The 12-step Solar Program: Toward an Incentive-less Future

Paula Mints, Navigant Consulting
January 24, 2011 | 59 Comments

The un-incentivized future approaches, and it is time to call off the hunt for the next big incentive -- because if the solar industry (all technologies) does not, it is surely doomed. Well, maybe doomed is too harsh, disappointed is better. Along with disappointed add chronically over capacity and consistently margin constrained.

Extremely low prices for crystalline technology set expectations for even lower prices. Low prices in combination with generous FiTs stimulated demand at extraordinarily high levels. Demand boomed, and most FiT markets crashed. Here's the golden rule of incentives: they are expensive, and someone has to pay the bill.

Assuming a constant upward trend in solar demand is dangerous, even though historically the trend has always been up. As incentive rates decrease, eventually disappearing or transforming (yet again) altogether, demand will hinge on the industry's ability to lower installation costs (the module is a component of a system) while increasing technology efficiency and lowering manufacturing costs. System performance will become even more crucial, and investors will need to believe that the industry can thrive without incentives. Grid parity is a phrase tossed conveniently around at conferences when companies are seeking investment, and in marketing materials -- and considering the subsidies that conventional energy enjoys, it's unfair. But fairness does not matter. Solar is big business now: gigawatt-level, risky big business.

Memo to Good Analysts: Widgets Count

Now is the time when analysts look back and count widgets (cells and modules). 2010 looks to have been at least a 16GWp year, or 103% growth in vs. 2009. Figure 1 presents global industry growth (shipments to the first point of sale in the market) from 1995 through 2010. From 2005 through 2010, compound annual growth for the PV industry was 63%.

Figure 1: PV industry growth, 1995-2010.

Where the technology came from and where it ended up remains a tense issue for solar industry participants. As indicated in Figure 2, 56% of technology came from China and Taiwan (at least 37% from China), while ~81% went to Europe.

Figure 2: Supply vs. demand, 2010.

Back to the pesky issue of pricing. In 2009, technology prices (cells and modules) crashed after steadily increasing for several years. Those price increases came during the beginning of the FiT phase of PV industry history (2004-2008). But in 2009, manufacturers from China and Taiwan priced technology aggressively to gain share. The combination of low prices and generous FiTs stimulated escalating demand, and this expensive demand led to the current situation wherein markets need to be controlled. Figure 3 offers a view of average selling prices to the first point of sale, from 1989 through an estimate for 2011.

Figure 3: Average selling prices, 1989-2011.

A 12 step program for solar industry recovery from incentives

What the solar industry really needs is a recovery program, so that it can wholeheartedly approach a future in which incentives will likely not be generous -- if they exist at all -- and programs will be capped. After all, incentives were not meant to last forever (though those for conventional energy well may). The following twelve steps are meant to provoke thought and help an industry that has become addicted to incentives -- though realistically, these market stimulation tools are still necessary.

Admit it -- the industry has become powerless over demand, and most markets have become unmanageable.

Focus on lower technology and system costs. Develop innovative and standardized installation techniques. These may well wean the industry from a reliance on incentives.

Focus on the system. Fit the technology to the region, the customer, and the application.

Develop products -- not just technologies -- tailored to the application and the customer. BIPV is not just shingles or roof tiles.

Look for three characteristics in markets and customers: a need for a reliable electricity source, price elasticity, and undaunted by the high upfront cost.

Stop banging the grid parity gong. Talk about competitive electricity pricing market by market based on solar attributes.

Delight the customer. That's just Marketing 101.

Form a consortium among manufacturers to discuss how most FiT markets were destroyed, and how to avoid this in emerging markets such as the US, China and India. This is not collusion, it is common sense.

Invest in system design and balance of systems. This is worth repeating -- it's not boring, and it is crucial to industry survival.

Hey, governments: All solar is amazing. Stop looking for a magical, heretofore undiscovered magic technology or material that will change industry dynamics forever. All of this stuff sits in the sun for >25 years and reliably delivers electricity. What more do you want?

Hey, governments and politicians: Progress isn't cheap. Renewable energy and solar is the future, and getting to it will be expensive. So was the Industrial Revolution, and going from wagon trains to railroads, and the Pony Express to the telegraph. Toilets were once options in houses, not mainstays. Stay committed. Develop controlled incentives -- the industry still needs them, and will have a difficult time without them.

Hey, industry: FiTs are a-changin'. The trend is clear: FiTs as the industry has known them recently (and seriously, FiTs are a recent industry phenomenon) are changing. Adapting to this change is crucial. So, you'd better adapt.

59 Comments

Mary Saunders
February 2, 2011

I meant to say the information got Fed X'd about, from Oregon to the California site of Solar City, the contractor in my neighborhood.

Mary Saunders
February 2, 2011

Nick, China has a huge tourism industry, including many people coming to see what they are doing in industry and writing their trips off on their taxes as research and development.

The learning does go both ways. When I went there with an Oregon delegation, I learned things about practices here from fellow travelers that I did not know were being used here.

The Chinese come here as well. Oregon's governor just had a mutual-admiration press conference with Chinese visitors.

Many here assert that paperwork obstacles are more difficult in the U.S. than in China. Having tried to get in on a group solar buy in Portland, with a chance to look at the 3/4 of an inch of paperwork, X'd about, I have personal experience with that.

The competition of hopefully net-zero or net-negative houses on the mall in D.C. are there for anybody in the world to see. The German house used SunPower panels. SunPower is headquartered in the U.S., but has done most of its manufacturing in the Phillipines.

One of my son's professors at MIT has done research on how energy can be efficient in the Caribbean. It requires different ways there from the Pacific NW. Lifestyle matters, e.g., what time of day people choose to blast over-sized stereos, a lifestyle choice that would not go over well where I live.

Efficiency and wise-use practices will have to be tinkered with for different locations.

Giving prizes to kids in science fairs appeals to me. I am impressed with the things sixth-graders do in the classroom of a local teacher of great Oregon fame, Michael Becker, of Hood River.

My pitch is that we need to look in many places for many kinds of innovation. I find great fascination in small-scale projects that multi-task by asking accountability and responsibility of local people.

