Lazard 2014 LCOE Research Report

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).

Lazard LCOE Chart from 2014 Research

Lazard LCOE Chart from 2014 Research

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.

A Solar New Year Greating

Solar PV, bankability

Limits To Growth – The Global Shortage of Sand

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.

Beach Sand Mining - Madagascar

Beach Sand Mining – Madagascar

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.

Global cement prodVarious 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?

NASA CO2 and Temperature Visualizations

Important and great NASA modeling and visualizations using data from around the globe and from space observations.

Click here to view CO2 visualization video: A Year in the Life of Earth’s CO2

PV & CO2

 

View temperature visualization video:  Earth Surface Temperature from 1950 – 2013

Solar PV and surface temperatures

We have all the science proficiency we need from exceptional government science sources to validate anthropogenic global warming, and yet our political leaders will dispute scientific knowledge when it does not line up with their narrow focus and constituents. Worse, the knowledge is often corrupted with junk science which nonpartisan, science based organizations like the Union Concerned Scientists work diligently to debunk and correct.

Please consider supporting their great work by becoming a member on the UCS site: www.ucsusa.org

Electric Utility Extincton or Evolution?

For the first time in its 100-year history, the electric utility industry in the US did not have an uptick in electron sales exiting a recession. This is due to a number of factors including the strong emphasis on energy efficiency programs over the last 10 years, growth in distributed generation behind the utility meter, demographic shifts with movement to warmer climates and an economic downward reset after the large bubble burst which led to the great recession.

Solar Energy, utility Meter

A direct connection to the customer

Combined with growth in renewable energy and independent power producers (IPP), this lack of growth has caused extensive discussionand consternation about the future of the electric utilities and their ongoing viability as going concerns in the energy industry and on Wall Street.

Recent discourse centers on the rise of residential PV due to the well-documented reduction in cost of PV systems over the last 6 years. PV deployed on homes now competes with retail priced energy from the electric utilities, which is now at cost parity in many locations.  With the emerging development of PV combined with energy storage using batteries, the conversation is about a utility death spiral that goes like this: as more and more homes deploy solar with batteries, the electric utility loses more and more revenue which requires them to raise rates which then encourages more adoption of residential PV by home owners.

While there is no question that the electric utility industry is going through a large and painful transition to a new and yet to be defined business model as a result of the aforementioned issues, it would seem highly unlikely the electric utility business model would go away completely as many pundits would suggest, for the following reasons:

1)   They possess a regulatory-granted monopoly which evolved to serve a nationwide public need for robust and reliable electric service;

2)   They have low cost of capital in an industry that requires large capital expenditures;

3)   They operate at unprecedented scale with corresponding efficiencies;

4)   They own and operate the grid infrastructure.

Solar energy, utility monopoly

Monopoly with significant barriers to entry.

There is no question that the utility industry has historically been slow to react or plan for the current disruptions in the energy industry. They also have a dismal record when entering new markets and seeming unwilling to accept new or disruptive technology trends and business models. With the exception of a few forward-looking utilities such as NRG, the power utility providers of today have been non-reactive to very large and visible recent trends that are a direct threat to their electron sales-only model. In many instances they have been hostile and retaliatory. But the reasons above provide a very strong platform for a competitive advantage that is unlikely to see the electric utility demise anytime soon especially now that they are waking up to not only the threats but the opportunities.

Solar PV, bankability

Utility Duke Energy owned North Carolina project

Many high profile participants and pundits have been predicting that renewable energy will be larger than 50% of total generation in the future and that all clean energy generation will come from the non-utility players. While I have very little doubt that renewables and in particular solar energy will be a large piece of the generation pie (as smart grid technology and grid improvements are implemented), the electric utilities with their regulatory monopoly, cost of capital advantages, and ability to implement at enormous scale will own a much larger share of the clean energy generation than most observers realize.

Utility adoption of renewables, energy efficiency, energy storage, distributed automation grids and other new business models are beholden to the same issues that IPP’s and other non-electric utility energy market participants face – the transition away from a 100-year old, one direction, aging grid infrastructure to a smarter, automated, bi-directional grid that is hyper-efficient.  This will take time but I give the advantage to the larger electric utilities who are uniquely positioned to both steer the smart grid design and deployment and then efficiently phase their participation in the new energy economy accordingly.

Solar PV Module Bankability – a Maturing Lack of Clarity

solar energy finance - bankability secure?

