 percent) say government regulators should develop a pricing model that ensures utility companies pay for excess power supplied to the grid by smaller scale, independently owned device operators.
Despite strong public sentiment favoring the next president’s focus on renewables, the G&S study found that American opinion is practically split when it comes to elected leaders and their understanding of the costs associated with fossil fuels.
More than half (52 percent) disagree, as compared to 48 percent who agree, that elected officials are well informed about fossil energy’s total costs, among them the effects of air pollution on healthcare and the impact of climate change on property insurance.
Americans believe the advantages of market competition may go beyond cost savings. More than two-thirds (68 percent) feel it is more important to have a resilient power grid than to enjoy lower electricity costs.
“Even the contentious nature of this year’s presidential campaign could not distract Americans from recognizing the importance of renewable energy to future economic growth and their own personal well-being,” said Ron Loch, G&S managing director and sustainability consulting leader.
“It’s clear that public interest is served when there are discussions about the broader financial impact of fossil energy and the need to improve both energy efficiency and the infrastructure investment required to build a resilient power grid.”
Americans claim priority of renewables
One of the key finding from the study is that Americans voice strong support for raising the priority of renewables on the White House agenda: More than three-quarters of Americans (78 percent) believe the next president should dedicate more attention to speeding up renewable energy adoption.
Among issues ranked most influential on accelerating use of renewable energy, cost savings from energy efficiency was cited most often (26 percent), followed by energy security (23 percent) and cost to taxpayers for government incentives (19 percent).
The G&S Sense & Sustainability Study was conducted online by Harris Poll in August 2016 among 2,007 U.S. adults.
To obtain a summary of the G&S Sense & Sustainability® Study, please visit the company’s website.
In my previous Diversification Chronicles post I covered some of the high level reasons why the time is right for fossil fuel and electric utilities to pursue profitable diversification into the renewable energy industry. Below, I outline recent events and news that further highlights the legal, regulatory and market drivers that should create urgent diversification strategy development or expansion for companies with large CO2 and GHG negative externalities as a result of their business operations.
On August 9th, the federal 7th U.S. Circuit Court of Appeals ruled for the first time on the legality of the Obama administration’s estimated social cost of carbon (SCC). SCC was determined by federal agencies who worked together starting in 2008 to create an accurate SCC, a metric that represents the long-term economic damage to society, in U.S. dollars, from each incremental ton of carbon dioxide released into the atmosphere. The latest estimate placed the SCC at $36 per metric ton of CO2.
The recent ruling upheld the Department of Energy’s use of the SCC metric in its analysis of standards for commercial refrigeration equipment. DOE used them for issuance of 2 rules in 2014: one of the rules set energy efficiency standards for 49 classes of commercial refrigeration equipment, while the other stipulated test procedures for the standards.
The refrigeration industry challenged DOE’s use of the social cost of carbon, but DOE’s use of the SCC metric, “was neither arbitrary nor capricious” according to senior federal judge Kenneth Ripple, who was appointed to the bench by President Reagan. The ruling was definitive in its entirety.
While this ruling only applies to the refrigeration industry in Indiana, Illinois and Wisconsin, the implications are enormous for the oil & gas and electric utilities. The SCC metric as established by the US government is now a benchmark going forward. This may well be the first domino falling which would affect all CO2 & GHG emitters in near term.
For the first time ever, CO2 emissions from coal-fired power plants will drop below those from natural gas in 2016, according to a new analysis from the federal Energy Information Agency. Renewable energy, energy efficiency, historically low prices for natural gas, and other factors have driven coal use down by >30% while natural gas has been replacing that fuel for generation.
It was always assumed that natural gas would be a solid 50-year bridge fuel combined with renewables, energy storage and other technologies. But with its rapid rise in use, less energy density, and methane issues, natural gas is becoming a larger CO2 & GHG contributor with projections putting it past coal emissions in its heyday.
In addition to overproduction, very low oil prices, and legal challenges surrounding potential prior knowledge of the impact of their industry on climate change, the oil & gas industries are facing a potentially game changing problem of how Wall Street will value each company’s fossil fuel reserves.
Typically, an oil & gas company’s stock market valuation is weighed heavily on proven reserves and ability to extract. With many countries looking at putting a price on CO2 and limiting extraction of oil & gas as a result of the COP 21 Paris Agreement, this becomes a crucial data point for both the investment community and the operating companies themselves.
Industry observers believe that it’s only a matter of a few years before the investment community significantly reduces the value of oil & gas companies and limits their equity positions. Additionally, the Securities and Exchange Commission is coming under pressure to change its rules to require energy firms to be more clear on what their material climate change risks are.