Thank you for your encouragement. I aim to reach a diverse audience.

ANONYMOUS
February 2, 2011

@ Nick: I can't follow your thoughts(?). Very strange babble.

ANONYMOUS
February 1, 2011

Not sure I buy the entire argument. She is saying that aggressive pricing is one of two things that created the demand. But look at Figure 3: low pricing is the opposite of what happened in the 2004-2008 period. Two things can explain that rise: the rising price of substitutes, and subsidies. Toward the first, oil tracked almost the same trajectory in 2004-2005, but after that, it's all subsidy. Much of that was Germany and Spain. So, if anything, the subsidies backfired: they got a lot of expensive solar that (in Germany) may never pay off the total cost. Meanwhile, solar prices had been declining pretty reliably for everyone, but have now stagnated for small users and have returned to the former path for large users. That's too bad, because one of the benefits of solar could have been the fact that small holders could have had their own, leading to decentralization.

So it's time to admit it: interventions like this create problems for the future. Our interventionist politicians, supported by the largish companies (Sharp, BPSolar, etc.) that stand to benefit, have convinced the public that we need solar incentives. Just like oil & car companies once benefited from the Good Roads movement that supported investment in roads. And railroads one benefited from investment in transcontinental roads. And the phone and power companies once benefited from the creation of "regulated monopolies" (Mr. Pinchot was wrong: all of those holding companies benefited tremendously from government regulation that guaranteed their safety from competition, from municipal franchises to federal patents). Everyone who tries to stand in the way of the inevitable will be accused of being in the pocket of Big Oil, or anti-environmentalist. Then, one day when we realize that some "natural" monopolist or cartel has somehow gotten too big, we'll condemn the "laissez faire" economic theories that led to the problem, and start the cycle over again.

Andrew W
February 1, 2011

@mary-saunders-73470: You seem jealous of people that are rewarded for their ideas. $1 billion is a small price to pay for a clean, affordable solution. The status-quo hasn't found a solution.

It's not about celebrity, either - it's about paying for results. Real, viable results. Wind and solar won't solve our problem.

Mary Saunders
February 1, 2011

rrogers, I read your comment with great interest. You would think U.S. people are as next-great-thing fad-oriented as the Chinese, but structural dysfunctions interfere with that on substantive matters.

Chinese experts can sit where they are, and experts from everywhere else come to see what is going on there. They can then pick and choose the best things to pilot-project, and have at it with well-educated employees from all over the world. It still works to pay salaries in dollars.

While we host a competition on the Mall in D.C., somehow we don't seem to be as good at getting things from competition win to practice as some other places. If I recall, Germany tends to do well in competitions and in pilot-projecting micro-grid and de-centralized efficiency practices.

No one Plan/Solution will apply to every micro-climate. Micro-climates of weather and culture affect so much the patterns of usage.

Giving one person a billion dollars would just be more of the same old practice of making a celebrity out of some individual while so much of the rest of the community flutters forgotten in the wind.

Andrew W
February 1, 2011

@rrogers: Well said.

I don't think we'll change our energy future without a Plan. We've NEVER had a plan. I think everyone is waiting for the "clean, affordable electricity" breakthrough to actually create a Plan. That's why I'd like our government to offer a $1 billion prize for that breakthrough solution. It would inspire more attention and a more imagination. It would also give us a better picture of where we are technologically.

I don't think anyone has ever offered a $1 billion prize for anything. Clean, affordable energy would certainly be worth that small price. We've already wasted $400 billion on energy R+D during the last 20 years.

it's time for our government to put their money where their mouth is - especially DOE bureaucrats.

Bob Rogers
February 1, 2011

On average, each American annually uses about 7,100 lbs oil, 3,400 lbs natural gas, and 7,500 lbs coal, the weight of 5 Cadillacs, which loads the atmosphere with enough CO2 to produce and dump 2.5 Olympic swimming pools/person of soda water into the sea. China and India nearly match America now.
The two core principles of AA recovery: 1) admit the problem, 2) open up to a solution, a "Higher Power". Americans see the government as the "higher power" to solve its fossil addiction, but government is equally addicted. Behind an 88 quad drop from a 1973 186 quad energy growth forecast was OPEC and greed. OPEC wanted to prolong their economic life by trickling production over more years and greed in other energy sectors benefited opulently when prices rose. Sharp prices dropped demand as energy users (especially industry) conserved.

Americans want low prices; not so good for renewables, where a $30K PV system reduces a person's fossil footprint by 5%; requiring a half million $ for a "full" solution. It would be better if fossil solutions cost that half million.

The US will probably stumble around with energy reform as it did health reform, with everyone going in different directions. Not until fossil fuels rise in price, though, will anything actually happen. When prices rise, people find real solutions. Europe had wind technology to sell in this country because they made commitments early to tax fossil fuels as if they actually belonged to future generations. China can demand renewable use because their masses are always one incident away from revolt and leaders don't need to tempt oil producers to trigger that incident. For 30 years the US has been talking about sustainability as energy use went from 70 to nearly 100 quads in 2008. Per capita use has gone up too. I can't imagine the scenario that changes perceptions about energy in this country but Egypt changed "overnight" when a smaller neighbor succeeded with a similar systemic problem.

Mary Saunders
February 1, 2011

Greentech Media has been having a discussion of power companies putting mini-solar on power poles because they already have right of way and they don't have to fiddle with lots of paper to do this.

The guys were counting up the costs of the trucks and technicians and figuring this was going to end up costing the consumer (ratepayer) in rate hikes, but the companies like to do rate hikes, if they can get them past regulators.

The guys who make the decisions can afford hikes. It may not be mean-spirited, they just don't know that many modest-income people.

What could end up happening though is breaking up the bigs as we move to micro-grids. This also would make people in neighborhoods smarter, on average, because they would have to understand operations and maintenance to keep costs down.

It would be like parting out the big financial companies to neighborhood credit unions. Some localities are going to be advanced adopters on this sort of thing.

Anyway, that's my take on it.

