Archive for the ‘Solar Energy’ Category

As I wrote previously here, here and here, Asian, and particularly Chinese, companies have rapidly dominated the PV solar energy industry in a mere 8 years.

A new report from IMS market intelligence group shows just how large that dominance has become.  Chinese crystalline

Going, going . . . .

module companies dominate the global market with 55% market share. Chinese wafer and cell manufactures also dominate their segment with over 80% market share.

China manufacturing dominance is not about cheap labor. Crystalline PV module and components production is a highly automated process. It’s a story of strong government support with a long-term focus, low cost capital, low cost real estate, and other government supports. With assistance of European and U.S automated production machine companies, Asian based PV product is high quality. We can file all the WTO actions we want, and there may be validity to the WTO violations claims, but the real issue is that the U.S. has not supported clean energy in any meaningful, sustained manner.  And by the time a WTO action has been arbitrated, their competitive advantage will be even greater.

The current budget debate on Capitol Hill doesn’t inspire confidence that this situation will change for the better.  While President Obama has vision of clean energy growth, the “slash and burn the budget with no regard to loss of jobs” extremists in the House of Representatives will make it difficult to change this devolving clean energy job situation. At a time when jobs are the number one political and economic issue, we have and continue to let the greatest new economic opportunity of our lifetime go overseas.

This is not idle speculation. The U.S. is on track to lose 2 million clean energy related jobs by the end of 2011. A successful demonstration of how to employ people in clean energy can be seen in California, where over 200,000 jobs have been created in the last 10 years as a result of strong state government support of implementation of clean energy projects.

On February 4^th, U.S. Department of Energy’s (DOE) Dr. Steven Chu announced the Sunshot Program funding which has the goal of reaching $1/W installed cost for PV systems before 2020. The program goal is to reduce PV system installed costs by up to 75%. $1/W is a benchmark for some industry participants where utility scale systems compete with wholesale cost energy and loosely equates to $0.5kWh system output cost. Nine technology development companies received a portion of $27M Sunshot funding.

While any government funding support is good for the PV industry, $27M (part of a total solar program fund of $200M which supports President Obama’s broader “investment for the future” strategy) is a miniscule amount (compared to the billions in government support for renewable energy in China) and begs a number of questions.

First, why spend a relatively small amount, publicizing it widely, when the PV industry has made enormous progress in reducing installed system costs on our own over the last 5 years? The announcement does nothing but reinforce the erroneous mindset on Capitol Hill and elsewhere that solar is 10X more expensive than brown fuel energy and is a far cry from being competitive. It directly contradicts the impressive progress and the fact that solar energy is at retail grid parity in many markets, as the cost of fossil fuel generated energy is going ever higher.

Second, the nine Sunshot recipient companies are all technology developers. At some point, we need to recognize that solar energy technology is working now, and is improving every year, so it might be better to focus future funding on solving the real cost issues of streamlining permitting and interconnection in the project development cycle (among other downstream issues). These costs are as much as 25% of the total PV project development cost for small and large projects alike.

Third, DOE’s leadership must begin to see the big picture and the need for pushing a long-term energy policy that includes phasing out the enormous subsidies for fossil fuel.  It continues to frustrate me that the PV industry, with small and inconsistent government support, is continually asked to compete with embedded, highly subsidized fossil fuel generation which receives 12X more government support than renewables.

Which Scheme Will Build These Faster?

California has been the largest PV market in the U.S., and the 4^th largest in the world, until recently.  But as the state’s solar energy incentive programs have been following a planned reduction schedule, and large centralized systems to meet the state’s Renewable Portfolio Standard (33% by 2020) are not being built (due to transmission access, permitting challenges, etc.), growth in 2009 was less than 10%.  For 2010, growth will likely come in at 11%.  This is in a solar energy market that has been growing at a rate of over 20% for many years.