As I have written previously, the concept of bankable solar products and services is complex and contradictory and has many interpretations depending on where you sit in the industry. When looking at the bankability of modules (aka panels) the situation is quite confusing.

In the PV industry, there is continual chatter about which module providers are tier one or tier two, and who is on various analysts’ bankable lists and who isn’t. The general metrics involve the business health of the manufacturer, the technology they employ, the manufacturing process, vertical integration and being in business for more than 5 years. Many of the tier 1 companies are relatively new, stand alone companies with weak balance sheets, so they don’t have the financial health to meet bankability standards and yet they are considered bankable. This contradiction was illustrated in spectacular fashion over the last 2 years with the bankruptcy of the largest PV module manufacturer in the world, Suntech, and another large Asian company, LDK, among others. Both were publicly traded with high visibility on the NASDAQ and had been considered highly bankable.

With this history, it’s hard to understand how module providers with weak business fundamentals continue to show up on various analyst and industry tier one vendor lists. Many times the answer to this contradiction is that the module company has supplied a couple of large projects with the project financed non-recourse by well-known capital providers. The analysts are relying on the finance entity and the finance entity is relying on the analyst, and then it would seem that herd mentality takes over.

From a technology standpoint, a crystalline PV module is a mature (40 year old), proven technology that desperately needs the kind of

Any standards & verificatin in place

Any standards & materials verification in place?

manufacturing standards that are found in many other commodity product industries. Manufacturing and materials standards tied tightly to verification protocols would go a long way toward lowering the risk for long-term owners of PV systems. With adherence to standards and robust verification, business-side bankability becomes less of a pain point. Standards are paramount if the PV industry is going to continue its steep growth curve.

The crystalline PV manufacturing industry is maturing with the reentry and/or scale-up of diversified, large multi-national corporations’ PV programs. As a result, the secure bankable route has developing clarity with companies such as BYD, Hanwha, Hyundai, LG Electronics and other similar companies who can bring confidence to finance entities via large balance sheets, continual technology improvement and strong manufacturing heritage. Additionally, a few of the original large stand-alone crystalline module companies are becoming more stable again as growth has returned to the market, and their balance sheet burden due to manufacturing capacity over expansion in the past few years is diminishing.

In my next post I will discuss PV thin-film version 3.0 bankability. Thin-film CIS and CdTe is rapidly achieving performance parity or better when compared with crystalline poly modules, and there is potential for disruption to the crystalline vendors in particular application segments.

 

Power vs. Energy

Solar Energy Meter

Power or Energy?

A previous poston derates resulted in a few follow up emails where these 2 terms—power and energy—were used interchangeably by the writers, which is a common occurrence despite significant differences in meaning. Understanding this terminology makes understanding various solar energy concepts easier to grasp, especially when talking about derates and how they are calculated.

Power and Energy are two distinctly different but interrelated electrical principles:

  • ENERGY is the AMOUNT of power produced or used and is denoted in Watt-hours (Wh) or Kilowatt-hours (kWh)
  • POWER is the RATE that energy is produced or used and is denoted in Watts (W) or Kilowatts (kW)
First Solar Module Label Detail

A 60W Power Rated PV Module

For example,  solar energy module output is denoted in Watts – the rate of POWER they will produce under Standard Test Conditions (i.e. a 220W rated module). Installed PV systems have a POWER production output rating in Watts, but they are also typically discussed in kWh’s – the amount of ENERGY the system will produce over a period of time.  Here is an example from a SunEdison media article describing the completion of a 2.2MW system at the University of Maryland: “. . . . the 2.2MW (MW = Megawatt) rated farm will generate more than 3.3-million kWh of energy in the first year and over 61-million kWh over the next two decades.”

Rather than energy production, a simpler way to look at this terminology is from an energy use standpoint.  Utilities and their customers are all looking for ways to reduce utility bills. Emphasis is put on lower POWER appliances and the amount of time we use them.  ENERGY (the kWh charge on your bill) is calculated as follows:

Energy  =  Time X Power

An uncomplicated example is a 100 watt light bulb. One hundred watts is the POWER (rate) the bulb uses. If you leave that bulb on for 24 hours it consumes 2,400 watt-hours of ENERGY or 2.4 kilowatts.

Lowering of either or both the POWER and time, will lead to reductions in ENERGY costs. The converse is true of solar systems – increase the POWER rating of the system and multiply by a given time frame and the amount of ENERGY output will increase.