Andrew W
January 31, 2011

@awb: Please explain your math. The project costs $173 million and will generate only $5 million in annual income. How much actual debt is there? Even if we applied ALL of the income to debt service, it could only handle about $50 million for a 20-year payout.

Explain how this deal makes any financial sense.

Alan Beattie
January 31, 2011

Actually, Andrew_W, if you include the Federal Grant in lieu of ITC, the RECs and MACRS, the project would pay back between 8-9 years. And then your electricity is pretty much free for the next 20 years.

BTW, these calcs obviously take into account the various incentives provided to renewable energy projects, which unfortunately are only a small fraction of the incentives provided to the fossil fuel industries.

Andrew W
January 31, 2011

@rrogers: the $173 million solar plant will NEVER pay for it self. It doesn't make ANY financial sense.

DOE has done more than 40 similar deals in the last 2 years for a total waste of almost $20 billion. It isn't changing anything about our energy needs or our environment, it is simply enriching the developers and promoters of solar and wind.

Bob Rogers
January 31, 2011

Pinchot's accounting analysis:
….Suppose a small independent company is struggling along on a $100,000 capitalization with a small $90,000 plant and a balance sheet as follows:
ASSETS - Plant $90,000
LIABILITIES - 10,000
Capital stock $100,000
Along comes one of the big holding Companies of the power monopoly and takes over the little company…. The balance sheet then changes as follows:
ASSETS - Plant $200,000
LIABILITIES - 0
Capital stock - $100,000
SURPLUS – $100,000
This statement, however, still makes it plain that there never was a $200,000 capital investment in plant, equipment, and franchise, and that the $100,000 surplus is inflation pure and simple.
The next step, therefore, is for the board of directors to declare a 100% stock dividend which wipes out the surplus and which balances a $200,000 plant, equipment and franchise entry with an apparent $200,000 capital investment as follows:
ASSETS - Plant, equipment and franchise $200,000
Capital stock - $200,000
On the balance sheet of the big holding company the little $90,000 plant of the absorbed company also appears at the inflated valuation of $200,000. The monopolists justify this on the ground that it is a well-established rule of accountancy that plant and equipment should be carried in the balance sheet at "cost."
….. by inflating its plant and equipment entry with … price of monopoly, the corporation …. made it possible to-use it for rate-making purposes and collect 7 percent annually on it from the public for all time to come.

Gifford Pinchot would probably find the $173M solar project as part of the struggling company asset. That is doubled through Wall St. transactions to make the real money, the "lipstick". Today, regulators don't even understand the game anymore, with derivatives, foreign ownership of utilities, lobbyist funding of elections, oil wars "to protect American lives" and other aberrations.

Bob Rogers
January 31, 2011

A $173M solar deal that generates $5M income ($1 to produce $.0024/mo.) might look like foolishness but one environmentalist could put lipstick on that "pig".

The Power Monopoly, It's Make-Up and Its Menace, By GIFIFORD PINCHOT, Milford, Pa. 1928
http://ir.library.oregonstate.edu/xmlui/bitstream/handle/1957/9978/Pow_Mon.pdf?sequence=1

The electric power monopoly organized and financed, not for fair and efficient public service, but for ruthless exploitation, uninterrupted and unrestrained by anything approaching effective Government intervention or control. The study covered 4,362 corporations, including big holding companies, the smaller holding companies, companies owned or controlled by the holding companies, and what few independent companies remained. The records of corporations in this report are given as nearly as possible as of June 30, 1927, with the nearest applicable and available financial and statistical figures-for the most part as of December 31, 1926. 41 big holding companies-alone accounted for 82 percent of the electric energy produced in the United States. The records further showed that almost 83 percent of the country's population depends upon the 41 power giants for the electric energy they need. The holding companies controlled coal, coke, gas, water, street railways, bus lines, bridges, lumber, real estate, amusement parks, and other interests contributing to their monopoly. General Electric-Insull-Morgan-Mellon-Byllesby-Doherty six-sided power monopoly controlled a little less than two-thirds of the entire country's electrical power, and had a little more than two-thirds of the country's population at its mercy for its electric energy and service…..

A study of utility assets in the light of facts available about their acquisition by pyramid capitalization indicates a capital inflation of not less than $3,000,000,000, which at the 7 per cent limit would authorize extortionate rates to the tune of $210,000,000 a year.…

Mary Saunders
January 30, 2011

rrogers, I concur about consumers.

Ordinary consumers can do little to stop boondoggles and improper subsidies, but they are familiar with back-pack-scale solar and solar-powered calculators.

I have an ancient calculator that still works. I don't have to fire up a grid-powered computer to do some simple tasks.

In addition, some who put solar on their homes in the 70's are now pleased with themselves. Their installations are paid off and still working, giving them cost-efficient power and resilience if the grid transformer gets hit by a car or adverse weather or geological events.

Lobbyists for other kinds of power cannot easily counter these stories. Some of those who installed then have impeccable scientific credentials.

It was a risky thing to do in the 70's. Solar thermal in particular got a bad rap from some kinds of designs.

Nonetheless, some of those who put high-quality PV in then have been more than willing to talk about it in public now, and their anecdotes are of interest.

I rather like being called a cheerleader. It beats gloom-caller, if I have to get labeled.

Andrew W
January 30, 2011

@Bob_Wallace: That's a bit arrogant. You're a cheerleader, I don't expect any depth, just your repeated cheers for "renewables."

Here's one of your fantastic solar deals that cost $173 million, yet it will only generate about $5 million in annual income. How about you put some lipstick on that "pig?"

Link: http://www.energyboom.com/solar/second-largest-solar-pv-installation-us-east-coast-fully-operational

Andrew W
January 30, 2011

@rrogers: If innovators are simply motivated by "challenge" then they have failed. It isn't about "money," it is about reward.

The only ones making any money in wind and solar are those doing development deals and getting paid "up-front." THAT is a scam.

If we truly want to solve our energy problem we need to focus attention and get as many people involved as possible. $1 billion will do that and if successful free up the resulting intellectual property.

For forty years we have supposedly been seeking a breakthrough, but I see no evidence of that. If we are serious, we can pay for it.