The new Renewable Auction Mechanism (RAM), which has been in development by the California Public Utilities Corporation for the past 2 years, focuses on the ever-popular idea of projects in the 5MW to 20MW size to stimulate activity and increase growth. Commonly referred to as distributed generation (DG), PV solar energy projects of this size are located closer to distribution lines, have fewer permitting challenges, and find financing to be less daunting.

RAM is a 2 year program that has a 1GW cap which is designed to speed up putting DG projects into operation while reduce costs on the front end process. The program functions like an auction where California’s 3 large investor-owned utilities (SCE, PG&E, SDG&E) are directed to put out request for proposals twice a year.

Differing from a fixed price feed in tarrif (FIT) where the price is set, the RAM is market-driven based on lowest

RAM - Putting People to Work

price.  RAM is well designed to avoid many of the problems of a lowest price auction as bid responders are required put a non-refundable $60/kW application fee, show that they have real estate site control, and indicate that a grid interconnection application has been entered with the utility. Key to solving a major problem in the past, RAM stipulates a standard contract format for utilities and developers, which will go a long way to reducing transaction costs and process complexity. A project developer submitting a bid must also show prior expertise with solar projects, and the awarded project must be in operation within 18 months of the award.

RAM is designed to reduce the problem of many solar energy projects being announced, but few actually being built. Not surprisingly, the large solar Independent Power Producers are cheering this program as it sets the qualification bar high and reduces competition.  Proponents of a pure FIT scheme believe it will not result in a rapid adoption of PV and see competitive issues as well. Given the size, many observers in the state don’t see this program contributing significantly to meet the RPS goals in 2020.

Designing renewable energy subsidy programs is still a relatively new art and the regulatory, economic and technological complexity is challenging.  Setting a lowest cost bid program without controls is fraught with potential problems. These include receiving bids so low that the system will never be built and the quality of an operational system is so poor that value is never delivered. A recent example is India’s Nehru Solar Mission program with a lowest price mechanism which accepts bids from any and all responders. This has lead to irrationally low bids from cobbled together groups with little or no experience in solar projects. It also led to experienced developers not submitting on the program as the accepted bids are below acceptable profit margin thresholds. The RAM seems to strike a balance on this issue but at the cost of competition. Hopefully this aspect can be addressed in further iterations of what is otherwise a strong new program.

"Clean Coal" Included in a CES?

In his recent State of the Union address, President Obama outlined an energy plan that included a clean energy standard (CES).  His target – 80% of the nation’s electricity coming from clean energy sources by 2035.

The CES he envisioned includes the renewable generation types you would expect including solar, wind, hydro, geothermal, biomass and marine generation. But the CES also includes “clean coal” and nuclear.  This odd mixture of generation type under the banner of clean energy was developed and promoted by Sen. Lindsey Graham (R-S.C.) in 2010, after it became clear that a highly partisan congress was not going pass climate change legislation with a CO₂ cap and clean energy support.

The new CES includes coal and nuclear so that the states that have coal (16) and nuclear interests will vote for new legislation that includes actual clean energy like solar and wind.  Compromise is how it gets done on

Capitol Compromise

Capitol Hill and this type of CES is truly legislative sausage making.

Transitioning to generation types of any flavor in this CES will initially result in temporary rate increases from the electric utilities to their customers.  Based on the cost numbers presented by the coal industry, rate increases from “clean coal” will be exorbitant if that technology ever achieves reality. And coal generation needs ongoing fuel extraction meaning more mountain top removal, supply chain pollution and other environmental and health externalities.

Pouring money into “clean coal” would seem dubious as a long-term strategy compared to mature solar energy which has no ongoing fuel costs, rapid energy return on energy investment metrics, rapidly declining kWh cost and minuscule supply chain pollution. Nuclear energy’s exceptionally high kWh costs (even with exorbitant government subsidies), waste disposal and decommissioning costs as well as catastrophic risk potential is also difficult to view as a step in the right direction.