Combined with climate change symptoms seemingly accelerating over the last few years, these market and regulatory challenges make diversification into renewables an imperative. Short-term and weak green-washing strategies of the past will not stand up to public or government scrutiny going forward. The time is now for government and corporations to lead the transition to renewable and clean energy.Share this:
PV Advocate synopsis:
- Cost of installing a PV system continues its rapid YOY decline, 5% – 15% over the last year
- Utility scale solar has declined quicker than commercial rooftop and residential sectors
- For the first time ever, price decline came from reduction non-module hardware and lower soft costs as module prices held consistent throughout year
- Capacity factors have increased as a result of more tracker use, better system design and advances in module technology.
- Full access to the original LBNL 2016 report
The fate of the world depends on driving down the cost of solar power.
Yes, that’s a melodramatic way of putting it. But it’s not wrong. Any scenario that has humanity avoiding the worst ravages of climate change involves explosive global growth in solar power.
So how’s that going?
Happily, Lawrence Berkeley National Laboratory (LBNL) releases a set of reports each year devoted to tracking solar prices; they’ve just released the latest editions. Long story short: Prices are steadily falling, more or less on schedule
There are two reports, one for each type of solar power. One is on “utility-scale solar,” which means solar systems larger than 5 MW. The other report is on solar photovoltaic (PV) systems under 5 MW.
Those are two very different markets, but I’m going to squish them together in this post, with the help of a bazillion charts.
Solar is growing, growing, growing
Here’s a good scene-setter. It shows historic and projected solar power capacity additions, by technology. (We’ll get into the difference between CSP and varieties of PV below — ignore for now.)
A few things to notice about this chart. First, there’s about 29 GW of solar installed in the US now; LBNL expects that to clear 100 GW sometime around 2020. That’s crazy-fast growth (from almost nothing in 2007!), but it will still only put solar at around 3 percent of the US electricity mix in 2020.
Third, the giant spike in utility-scale PV happening this year is an artifact that reveals how much solar still depends on policy. Everyone thought the 30 percent federal investment tax credit (ITC) for solar was going to expire this year. Contracts signed in 2016 would have been the last to qualify. So there was a huge rush to get projects on the books.
As it happens, the ITC was unexpectedly extended late last year (it will phase out over the next five years), or else the spike would have been even bigger. As it is,more than twice as much utility-scale PV capacity will be added in 2016 than in any previous year.
Prices for utility-scale solar are falling
Prices are falling for both big and small solar, though at different rates and for different reasons. Read the rest of this entry »Share this:
This archived webinar from my friend Terry Schuyler and his colleagues at DNV GL provides a clear picture of the challenges and the coming opportunities as the storage technologies decrease in cost and increase in performance.
First post in a series looking at the fossil fuel segment diversification into renewable energy.
Consider the current energy industry situation:
- For the first time in the last 100 years of the electric utility industry, revenue from sales of electrons did not go up after the US economy emerged from the recent great recession. Energy efficiency, renewable energy and behind-the-meter generation schemes are part of the reason.
- Oil and gas industry revenue and margins are suffering from very low prices as a result of overproduction, regulatory tightening on negative externalities and other factors.
- The coal industry is at a point that prompted the CEO of one the largest coal producers to state publicly that coal as a dominant generation fuel is in significant decline. Natural gas at historically low prices is rapidly replacing coal for base load generation. Coal is also impacted by strict limits on emissions as a result of the EPA’s Mercury and Air Toxics Standards(MATS). International markets, long thought to be a lucrative export valve for US coal, are in decline. China and other large coal burning nations have enacted new laws to wind down their coal generation, as the reality of climate change sets in and the cost-competitiveness of renewable energy continues to rise.
- The future energy picture, broadly speaking, is generally viewed through an electric industry lens. “Electricity is the energy of the 21st century,” according to Patrick Pouyanné, CEO of the large French oil company Total, which has been making initial strategic investments in renewable energy and energy storage over the last six years.
- The majority of the world’s countries (174) have come to agreement on slowing down climate change at the United Nations COP21 in December 2015, which attempts to limit warming to 2° C compared to pre-industrial levels. With energy generation contributing average of 35% of emissions, the implications for the energy sector is clear.
In this era of market turmoil and low prices across all fossil fuel energy sectors, renewables are highly cost-competitive AND gaining ground. The recent BNEF 2016 Outlook verifies what renewable energy cheerleaders have been saying for many years – renewables with energy storage and next-generation grid technology are ready to lead the imperative global transition away from carbon-intensive generation.
So why is the fossil fuel industry still sitting on the sidelines? Renewable energy companies and assets throughout the supply chain are relatively inexpensive now, due to the low cost of the gas and oil it competes against. The timing to present a diversification effort to shareholders has never been better. The timeline for return on investment for renewable diversification is significantly shorter than building fossil fuel assets. This would appear to be a first-mover’s diversification market.