Bob Rogers
January 30, 2011

Consumers cannot do much with wind, geothermal, hydro, tidal, biogas/mass; however, solar can empower. CPV should be able to realize $2,500/kWe fairly quickly. In sunny areas that yields $.10 per kWh electricity (assuming 2,500 kW of sunlight /m2/yr, ten year life) plus lots of thermal energy if captured. A desiccant cooler should be able to cost effectively provide air conditioning with the thermal output, leaving electric power for air/water handling, lights, and other loads. In less sunny areas, it would take twice the equipment and the match with winter heating is not great. Using biomass might be needed but pollution becomes an issue with wide scale use. If converted into liquid fuels biomass could be be used in our gas appliances with pollution regulated in central plants but that investment competes with that dollar investment that now produces $20 per month.

Offering $1B for innovation assumes innovators are driven by money. They are more often motivated by challenge and merely need simple access to new markets, not ones already configured for others. Fossil fuels are so cheap that consumers can't bother much with them unless there is a crisis. That crisis is on its way, hence the $B from fossil fuel industry profits is not needed.

Andrew W
January 29, 2011

@Nick: The problem is many in the Solar and Wind industries continue to act like they are a SOLUTION and they are NOT.

We are not seeking a breakthrough. DOE spent $30 billion in 2010 and none was directed at a potential breakthrough. In fact, most of the money went to "development deals," underwriting politically connected developers.

I have advocated for a simple incentive: offer a $1 billion PRIZE for "clean, affordable electricity." Call a National Energy Summit and invite EVERYONE to present their ideas and plans. Judge those ideas with a panel of experts and for the first time in 40 years, find out if there is a SOLUTION available. If so, award the prize and share the intellectual property with the World. If not, keep looking. At the very least we'll have a better understanding of where we are technologically.

I'm disappointed in DOE, but we're all disappointed in 40 years without a PLAN. How long do we continue to ignore than reality? We may be the only country in the world WITHOUT and energy plan.

America was built on competition and reward. A $1 billion prize will produce results, not only for us, but for the rest of world.

Bob Rogers
January 29, 2011

President Obama called for an end to oil subsidies and set a national goal of reaching 80 percent clean energy by 2035. For electricity that means all coal plants more than 30 years old now will be closed and not replaced. That would cut coal consumption by 600 million tons (MT)/yr. It would require $1T worth of solar equipment to replace the energy in that coal but that investment for 30 years would reduce CO2 by 2,000, SO2 by 7.5 and NOx by 3 MT/yr. Solar is only available for peaking so storage is required for other times.6.5 hours of storage would cost about $1T today. That price should drop.

The only way to get solar to compete with fossils is to have consumers drive the industry. When the fossil fuel dollars fund innovation, products are optimized to keep things the same. A tech revolution only works if merit is rewarded. For the Internet, personal computers, cell phones, etc. m(b)illions of consumers picked the winners. When incentives drive an industry, who do you think decides the nature and duration of those incentives?

Alan Beattie
January 28, 2011

OMG, Andrew_W, you've heard the expression "Get a horse." That was coined in the early days of the automobile when they were just being introduced and before Henry Ford conceived the mass production line.

I'll leave it at that.

Andrew W
January 28, 2011

@ mary-saunders-73470:

DOE says Solar isn't competitive. Take your pom-poms and go complain at them. It's NOT affordable or dispatchable. Until then, it's an over-priced, under-performing scheme.

We shouldn't invest in Solar until it is competitive. We should invest in a breakthrough. We need clean, affordable electricity - solar isn't.

DOE Analysis ($.25-$.39 per kWh in 2016):

http://www.eia.doe.gov/oiaf/aeo/pdf/2016levelized_costs_aeo2010.pdf

Alan Beattie
January 28, 2011

To expand on rroger's explanation of horizontal fracking, the net effect of water contamination is not clear yet, but it is not promising for the extractors.

Another important issue is the total life-cycle emissions of methane from the entire process, which seem to be massive. Methane is 20 times more damaging in the climate change atmosphere as CO2, and while it dissipates more quickly than CO2, we're still looking at 10-20 years. Not good.

Finally, there is virtually no horizontal ng fracking well that is profitable at $4. Some have suggested that $5 is the number, but guys who do it for a business, like Aubrey McClendon of Chesapeake, say it doesn't pencil out until $6-7. The cost of these plays are are amortized over ~20 years, when it has become abundantly clear that the initial flow rates decline dramatically over the first year or two, requiring numerous refrackings or shut-in, neither of which has been properly addressed in the cost analysis.

Don't go betting the ranch on ng quite yet.

Mary Saunders
January 28, 2011

Andrew states what is competitive from his point of view.

Some markets come at the equation from different points of view, in particular markets with specific operational needs, e.g., the military (where tethered or ported-in power has challenges), music on-the-road operations, remote monitoring stations, etc.

These sorts of markets are pioneering portable solar. If a remote station stops sending information, someone knows to go out to see what is up. But a remote station may function efficiently from a labor standpoint because solar is available. Without solar, it might not be sited.

A lot of the reason fixed solar is so expensive has to do with permits and legalities. This factor, among others, will drive innovation in unplugged, which could bleed over to affect plugged, over time.

Andrew appears to dismiss externalities and side effects of the kinds of energy that compete with solar. Many of us do not.

Andrew W
January 28, 2011

@Nick: Don't confuse being ACCURATE with being negative.

If you think solar and wind schemes are a solution to our energy needs, please provide some evidence. They are not affordable, reliable or cost-effective.

Andrew W
January 28, 2011

@ Dick: $4/Watt is not competitive. Let us know when it is below $2/Watt. That will make solar economically viable.

What do you think? 10, maybe 20 years?

Bob Rogers
January 28, 2011

Hydraulic fracturing uses materials under high pressure to fracture shale and open fissures that enable natural gas to flow more freely out of the well. Vertical hydrofracking is used to extend the life of an existing well and horizontal fracking uses a mixture of 596 chemicals and millions of gallons of water per frack in new wells. Water used becomes contaminated and must be cleaned and disposed of. In 2005, the Bush/ Cheney Energy Bill exempted natural gas drilling from the Safe Drinking Water Act. It exempts companies from disclosing the chemicals used, essentially taking the EPA off the job. It is now commonly referred to as the Halliburton Loophole.