But energy demand is forecast to grow at 2% – 6% annually for the next 20 years and the cost of traditional

Will the U.S. Plan for this Demand Trend?

fossil fuel generation is escalating at well over 4% per year in various regions as the global economy recovers. The U.S. needs a long term, well thought out clean energy transition plan that addresses current demand with existing brown fuel generation while preparing for future growth and cost escalation.  A legislation that utilizes coal, nuclear and natural gas as a near term bridge while we transition to a true, low cost clean energy economy would be one way to achieve this goal.

A great piece yesterday by chairman of the Senate Energy and Natural Resources Committee, Senator Bingaman (D-NM), offers hope that Capitol Hill finally understands the need for comprehensive, long-term clean energy legislation.  Driven by two of my favorite subjects, economic competition and energy security, the senator’s plan is a step in the right direction.

In the end, this type of CES legislation that includes a “clean coal” bridge may be what it takes to start a rapid transition to renewable energy.

How Could This Be Objectionable?

On the heels of recent large solar project development approvals on Bureau of Land Management (BLM) land and other large land tracts, strong opposition has sprung up from local communities based on environmental concerns.  The renewable energy industry has experienced this green vs. green before—remember the high profile example of opposition to the offshore Cape Wind project by the otherwise pro-environment Kennedy clan on Cape Cod?  It seems that the scale of opposition to solar energy projects on these seemingly benign desert lands has been surprising to the solar industry.

An excellent piece distributed by Reuters gives the reader a good overview of the forces that opposing each other that should otherwise be on the same side of the table.  Local communities are concerned that desert vegetation and small animals will be disturbed, among other concerns. CSP and other solar thermal technologies create water use issues. Other issues include the distortion of the “viewshed” – large transmission towers blocking views and disrupting the natural landscape. Most solar project developers went in with good environmental intentions built into their project plans, including large property set-asides for nature preserves, land access for grazing right under the arrays, and other nods to minimal impact.

Sometimes the opposition has a strong case for protecting endangered species and vegetation but many times they are simply playing up fears.  A recent op-ed piece in San Diego makes the statement that when the desert floor is disturbed it releases more C0₂ than the solar array can ever save. A quick bit of research shows the audacity and absurdity of that argument.

This Type of Energy Generation Land Use?

Unfortunately, these objections increase costs to solar project developers due to legal fees, time delays, and additional impact studies to name a few. At some point the project becomes uneconomical and the solar project development team either folds, or sells it to another developer.  This is the outcome the environmental opposition is looking to achieve.  At the end of the day, our society is going to have to learn to balance the consequences of different types of energy production.  I would make the argument that solar on desert lands, if done properly,

Or This?

has a minimal environmental footprint compared to blowing off the tops of mountains in West Virginia to mine coal or fracking large swaths of subterranean deposits for natural gas which permanently fouls the ground water.

Among many people in the solar PV industry, there has been a persistent debate about whether PV should be deployed widely on roofs, over parking lots, or on brownfields in urban and suburban regions rather than in large utility scale deployments far away from the grid and the energy consumer.  This type of distributed solar generation is unique to modular PV and enables placement of generation close to the point of use with minimal transmission loss.  But while both utility scale and distributed PV deployment types have significant and high-value applications, both have tradeoffs in cost and economics. More on these tradeoffs in a subsequent post.

In President Eisenhower’s landmark speech, he warned about the unchecked power of the military-industrial complex.

Nellis Air Force Base 14MW PV Installation

But the U.S. military along with the clean energy industry is providing the type of leadership that is sorely lacking from our civilian national leaders – a complete and urgent

recognition that a long term clean energy plan is the only path to pursue to achieve security, lower cost and less vulnerability to climate change.

While the fossil fuel industry has large monetary profit motives, the military has a more pressing motive: kill or be killed. Less dependance on foreign oil, less harmful emissions and less energy supply vulnerability are the drivers for their motive.

A good summary from a speech by DoD given to the Senate Homeland Security and Governmental Affairs Committee provides a quick read on their clean energy efforts.

A great piece out Sunday by Tom Friedman titled, “The S.S. Prius” talks about the Navy’s efforts in bio-fuels. A short piece on solar and micro grid initiatives by the U.S. Army can be found here. A review of U.S. federal government and military agency mandates found here.