The renewable energy industry represents a natural, highly profitable diversification strategy given the fossil fuel industry’s large balance sheets, synergistic services and capabilities, very low cost of capital, leverage with regulatory agencies and built-in customers in many cases. Yet many fossil fuel companies continue to dig in deeper on their traditional extraction-and-burn model, even as a Deloitte survey of oil and gas executives back in
2009 uncovered major concerns about the sustainability of their industry. The majority of these executives also expressed strong support for, and confidence in, the future of renewable energy.
There are signs that a tentative transition by some entities is underway. Major electric utilities such as Duke Energy, Georgia Power, NRG Energy and Exelon domestically have their toe in the renewable energy water, and the large European utilities Enel and E.ON have announced long term transitions to 100% renewable energy. Other smaller electric utilities are testing renewable generation, and decoupling their profitability from electron-only sales into energy efficiency and other services. The oil & gas sector is increasing their involvement in renewables with recent announcements from Shell, Total, and Statoil, as well as a number of smaller firms that service the large multinationals.
However, with the exception of Total and few others in the electric utility industry, diversification capital investment budgets are small, generally under 0.6% of the total. And there is always the lingering suspicion, based on past pronouncements, that these latest diversification efforts are merely green-washing to counter urgent climate change action calls.
To be sure, diversification from a core competency is not simple for any company who has shareholders to satisfy on a quarterly basis. Patience for executing a diversification strategy is not something the investment community is good at, as witnessed by the removal of electric utility visionary David Crane from the electric utility NRG last year. And E.ON in Germany is an example of the difficulty in maintaining profitability while crossing the diversification chasm.
But with the continual and rapid lowering of the installed cost and levelized cost of energy, as well as plunging cost reductions in the energy storage sector, diversification into solar and wind and other renewables can be achieved with a well timed diversification plan and lower risk. There’s money to be made, jobs to be created and the urgent health of our planet to consider. How about now?Share this:
The United Nations Intergovernmental Panel on Climate Change (IPCC) held its twenty first Conference of Partners (COP21) in Paris in 2015.
The conference negotiated the Paris Agreement, a global agreement on the reduction of climate change, the text of which represented a consensus of the representatives of the 196 parties attending it. The agreement will enter into force when joined by at least 55 countries which together represent at least 55 percent of global greenhouse emissions. On 22 April 2016 (Earth Day), 174 countries signed the agreement in New York, and began adopting it within their own legal systems.
The key result was an agreement to set a goal of limiting global warming to less than 2 degrees Celsius (°C) compared to pre-industrial levels. The agreement calls for zero net anthropogenic greenhouse gas emissions to be reached during the second half of the 21st century.
This is all a very large challenge given the many sectors, beyond energy, contribute massively to climate change.
The great visualization below from the UN explains why the 2 degrees Celsius target is so important to stabilizing the earth’s atmosphere. (click on the play button in middle of graphic)
According to the IPCC (get to know more about IPCC), global warming of more than 2°C would have serious consequences, such as an increase in the number of extreme climate events. In Copenhagen in 2009, the countries stated their determination to limit global warming to 2°C between now and 2100. To reach this target, climate experts estimate that global greenhouse gas (GHG) emissions need to be reduced by 40-70% by 2050 and that carbon neutrality (zero emissions) needs to be reached by the end of the century at the latest.Share this:
It’s fitting for me to return to blogging right after the release of the Bloomberg New Energy Finance Outlook 2016 report. While I have always been an optimist that solar energy and renewables generally would eventually disrupt the centralized fossil fuel paradigm, this report exceeds even my optimistic thinking.
What is astounding about this report is that as solar and wind continue their steep cost declines to the point that even with coal and natural gas generation costs at historic lows, renewables are, and will continue to be, the preferred choice for new generation through 2040. In fact, the report states that zero emissions renewables will be over 60% of all new electricity generation by 2040, requiring $7.8 trillion investment (coal & gas will require $2.1 trillion). Natural gas has always been assumed to be a long term “bridge fuel” until renewables, storage and intelligent grid infrastructure could mature but that maturation is happening significantly faster than most analysts thought.
In addition, capacity factors are forecast to go through the roof for renewables as better technology, supply forecasting and
smart grid technology enable large jumps in capacity gains. This makes renewables much more desirable. Once the generation asset construction is completed, the marginal cost of the electricity it produces is essentially zero, while coal and gas have ongoing cost-variable fuel requirements for every watt produced. The choice is clear for the power utilities, IPP’s and commercial and industrial customers like Amazon, Apple and others even before factoring in the environmental benefits.
The report also forecasts Energy Storage becoming ubiquitous by 2040, with total behind-the-meter energy storage to rise dramatically from around 400MWh today to nearly 760GWh in 2040, representing a $250b market. PV+ storage, in the near and future terms, will be come the norm, not the exception.