In 1974, the Safe Drinking Water Act (SDWA) was passed by Congress to ensure clean drinking water is free from both natural and man-made contaminates. The average gas well is up to 8,000 feet deep while drinking water aquifers are about 1,000 feet. Problems arise when poor cement and well casings leak natural gas and fracking fluids into the water table. Generally 1-8 million gallons of water may be used to frack a well and a well may be fracked up to 18 times. For each frack, 80-300 tons of chemicals may be used. Presently, the natural gas industry does not have to disclose the chemicals used, but they include benzene, toluene, ethylbenzene and xylene.

The gas is separated from wastewater on the surface; only 30-50% is typically recovered, and it can be highly toxic. Evaporators take off VOCs and condensate tanks steam off VOCs, 24 hours a day, seven days a week. The wastewater is then trucked to water treatment facilities. As the VOCs are evaporated and come into contact with diesel exhaust from trucks and generators at the well site, ground level ozone is produced. Ozone plumes can travel up to 250 miles. http://www.gaslandthemovie.

Gas from fracking might be $4/MMBtu but the cost to the country's water and air might be $10/MMBtu. Profits will be made by frackers at $4 but the public will pay the $10.

Dick Maclay
January 27, 2011

Solar prices have plunged in the last year. NickDalacu's roof top system will be closer to $4 / watt installed as he does not suggest that $2.79 includes installation. But $4 / watt is way down from last year. On pure economics (not subsidies) it is approaching a price that is competitive with other resources. If it included islanding capability at that price it might actually be a worthwhile investment.

It is interesting that when Germany and Spain yanked their big subsidies prices for solar plunged. If we are lucky there will be no more subsidies, forcing solar equipment manufacturers to continue reducing prices. It appears that some can continue at these prices, or even lower. As to others, bye bye is their natural destiny.

The renewable challenge comes from natural gas as there really are numerous engineering estimates of a 100 year supply at current levels of use due to the development of technology recently to tap shale gas. And the argument among natural gas companies and price forecasters is whether ongoing improvements in technology will fully offset higher costs of the next set or shale wells or not. So natural gas may slide below $5 per mmbtu over the next several years or rise to the levels producers hope for, around $7 per mmbtu. By the way, in real $ this is a return to the low prices of the late 1980s and early 1990s. All of the facts indicate natural gas is a "transition" fuel that will set the bar for all others for the next 2, 3, 4 or more human generations. Some transition. Coal & nuclear are designate losers (unless we reach a point where we import low cost nuclear from China, just as we import our solar from China today). Wind and solar are "merely" challenged.

Alan Beattie
January 27, 2011

Andrew_W, maybe you should look into "cold fusion."

Andrew W
January 27, 2011

@Bob_Wallace:

OF COURSE we should be seeking a SOLUTION. We haven't found it yet.

It's perfectly okay for you and others to suggest that wind and solar schemes can solve the problem, but where the $5 trillion to implement? Aside from that problem how do you make them reliable and dispatchable?

It's okay to be a cheerleader because that's how you make a living, but cut the shit - we need a solution. We need "clean, affordable electricity" and we haven't found it yet.

The world needs to keep looking. We need to put our resources into solving the problem. America can do this. Cheerleaders cannot.

Bob Rogers
January 27, 2011

There's more than one cost for electricity. Baseload tends to be priced low because fixed costs are spread over 8,000 hours of production. Peaking is high for the opposite reason.

Traditional $9/watt PV systems take about 40 years to pay back their costs in the Northeast at $.17 per kwh, a reasonable peaking price. It takes 2 or more years to pay back the energy invested to make them. When the price drops below $3/watt, they compete well in most markets. Concentrating PV can easily meet the $3/watt cost.

Alan Beattie
January 27, 2011

Andrew_W. You're not doing your math Andrew. The cost of solar has been coming down at least 5-10% per year over the last 5 years.

Obviously there will be some balance struck between the exponential growth of solar and the exponential decline in the cost of solar.

I repeat, solar and other renewables are the future as soon as Big Fossil and Utility stop trying to crush it.

Andrew W
January 27, 2011

@awb: Do the math? Okay. Solar costs 3-5 times as much as current electricity generation methods. To have solar become even half of our electric energy we will need to spend $5 trillion.

Where is THAT money?

Solar does not solve our energy problem. Maybe it enriches some promoters and developers, but we can afford it.

Instead of pretending that Solar or wind are real alternatives, we need to invest in breakthroughs. We need to find a SOLUTION.

Alan Beattie
January 27, 2011

Thank you rrogers for linking to that video explanation of exponential growth. It was just like being back in math class with a great teacher.

It also gives the absolute lie to the folks who say that renewables could never account for most of our energy need. Well, the growth of solar over the last 3 - 5 years has been ~30-40% per year. Do the math.

Renewable energy is indeed our future as soon as Big Fossil and Utility stop trying to crush it.

Mary Saunders
January 27, 2011

Lots of humans can't seem to think more efficiently or creatively than to use corn, but there is still some diversity among humans.

Other fuelstocks make sense, e.g., the Brazilians figured this out to get free of the IMF and the oiligarchs, somewhat.

The Brazilians even got U.S. car companies to make flex-fuel cars for them. Somebody ought to organize a field trip to Brazil. Oh wait, some people already have. Apparently, a good-time, low-military-cost culture has some advantages.

We will have diversity in energy production and use. But for some time, we will mostly only hear about big fancy things done by guys with the latest hair-dos and business-casual get-ups, if we only listen to media designed for most of us.

That's just the way things have come to work.

Hail Renewable Energy World. I like to be able to read things from guys who might be wearing flannel shirts.

Bob Rogers
January 27, 2011

Before accepting any forecast on finite fuels, it is best to do the math yourself: http://www.youtube.com/watch?v=F-QA2rkpBSY. Or look backward and find one forecaster who has been consistently accurate; that person might be worth a listen.