Understanding Photovoltaic Cell and Module Level Efficiency

After a recent presentation during a government renewable energy conference, I received a number of questions regarding why there was such a large difference between crystalline solar cell efficiency and a fully packaged and weatherized module. For instance, a 19% efficient crystalline photovoltaic (PV) cell, when packaged into a module with 60 cells results in a panel that is roughly 15% – 16.5% efficient depending on the manufacturer. According to the NREL, the cell to module loss is in the 11% – 17% range for most manufacturers.

Solar module

Solar Module Packaging

The losses are a result of three distinct issues. 1) physical layout of the PV module and framing,  2) optical loss from encapsulation and glass, and 3) series loss from cell connections

The physical layout of the module affects the efficiency by having a large inactive area, meaning the space between cells, the edge of the module and width of the frame. The larger the inactive area of a module, the lower the efficiency.

The optical loss is a less straightforward problem and has a number of challenges resulting from the top glass and the encapsulation film.

The top glass needs to have low reflectivity so the maximum amount of solar radiation reaches the solar cells. The glass choice has to balance a number of factors including thickness, to meet hailstorm impact rating; tempering, to meet safety standards; and optical clarity, for maximum radiation absorption by the PV cells. A good, if technical overview here.

The EVA encapsulation film used to protect modules from moisture and the elements require a similar balancing act. These include letting the maximum amount of solar radiation reach the cells, while maintaining a near-100% moisture barrier with no significant expansion or contraction of the film over the 20+ year life of the module. And it needs to do this without creating an overheating of the module in hot climates.  A module with a high temperature coefficient (loss due to heat) is the

PV module ribbon series connection

Solar Cell PV Ribbon 

enemy of high solar power production.

The series loss is due to series resistance in the cells themselves and in the cell and string connectors. The cells themselves are made from silicon, which not as good as metal for transporting current, and its internal resistance is fairly high, resulting in current loss.  This loss is compounded by copper ribbon (silver looking ribbon between cells) interconnection loss, and the cells’ series configuration in the module. While cells are put in series to meet a target voltage for a given module, this results in loss from the large number of connections.

There are a number of efforts underway to reduce this cell-to-module loss to 5% or less with novel approaches in all 3 areas. While the reduction to 5% has been achieved in national laboratories in an academic environment, the challenge always is to translate these new methods into a highly efficient manufacturing production line where throughput speed and yield (sellable product) are not compromised.

West Antarctic ice sheet melt – “It has passed the point of no return.”

Another alarming piece in the NYT today on the Antarctic ice movement and its decline.

“Today we present observational evidence that a large sector of the West Antarctic ice sheet has gone

Its melting and becoming unstable faster than predicted.

Its melting and becoming unstable faster than predicted.

into irreversible retreat,” Dr. Rignot said in the NASA news conference. “It has passed the point of no return.”

The contribution of Antarctica melt to accelerating Greenland ice sheet melt water is more than alarming as the assumption that Antarctica would be slow to melt is incorrect.  The heat-trapping gases could destabilize other parts of Antarctica as well as the Greenland ice sheet, potentially causing enough sea-level rise that many of the world’s coastal cities would eventually have to be abandoned.

“If we have indeed lit the fuse on West Antarctica, it’s very hard to imagine putting the fuse out,” Dr. Alley said. “But there’s a bunch more fuses, and there’s a bunch more matches, and we have a decision now: Do we light those?”

Hopefully we as a globally community can avoid lighting these remaining fuses. If we don’t, there may well be a demonstration of ecological overshoot resulting in a large reduction in the number of human inhabitants on earth starting in a 100 years from now.

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?

Go Ahead, Vladimir, Make My Day

Great piece from Tom Friedman this past Sunday on why a natural gas embargo on Ukraine and byukrain pipelines extension Europe by Russia would be good thing for renewable energy and energy efficiency growth. Some excerpts:

“Because such an oil & gas shock, though disruptive in the short run, could have the same long-term impact as the 1973 Arab oil embargo — only more so. That 1973 embargo led to the first auto mileage standards in America and propelled the solar, wind and energy efficiency industries. A Putin embargo today would be even more valuable because it would happen at a time when the solar, wind, natural gas and energy efficiency industries are all poised to take off and scale.”