On a more sobering note, coal use in India other countries will still be expanding, which in turn means that the world will exceed the Intergovernmental Panel on Climate Change’s ‘safe’ limit of 450 parts per million and the 2⁰C scenario agreed upon at COP 21 in 2015. While China (long demonized as the mega coal offender) is on a massive and rapid transition from coal to renewables, India has a long way to go. As a result, in addition to the $7.8 trillion capital investment for renewables through 2040, another $5.3 trillion investment in zero-carbon power by 2040 is required to prevent CO2 in the atmosphere rising above the COP 21 goal.Share this:
Lazard Ltd. puts out their annual Levelized Cost of Energy (LCOE) Analysis in Q4 every year, and I always greet it as a worthy piece of market research. Others, however, shower it with critique – some dubious, some accurate. (2014 post on this research here) While there are significant variables that affect the effort to quantify LCOE in one metric, this annual research is quite accurate and appropriately footnoted regarding these variables.
LCOE is defined as all the expense line items of a PV system’s installed cost + the total lifetime cost of the PV system divided by the total amount of energy output in kW hours that the system will put out over its lifetime. (A simple LCOE calculator here).
The latest Lazard research reveals what others including Deutche Bank, UBS, NREL and other analysts have been saying over the past year: utility-scale solar and wind power are increasingly cost-competitive on the wholesale level with traditional energy sources such as coal and nuclear, even in the absence of subsidies. At the retail level cost comparison, its widely competitive unsubsidized with highly subsidized traditional fossil fuel generated power.
The research also shows the all-important progress of energy storage cost reduction and the large benefits of coupling storage with PV to reduce the demand charges and/or provide instant grid frequency stabilization. (A great list of all the energy storage benefits can be found here.)
As a long-term participant in the utility and solar energy industries, it’s breathtaking to see the progress of the PV industry and its market penetration in the last 3 years. The industry has continually had to compete with highly subsidized fossil fuel generation while consistently improving LCOE through hardware, process and regulatory efforts to name a few. Significantly, all of this market penetration progress was achieved with 10X less in government subsidies than traditional fossil fuel-based industries. And with current cost reduction roadmaps throughout the supply chain showing continual lowering of cost’s, the future looks bright.Share this:
I wrote previously that The Club of Rome sponsored a report by MIT in 1972 titled “The Limits to Growth”, which found that earth’s non-renewable resources can support a global population of about 6 billion. The focus was on tracking and modeling the extent to which population, food production, depletion of resources, pollution, and industrialization would cause declines in many aspects of human civilization including economic growth, population numbers, and quality of life.
It did not consider the multiplying affects of climate change.
The authors were predicting a significant change to global humanity in the 2015 – 2020 timeframe. Forty years later the their forecast is lining up with the current ecological overshoot problems we are facing as a result of 7 billion voracious human inhabitants. I like the term “Peak People” to define this situation.
An interesting and illustrative symptom of Peak People is the worldwide shortage of sand. Who would have guessed this was a problem? (interesting movie on the topic, and a great U.N. piece here.) Sand suitable for cement production, hydraulic fracking and other construction is now becoming scarce. In many developing countries the problem is so severe that sand is being removed from beaches and coastal waters to support infrastructure development rather than to support tourist and pleasure industries. (with enormous environmental and habitat damage) In Dubai, sand from Australia was barged in to provide the correct type of beach-quality sand, as the plentiful desert sand found there is lightweight silt that blows away with the slightest breeze and is not easily usable for cement construction, let alone beaches.
Various types of sand were generally thought to be in large supply. Silica, which is used to manufacture silicon for semiconductor chips and crystalline solar cells, was thought be in inexhaustible supply, as its root element, Silicon, is the second most abundant element in the earth’s crust. But large scale damming of rivers blocked the natural flow of silica-rich sand from the mountainous regions, and when combined with growing global industrial demand, has resulted in the drying up of accessible low cost supply. Consequently there is a mining boom in full gear globally to strip the last known silica sand quarries as well as hoard construction quality sand. A good example of the latter is the boom taking place in the upper Midwest United States, where most of the output is supporting the oil and gas industry fracking boom.
While I have always viewed Peak People from the agricultural, water, climate change, and biodiversity lens, the depletion of sand due to human activity was more than surprising and it’s another validation of The Limits to Growth thesis on resource depletion. Up until recently, technology has delayed the impact of over population especially in agriculture but I believe it will require hyper-accelerated innovation and new classes of material science to continue the current “business as usual approach“.
How do we transition to a sustainable and stable civilization that leverages the limitless human creative and technological capacity that is responsible for the quality of life we currently enjoy?Share this: