I found myself stumbling across a lot of discussion about solar energy the past few days. There is both good news and bad news. San Francisco where I live is host to the U.S. Solar Market Insight conference which is officially sold out so conference organizer GTM Research has teased those of us not attending with online conference highlights. GTM is doing the event in collaboration with the solar industry trade group, the Solar Energy Industries Association® (SEIA®). SEIA is crowing because it expects the US to install about 2,000 MW of new solar capacity in 2011 passing the 1GW annual capacity addition bragging rights mark after a much more modest 887MW installed in 2010 and only 435Mw in 2009. So you see the good news about the continued growth of solar energy.
On the other hand Germany announced reductions in its feed-in-tariff subsidies of 15% for next year bringing total Fit reductions of 57% since 2004 as the market penetration increased and the price of solar PV panels has fallen more than 40% over the last year. Italy and Spain are also expected to reduce their feed-in-tariff subsidies since austerity demands of the PIIGS countries that pay the subsidies directly out of tax revenue can no longer afford it. Germany passes the FiT costs directly through to customers so the situation in Germany is slightly different but still unsustainable. The EU market is losing momentum and the American market is picking up driven by our renewable portfolio standards and the rush to get the US treasury tax grants and tax credits for fear they will not be renewed.
China’s market for solar energy and virtually any kind of energy capacity addition continued its relentless pace with expectations that China will install about the same solar capacity in 2011 as the US.
My friends in the solar energy business are worried and the things that keep them up at night go beyond the usual worry that Congress will not renew US tax grants and credits. They clearly expect loan guarantees to dry up after the Solyndra mess. They worry about bankability and the implications of the European sovereign debt crisis on credit and access to capital and the balance sheets. But some of their worst fears revolve around hitting a technology wall on efficiency and performance.
• It’s about Efficiency, Stupid. Solar energy’s real potential is not measured by its installed capacity but by the improvements in output efficiency. The best selling PV panels range from 16% to 20% efficiency on average. But the newest H-class natural gas-fired power plants boast efficiencies of 60%+. The bottom line is solar must find ways to boost efficiency to be cost competitive without subsidies. UPDATED 11/19/11. My original post was confusing efficiency and capacity so thanks to those who pointed out my mistake. The best way to compare efficiency is on a $/watt or $/kW basis. I still believe solar efficiency must improve substantially if it is going to live up to its potential to be transformational. Today falling commodity prices for PV panels is growing market share but we’re going to end up with a lot of the least efficient PV panels instead of focusing on driving up the efficiency while driving down the cost of the best technology to position solar for the future.
• LCOE is the Bottom Line! A continuing problem for solar energy even with falling prices of solar PV panels is the balance of system costs that often make up as much as 50% of the total cost of a solar system. The US DOE Sunshot program is investing $145 million in technology and systems improvements in an effort to bring the cost of solar down to $1 per watt or less. But the industry itself must do more to make this happen or face being priced out of the market when a level playing field without subsidies forces all energy options to compete on a levelized cost of electricity (LCOE) basis.
• Scale is required for Sustainability. The reality of competing in a global market for PV panels and wind turbines as with other ‘commodities’ is scale matters. We are seeing a quickening consolidation in the renewable energy business with bigger, stronger players with deeper pockets acquiring good projects or good technology. This is good for the solar and wind industry but it is not sufficient to make a scalable market. At the same time the industry consolidates with fewer bigger players they need access to bigger markets and the ability to move the clean energy produced to load centers. That will take building more transmission, adding power electronics and distribution automation to make the grids smart and enable the customer aggregation necessary to make demand response and delivered energy efficiency markets sustainable.
• Low Gas Prices! Low natural gas prices are not only savaging coal fired generation and eating the economic lunch of nuclear power, but they also are an existential threat to wind and solar energy. If the states decide that it is time to declare victory when they achieve their existing renewable portfolio standards instead of following California’s 33% lead then the time for level playing field competition on grid parity prices will bring the day of reckoning for renewable energy closer.
And then there is this. The graphic at the beginning of this story shows the installed capacity through 2010. Solar is too small to even register on this graphic and despite wind energy growth and maturity its market share is just a small slice compared to the huge peak of natural gas fired power generation built and mostly operating out there probably underutilized waiting for demand to recover along with our stalled economy. It does not take a rocket scientist to realize that we have largely build the next generation of power plants—-and most of what we built runs on natural gas— cleaner than coal, low-priced, easily available domestic natural gas from unconventional sources .
If you are in the renewable energy industry and you think subsidies are at risk you’d worry too!
By. Gary L. Hunt
Gary Hunt is President, Scalable Growth Strategy Advisors, an independent energy technology and information services adviser and a partner in Tech & Creative Labs, a disruptive innovation software collaborative of high tech companies focused on the energy vertical. He served as VP-Global Analytics & Data at IHS/CERA; global Division President at Ventyx, now an ABB company; and Assistant City Manager-Austin Texas responsible for Austin Energy and Austin Water.