Continuing the Job Benefits of the Stimulus Bill

The U.S. PV industry was breathing again after a likely last minute extension of the highly successful Solar ITC as grant legislation (contained in the original ARRA bill) via inclusion in the tax extenders bill currently being debated on Capitol Hill. Known as the Solar Treasury Grant Program (STGP), it was due to expire at the end of December 2010. While the tax extenders bill still needs to be passed by Congress, the outcome looks positive.

Some history: the solar investment tax credit allowed entities with tax burdens to finance solar installations and receive a 30% tax deduction. This program was successful with banks and other entities with tax appetites until the recession and banking crisis set in during late 2008. With no tax burdens, all financing of solar projects came to a grinding halt. The ARRA bill’s STGP allowed solar project developers and their finance partners to receive the 30% as a cash grant – an enormous benefit – especially for loosening up hard to find construction financing from local bank providers.

The benefits to solar industry and the nation are substantial as noted by Rhone Resch, Executive Director of SEIA:

STGP - Employment with Minimal Investment

“The 1603 tax credit has created flexibility for funding renewable energy projects and is fundamental for keeping the solar industry growing in America. To date, the program has facilitated the construction of more than 1,100 solar projects in 42 states. At a minimal cost to the tax payer, the 1603 program has supported $18 billion in investment in new renewable energy projects throughout the country and has created tens of thousands of jobs. Plain and simple, this program provides the greatest return on taxpayer dollars. The program has allowed the solar industry to grow by over 100 percent in 2010, create enough new solar capacity to power 200,000 homes and double domestic solar employment to more than 93,000 Americans. This program has created new opportunity for electricians, plumbers, and construction workers during the worst economic climate since the great depression.”

Of course, anytime we have talk of government subsidies for renewable energy, the free-market fundamentalists weigh in with their standard “clean energy should be able to compete on its economic merits without subsidies”.  When governments end exorbitant fossil fuel subsidies, I am all for ending clean energy subsidies.

China Makes Solar News at Climate Talks

Right after I posted the preceding blog about the difficulties in forecasting the global PV industry, China announced a large solar deployment plan at the COP 16 climate talks in Cancun, Mexico. While not on the scale of Germany over the last five years, this latest announcement from China will clearly have a positive impact on the supply demand situation if in fact Beijing follows though and is not just hand waving.

The December 3^rd announcement outlines China’s plan to install a minimum of 1,000 megawatts (MW) of solar energy capacity per year starting in 2013.  For comparison, one average coal burning plant has about 500MW capacity.

The announcement went on to describe 13 industry zones and that Beijing will pay up to half the price of equipment for solar PV projects. In addition, a subsidy of 4 to 6 yuan (60 to 90 U.S. cents) per watt of generating capacity will be rewarded to project owners.

As I noted in my 10/15/10 blog piece, this will almost certainly increase WTO violation allegations from the U.S. government and others.  But it will be a very long time before a WTO court can rule on these assertions.  Meanwhile, our U.S. government continues to dither on long-term PV manufacturing and project support while we concede further clean tech competitiveness and leadership.

As the graphic below demonstrates, 2011 could be a very difficult year for the global PV industry.

Or maybe not. In the many years I have been in the PV industry, I have seen numerous supply and demand forecasts for the same year with disaster and euphoria always just around the corner, depending on the analyst. Take 2009 for example.

After the Lehman Brothers debacle and resulting recession, the global PV industry was forecast to have flat or negative growth, experience large M&A activity and many bankruptcies. Actual was about 30% growth, minor M&A and very few bankruptcies. 2010 has been a banner year with over 80% growth which many pundits were forecasting at 10% – 40% growth.

What Was the Forecasted Cost of These Modules vs. Actual?

The little industry with large adversaries and many naysayers keeps chugging along.