The 7% US energy growth rate of the 1950s and 1960s denotes that during the 1950s, the US used more energy that decade than it had used prior to that decade. The same is true for the 1960s. When we are on the other side of the bell curve of finite resource depletion, the same holds true. A negative 7% energy growth means that the energy used one decade is equal to all energy to be used beyond that decade. The only way to impede that is to convert finite fuels into sustainable energy infrastructure. The US take on that is to sink money into converting corn into ethanol; on a one to one basis, finite to "sustainable"fuel. The vision of a one hundred year gas estimate is probably driven by that same US logic.

Dick Maclay
January 27, 2011

rrogers says oil was the past, but is not the future. But we now know we have enough natural gas in the US to feed our expected uses for about 100 years. Natural gas can be used in cars, trains, buses, power plants, etc. And it is cheaper than oil and will stay that way unless we begin exporting it on a large scale. It may well become the new, clean oil of the 21st century. It is rapidly becoming the standard by which the economics of all other types of generation are measured. Few who are alive today will live to see that change.

Bob Rogers
January 26, 2011

It would be nice to think solar and wind can genuinely take the place of burning fossil fuels but there is a world of difference. A dollar invested in an oil well in Saudi Arabia or Iraq now will generate about $20 per month in oil. A dollar invested in wind or solar may produce 2 cents per month if we exceed our expectations. Oil (fossil fuels) not only powers our economy, it is (was) our economy.

Oil was a lot more of our economy when it poured out of the ground in the USA but now we must focus on Wall Street to capture some of that value. It is no wonder that both sides of the isle allow wildcatters on Wall Street free reign.

Solar and wind will be our future, but only by necessity. Oil is like crystal meth, once tried, reality will never be the same.

Dick Maclay
January 26, 2011

"Progress isn't cheap. Renewable energy and solar is the future getting to it will be expensive." The examples cited from the past (railroads, telegraph, toilets) required massive investments, but the value delivered was large and so clear that politicians did not need to do much more than get out of the way because these were profitable businesses. (Opening the west by building railroads where there were no customers yet was a different proposition.) If solar is a good business proposition without subsidies then politicians are superfluous to the industry.

A comment on marketing 101 and a desire for reliability. Today's inverters do not deliver reliability to the owners of non-utility solar installations. Added value would be created by building in islanding capability. We can island Honda generators, but not solar. Silly. Living in earth quake country I will wait for islanding solar before making the investment.

Arthur O'Donnell
January 26, 2011

Eliminating subsidies is a long-term goal, not an overnight policy. Better in the short run to transfer more of the incentives to purchasers to build demand for renewable energy, not to manufacturers and project developers (though we still need R&D support for the emerging PV technologies and STORAGE). So far, am a bit disappointed that Obama Admin has not whacked FMHA over its barriers to PACE financing, which is good for solar, for efficiency and for cities/counties. However, some of the biggest opponents of PACE financing are the solar installers who rely on PPA models and tax incentives. Go figure.

Andrew W
January 26, 2011

You can pretend we are in in a war with China, but it misses the point. Wind and solar are not (yet) clean, affordable electricity. We need to KEEP LOOKING.

Paul Croskrey
January 26, 2011

Ever hear "Business is War"
We are at war with China.
China takes advantage of the fact America can not or will not do anything to stop them.
We are at war and we are not defending ourselves.
We try to provide incentives to spur American job creation only to see American distributors of solar products buy from low cost Chinese manufactures instead of spending those funds here buying American made products.
We are sending billions of tax dollars earmarked to make jobs here to China. What do we get as taxpayers subsidizing this mass movement of our money overseas?
To stop the madness solar and windpower installers must take the first step and not offer foreign made components and use the energy tax credits for what they where designed to do and that is make American jobs. You see it everywhere alternative energy installers sending American tax dollar overseas making jobs there instead of here. We need to stop this. A quick fix would be make a law that insures the use of energy tax credits or American borne incentives, that 100% of the components used must be made in America. Another would be put a tax or disallow energy credits on foreign components thus making American products more appealing. Here is a point to ponder as well, Americans are the best when it come to industrialization and Americans when pushed hard enough will dig deep to find solutions. American ingenuity is at work! Already 100% USA made products that will make Solar and Windpower obsolete are in testing. These fantastic products cost less and are 3000% more productive eliminating the need for any incentives what so ever. Preliminary testing shows a Cost of Energy index of less then $0.0001 per kwH VS Solar power cost of $0.10 per kwH. Just this alone would make anyone take a second look at subsidizing an obsolete product like solar or wind power.
read more about this product here
www.electric-energy-today.com

Andrew W
January 26, 2011

It is amusing to see wind and solar promoters discouraging the search for a real solution or breakthrough. They make money with their marginal, highly subsidized schemes and would hate to see that end. But, the truth is solar and wind will NOT solve our need for "clean, affordable electricity."

We need a breakthrough, not more over-priced and under-performing development deals.

Ken Stadlin
January 26, 2011

This is an excellent article and very thoughtfully constructed.

I am preparing my company to operate efficiently, be efficient in design, and always aware of cost management. If you remove the government grants, the customer becomes very focused on the cost of the system.

Finally, with respect to Chinese manufacturing, the United States has allowed the Chinese to operate using unfair trade practices and we have given our market away to them without demanding economic value in return. Buying cheap goods is not enough economic value.

I am in favor of free trade where there is fair trade but the Chinese practice a zero-sum version of economic warfare. They want free access to our markets yet they would consistently deny import access to the Chinese market for any number of high-value products. They are happy to take what they can but they will never give to anyone. This is not a comment specific to the renewable industry but renewable technology is the latest example of their zero-sum trade policies.

The Chinese have no intention of ever being a trading "partner" with the United States in the sense that they are willing to share the mutual benefits of a free trading relationship. When the United States opens our eyes to this reality we have a better chance of holding out for a more balanced and reasonable trade relationship.

Ken Stadlin

ANONYMOUS
January 26, 2011

I believe "clean energy financing programs" should be on the top 10 list. We need to provide access to these markets, tax credits, and rebates so the average American can afford to participate and benefit from the clean energy economy.