” . . . . Solar cells, for example, have dropped in cost by more than 80 percent in the last five years. This trend is underway, if a bit less dramatically, for wind, batteries, solid state lighting, new window technologies, vehicle drive trains, grid management, and more. What this means is that clean energy is moving from boutique to mainstream, and that opens up a wealth of opportunities.”

A gas embargo by Putin would also reinforce the message of the United Nations’ latest climate report by the Intergovernmental Panel on Climate Change, which warned with greater confidence than ever that human-created carbon emissions are steadily melting more ice, creating more dangerous sea level rise, stressing ecosystems around the globe and creating more ocean acidification, from oceans absorbing more C02 . . .”

“We are closer to both irreversible dangers on climate and scale solutions on clean tech than people realize. Just a little leadership now by America — or a little scare by Putin — would make a big difference.”

Creating Climate Wealth, Unlocking the Impact Economy

Everything you need to know about attracting mainstream capital to clean energy solutions.

A great read by Jigar Shah, founder of SunEdison, innovator of the solar power purchase agreement model and former CEO of the Carbon War Room. With real world examples in many energy related industries, Jigar outlines how entrepreneurs and investors can unlock the enormous potential that climate change represents. And how this can be done utilizing existing, commercial off-the-shelf technologies combined with new and innovative business models.

A how to on financing your Climate Change Solution

A how-to on financing your Climate Change Solution

According to the International Energy Agency, $10 trillion can be invested profitably—today—in the world’s existing technologies, making Jigar’s plan of 100,000 companies each generating $100 million in sales a reality in catalyzing a new economy in the process.

A quote from the book that sums a large issue facing the solar industry, ““The utilities are playing this wrong, saying you’re with us or against us. It’s not the solar industry that’s the problem — it’s their refusal to recognize the benefits of new technologies.” I remember Jigar telling me years ago that the utilities where in trouble as distributed generation plants like solar are going to put an enormous pressure on them in the very near future. I was skeptical that the utility monopoly would be in trouble anytime soon.

Fast forward today and the writing is on the wall. With the exception of few forward thinking utilities, the majority are fighting back instead of embracing distributed generation and morphing their models to this new technological and business model. But this makes sense as the electric utilities have made large capital infrastructure and business investments with long amortization horizons and would of course fight for their profitability. Government regulators and the utility industry need to work on a coordinated and long road map fashion to transition to the rapidly evolving distributed generation model.Utility business model innovation can’t happen in a vacuum or without government guidance as its always been highly regulated contrary to the free market fundamentalist’s claims.

 

 

Levelized Cost of Energy Update

A good update from Lazard’s annual look at Levelized Cost of the Energy (LCOE) for alternative and conventional energy sources illustrates two interesting developments: 1) the continued progress of solar photovoltaics (PV) reduction of cost and competitiveness with conventional brown fuel generation and 2) the cost reductions in the battery storage market.

A key metric for project finance entities, PV LCOE has been significantly reduced by ongoing year-over-year cost reductions of PV hardware, balance of systems (including installation methods) and financing. The result has been a robust PV market both in North America and globally at a time when government support has been steadily declining.  (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). A signifcant recent example is  SunEdison’s utility scale PV project for the City of Austin which is supplying energy in year 1 at just under $0.05/kWh  as part of a 20 year supply contract. This contract will likely save the city’s electricity rate payers money compared to conventional brown fuel sources.

The most interesting data in the Lazard report is the all-important progress of energy storage cost and performance. Renewable energy has large value generally when the renewable fuel source is available–when the wind is blowing or the sun is shining. For example, in the early evening a solar array is winding down production at a time when the peak energy demand on the utility grid is still elevated. Solar battery storage significantly increases the value of solar during this time, as solar power stored in the batteries can service this demand at a competitive cost depending on the location.

In addition, solar battery and other storage media can also provide voltage, frequency regulation (Hz) and ramp rate control for PV systems, which enable grid operators to have more control and confidence in the interegrity of their grid with a large number of intermittent distributed resources on their systems.

Notably, energy storage is not required for renewables solely because of their inherent intermittent generation function. Some of the Independent System Operators who manage the transmision and distribution grids nationally need storage throughout their grid to manage their ongoing demand response and frequency regulation challenges. This is due mainly to localized issues such as in the PJM ISO where they have a dearth of energy generation and other grid architeture issues.  PJM embraces and rewards energy storage operators whose storage, placed strategically throughout the grid, helps them smooth out demand spikes and control frequency swings.

In a future post I will review the various storage technologies including battery, compressed air, hydro and thermal.