But forecasting the PV industry is not for the faint of heart. There is a number of highly unstable, rapidly changing variables including government subsidies and mandates, government trade barriers, cost of fossil fuel energy, cost of solar modules and BOS, land costs, permitting costs, financing costs, supply chain tracking issues (actual capacity vs announced, tolling, product reselling etc.) raw material bottlenecks and many others.

As it is an immature industry, clarity on any of theses issues is difficult and there are no tracking mechanisms as with old established industries. As an example, I recently had a global Fortune 50 client company with a new solar PV division ask me where to find the trading exchange for modules so they could have understand spot pricing and long term contract trends both historical and futures. My response that there isn’t one was met with exasperation and disbelief.

2011 may be difficult. The graph above is ominous especially when you consider that nearly 6.4GW’s of module production is being added this year (2010) and demand may be flattening do to the well-publicized subsidies being reduced in many EU countries. But the doomsday forecasts may be way off.

With the steep declines in the installed cost of large PV systems and the increasing cost of fossil fuel energy in locales

Grid Parity Forecast, Source: Deutsche Bank

whereeconomies are recovering, true market demand signals are being felt in regions with already high cost energy. Consider these 2 facts: the installed cost of solar in favorable locations is delivering energy at $0.15kWh, and the cost of coal is up sharply in therecent weeks. In Germany, the cost of coal and natural and gas is soaring.  Consequently, the PV industry will need less generous subsidies to compete with highly subsidized fossil fuel energy, but the overall result may be more installation activity in regions that many analysts have written off.

Forecasting the tipping point (see graphic above) where increasing fossil fuel energy costs cross a downward PV installed cost line is highly fluid and difficult at best.   But writing off 2011 as a disaster may be a bit premature.

A recent trend to make solar energy deployment easier in urban areas is the use of internet mapping tools combined with solar industry software tools. Solar maps, such as the original San Francisco solar map at right, provide a comprehensive, one location file on a proposed site. This includes solar power potential, visual site images, financial incentives, a system cost estimate and energy savings.

As they are in progressive California, San Francisco introduced a solar mapping tool first. A number of other major cities have followed including, Boston, Los Angeles, Portland, Oregon, and Salt Lake City.  New York City will have a solar map for 2011.

Yet another report out recently tackles the complex issue of fossil fuel energy subsidies as they relate to the lack of adequate renewable energy government support.

Would He Have Been Successful?

The report,  by the USC Marshall School of Business, shows that energy derived from fossil fuel gets 12X more in subsidies worldwide than sustainable energy. Anyone who has followed my blog knows that this is a topic that I believe to be the main issue limiting clean energy proliferation.

An excerpt from the report:

“Energy from fossil fuel gets 12 times more in subsidies worldwide than sustainable energy . . . . That discrepancy, as well as other barriers including high clean-tech start-up costs and low prices for products, keep green investment from booming . . . . . “

Nothing makes me more irritable than the often written sentence, “solar energy will never compete with fossil fuel generated electricity on a cost basis.”  Well no kidding.  For the past 20+ years, the PV industry has been experiencing what would be like asking Starbucks founder Howard Shultz to compete with an entrenched, highly government supported coffee café chain that has free real estate, receives regular grants, pays no income or employee taxes, and pays 50% less for its coffee beans, just as he was trying to launch his now ubiquitous company.

Of course, ending fossil fuel energy subsidies is not possible in the near term without significant economic disruption. What is needed is a long term, 50 year plus energy transition plan that has an organized phasing out of subsidies for old world technologies and support for a transition to clean energy. A 2 year energy plan that is highly influenced by the incumbent fossil fuel lobbyists is not going to create a long term plan.  The U.S. needs elected leaders who understand this situation.

But interestingly, in many regions PV solar energy will be competing with subsidized fossil fuel energy (grid parity) by 2015 even with this unbalanced subsidy situation, demonstrating the power of the technology as a major component in future energy markets.  Another interesting report on this topic here.

The longer it takes for world governments to stop incentivizing old world, high polluting, limited supply energy production, the longer it will take to transition to a clean energy economy.