With Property Assessment for Clean Energy (PACE) programs shackled by FHFA, it's time to pursue other financing strategies, such as the Solar and Energy Loan Fund (SELF)developed in St. Lucie County, FL.

This innovatieve new clean energy financing program provides no money down, low-interest (4%) loans for energy efficiency and renewable energy (most notably distributed solar). The program is available to RES and COM customers, with a maximum loan amount of $50,000.

The SELF program is a not a hand-out or subsidy. The County developed the program in partnership with private banks that pledged $20 million toward the program. The County also secured one of the highly competitive energy block grants from DOE. It's one of the few programs in the country that is sucessfully navigating around PACE and moving forward.

ANONYMOUS
January 25, 2011

Too right -- you're never going to win the parity argument anyway. There's just to many complications. First, there's the 'who's subsidy is biggest competition', then there's the cost of delivery and so on. Then the system can play with revenue streams many ways: the current doddle seems to include huge regulatory burdens, high structural costs and fees, long waits for approvals, etc. Small producers also bear the burden of inordinate connection and regulatory fees, revenue caps and other mechanisms which drive up their costs. Larger producers are subjected to curtailments which bite into their revenue stream and are often forced to pay for grid infrastructure that traditional producers get for free. In my home market, the power authority pays anywhere between -$0.02 to +$0.62 for a kWh depending on supply and demand pressures, so: parity to what?

A better place to play is the net benefit to the customer i.e. "delight the customer". Make it easy for the customer to realize appreciable value from investing in renewable capacity. There are many who actually prefer a good solution to the cheapest possible solution - even quite a few commercial enterprises.

The emphasis on system solutions is well taken. It's time to stop shipping solar arrays one panel at a time, especially when commercial installations run to hundreds of panels and utility installations run to 10's and 100's of thousands of panels. The reasonable unit commodity is whatever will fit on a semi trailer. This approach at least leads to an aggregation of value adds as well as efficiencies which readily leads to a substantially reduced selling cost and installation cost. It's time to start shipping preconfigured, certified and tested installations as a package, not piece parts and a bag of bolts. At least one player must be doing this: my neigbor put 10kW into a corn field - installation took 1 hour from truck to ready to run.

Ralph Perez
January 25, 2011

It would be good to remember the elderly and disabled community in the long range plans. The baby boomers coming to retirement age presents new challenges for America.
Now is the time to develop the infrastructure for solar charging of mobility means for this age group.

http://www.alternative-energy-news.info/solar-powered-wheelchair/

The persons in this age group will also benefit from a "fixed price" for power usage (via rooftop solar), as thier incomes will be fixed too.

Pamela Cargill
January 25, 2011

Nick, I am curious to hear more about how what would create incentives to spur manufacturing of PV in the United States in such a way that it could compete with Chinese manufacturing?

a b
January 25, 2011

From Nick Dalacu :" Mrs. Mints, probably, it is time to shut-up. "

Well, the French think Mr Dalacu is wrong.

http://www.pv-tech.org/news/_a/new_solar_projects_put_on_hold_in_france/?utm_source=PV-Tech&utm_campaign=21bfc8982a-PV_Tech_Newsletter_06_12_2010&utm_medium=email

03 December 2010 - The French Government is to halt all plans for new solar projects, except residential systems less than 3kW, in a bid to end a "veritable speculative bubble" that has emerged in the industry, said Prime Minister, Francois Fillon. According to Fillon, if things continued at the current rate, solar development targets for 2012 will be reached "within weeks."
The new rules aim to balance a target of 500MW of new solar projects a year, protecting consumers by keeping power prices down. These prices are at risk of rising at an unmanageable rate as the cost of the feed-in tariff is passed on by the electricity companies to the consumer.
EDF currently pays more for solar power than for the nuclear power it produces at 58 written off reactors, and almost as as much as what it can buy on European spot electricity markets. The electricity provider is anticipated to pay an average of EUR 54,6 (US$72,2) cents a kWh for solar power in 2011. This compares with estimated spot market power prices of EUR 55 (US$73) cents a kWh.

a b
January 25, 2011

From Nick Dalacu :" Mrs. Mints, probably, it is time to shut-up. "

Well, the Germans think Mr Dalacu is wrong.

http://international.pv-tech.org/news/german_government_solar_industry_association_conclude_fit_cut_conundrum5478?utm_source=PV-Tech&utm_campaign=4982367dbf-PV_Tech_Newsletter_24_01_2011&utm_medium=email

20 January 2011 - Federal Environment Minister Norbert Röttgen and the German Solar Industry Association have agreed to bring forward the reductions of financial support for solar power in order to facilitate the further expansion of photovoltaics in Germany. This early reduction could amount to between 3 and 15%, depending on market growth. The basis for calculating this early reduction will be the development of domestic photovoltaic demand from March to May 2011. "We welcome this clear political commitment to expanding photovoltaics, to Germany as a production site and to the more than 130 000 jobs created so far by photovoltaic technology," said Günther Cramer, president of BSW-Solar. The objective in expanding photovoltaics is to increase the proportion of Germany's power supplied by solar energy from around 2% now to at least 10% by 2020, while simultaneously cutting costs by at least half during the same period. "Flexible adjustments to the feed-in tariff contribute significantly to attaining our goal of expanding installed photovoltaic capacity from 52-70GW by 2020, while limiting the cost of solar power to around two cents/kWh."
The solar industry is also expected to expand module production and upstream production steps in Germany from 3.2 GW to more than 8 GW by 2020, shaping the global move toward a renewable energy supply, with a substantial proportion of 'made in Germany' photovoltaics.
Cramer states, "Our objective in this is to become capable of competing with conventional energy sources as quickly as possible. Thanks to great successes in cost reduction, first market segments will be independent of financial support by 2017."

David Dunnison
January 25, 2011

Great insights, though some odd criticisms.

Pretty sure that Paula is familiar with the fossil fuel industry and would almost certainly agree that the 'X' that awb describes is near at hand. This underpins the reality that solar's incentives are endangered.

The focus on FIT has created a financial return driven market. When all installations simply export to the grid, however, the 'customer' may not yet recognize all the benefits.

The situation in the US is arguably somewhat different where the credits, grants and rebates make solar more accessible and allow the system owner to look to benefits such as peak offset for Time of Use pricing.

I agree with Paula that deriving market benefits is the key and that these are available. In fact, another article published today appears to speak to a 'product' fit for 'customer benefit' in the Residential market: http://www.greentechmedia.com/articles/read/clarian-lowering-the-entry-price-to-solar/.

Regards, David (http://d-bits.com)

Robert Kerrigan
January 25, 2011

On the near horizon may be an "energy multiplier" which, utilizing a jumpstart from solar, will enhance the energy produced by a factor or 7 to 10. Readers are invited to peruse the website of Wind & Star Energy's new vertical-axis, wind energy generator. (www.windandstarenergy.com) Encouraging CFD modeling data produced by an independent consulting aeronautical and acoustic engineering company data warrants the construction of a 50kWh demonstration unit scheduled to be completed within 60 days. Immediately following will be construction of a 500kWh unit expandable to 1 MW. Sun and wind holding hands can lead to mutual ehancement of both technologies.

Bhavesh Desai
January 25, 2011

Excellent article and very good remarks from others.
Few factors which may swing game in favor of renewable energy-
1) With increasing effects of global warming visible day by day, human has choice between two- expensive new energy or disastrous old energy.
Once environment movement reaches to masses from government,UN, public opinion will be in favor of new energy. We are not far from the days where national election will be fight on ecological issues.
New energy will take it's place not as an chip energy source but as an clean, non-polluting and safe energy source
2) With growing demand for coal in India, China coupled with ever increasing environmental law will make coal more expensive.
3)Process heating consume between 30% to 50% of energy which can be easily replaced by solar thermal.

John Whitney, AIA
January 25, 2011

I'm not so sure that incentive-less parity is not coming in the relatively near future.

I'd like to know from Paula if her analysis factored in increasing fossil fuel costs and increasing generation costs due to replacement of an aging coal-fired generation fleet.

I tend to believe that parity is coming. Solar and wind generation costs are steadily decreasing as Paula noted in a recent Vote Solar Initiative webinar, Global PV Demand 2011 and Beyond". Solar PV panel manufacturing costs are dropping at an annual average of 5%.

In a remarkable and methodologically rigorous study, "GLOBAL OVERVIEW ON GRID-PARITY EVENT DYNAMICS", Ch. Breyer and A. Gerlach analyze global grid parity for solar PV minus any incentives. They predict that the 2010's will be characterized by ongoing grid-parity events throughout the most regions in the world, reaching an addressable market of about 75% up to 90% of total global electricity market by the end of the decade.

http://qcells.de/medien/presse/publikationen/downloads/6CV.4.11_Breyer_GlobalGrid-Parity_paper_25thPVSEC_final.pdf

Key to their projections is an analysis of conventional power generation costs now and over the next decade coupled with intensity of solar resources (high insolation), and projected continued reductions in solar manufacturing/ installation costs. Parity exists now in some regions (high insolation, high conventional generation costs) and will steadily advance around the world as fossil fuel prices rise, costly new conventional power plants are brought on-line, and solar costs continue to drop.

Bob Rogers
January 25, 2011

Frost & Sullivan predict that North Americans will use 23% of the world's energy by 2020; down from the 32% used now. That means each American will use 70 MMBtu less energy annually in 10 years; equal to foregoing 14,000 miles of driving, space heating in the Northeast, or flying one person around the world. China, India, Latin America, and the Middle East as a group will almost triple their current per capita use in the same period. 23 square meters of solar collector per person would make up for the American drop. Incentive programs will be very costly at that scale. Only price increases will sway Americans to use less; $8 per gallon of oil in ten years would accomplish that.

Paul James
January 24, 2011

I think its unfair to denigrate the solar industry over incentives. The industry is struggling to just get its foot in the door. If the solar industry received the dollar equivalent in savings that big oil gets as tax breaks and free mineral rights, we would be the 80 % consumer that you see in the pie chart. I am ashamed at our countries mindlessness. One of the best new lending programs PACE has been almost completely shut down by bogus lawsuits from Fannie Mae and Freddie Mac. If you give people a reasonable and fair chance to borrow money with property assessed bonds you could start thinking about weaning the industry from subsidies. OH well, stupid is as stupid does.

Alan Beattie
January 24, 2011

Not unlike most experts in renewable energy Ms. Mints doesn't seem to know much about the fossil fuel industry. The costs curves of the solar industry and the fossil fuel industry laid upon each other basically look like an X. The intersection of the X, where fossil fuels become forever more expensive than solar, is a near term certainty. Given that Big Fossil will never be forced to give up its own monstrous incentives (Mints is right about that), it's up to all of us to insist that our politicians and government fund renewable incentives for this last hard mile, even as Big Fossil beats them upside head, scared for their own business models.

And please, no BS about the miracle of cheap shale gas killing renewables. Shale gas is a hysterical gold rush, an asset play more resembling the sub-prime mortgage market of the 2000's than the panacea for cheap, secure energy.

Of course there is one agonizing caveat. And that is what will happen if the price of fossil fuels rises too far too fast, in which case we will endure another round(s) of recession and demand destruction and fossil price decrease(s). And renewables will be hurt again, short term. No one, not even Big Fossil, should hope for that. But one never knows.

V. Bruce Stenswick
January 24, 2011

Why not phase out all incentives and phase in stiff carbon taxes and let the marketplace figure out how we can survive without carbon.

Pamela Cargill
January 24, 2011

"Delight the customer. That's just Marketing 101."

And something that is often overlooked. We have to move past the "go solar" message and marketing the systems via images and descriptions of the technology. The value of the result of installing PV is what we should be marketing, not the technology that makes it happen. That is a secondary value to the savings and ROI.

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Paula Mints

All Solar, All of the time -- I started my solar market research career with Strategies Unlimited in 1998, moved to Navigant in 2005 and am now I am excited to announce the founding of a new company, Paula Mints Solar PV Market Research....