9 DECEMBER 2011 — A couple of weeks ago, I joined a few of my coworkers for the twelfth annual Forum Solarpraxis, one of the biggest solar conferences in Europe. The place was buzzing, both because a governing coalition working group had just recommended consideration of a 1 GW annual cap on solar installations here (as compared to today’s roughly 3-5 GW target corridor), and because of Solarworld’s recently announced charges against Chinese solar manufacturers.
This made for a very exciting opening panel, titled Solar Energy – The energy of the future or „financial ruin“? and featuring representatives from the major German political parties. Despite the coalition working group recommendations, Michael Kauch, the representative from the FDP (relatively libertarian, part of the coalition), still expressed his strong support for the current system of a “breathable” target corridor. But he also emphasized the importance of sticking to that corridor to control costs and maintain public support. Regarding Solarworld’s charges, he noted that every other mature industry has to compete with China, and now the solar industry has to learn to do the same, regardless of incentives. The Green Party representative, meanwhile (Hans-Josef Fell, one of the main architects of Germany’s FITs), called for stronger leadership from the Chancellor and executive branch to actively engage China and the WTO on trade issues, and to develop and pursue a strategy to maintain Germany’s renewable energy industry leadership.
The next panel, though also provocatively titled – Is the German solar industry still competitive? – was overall much more optimistic and entrepreneurial. Focused on the changes and opportunities that are coming with rapidly falling prices and international growth, panel participants expressed cautious optimism with regards to the German market, the international market, and competition with Asian manufacturers.
Gerard Reid, from Jefferies, emphasized that the ultimate goal is to sell clean power, not modules, a perspective that suggests long term contracts and a systems-oriented approach, rather than the sale of a commodity. A systems-oriented approach, being based in technologies and knowledge, also requires keeping that intellectual capital in Germany, and not in China; for that reason, he recommended avoiding building factories there. Other participants noted that companies like Apple, Nike, and Adidas could be good examples for the solar industry. They don’t manufacture products themselves, but they do strongly control production and instead focus on the things that American and German companies are good at: innovation, design, customer needs and engagement, quality, branding, and marketing. The message was: react to China, but don’t try to fight it head on.
At the same time, participants expressed some concern that Germany maintain its production and engineering leadership, rather than going the way of the UK. At the very least, it makes sense to hold on to R&D (innovation) and module production (market-specific and also weight-adding, so logistically more demanding to ship thereafter).
Meanwhile, in Germany and abroad, the approach of grid parity is going to necessitate significant business model changes. The panel speakers agreed that waiting for government action would be unwise, and that the industry is now big enough and prices are now low enough that the industry can open up many markets even with less than ideal levels of government support. They recommended increasing direct consumption, focusing on reaching rooftop customers, and demand side management. They also suggested switching from offering solar panels to offering electricity and related solutions. This helps to compensate for rapidly falling prices (developers are pressured to buy panels as close to installation time as possible, to get the best price), and gets the industry away from a commodity/equipment perspective.
The next panel delved further into the issue of grid parity, with a series of short presentations on the subject Grid Parity etc: What comes after feed-in tariffs? If you have access to the presentations, I recommend taking a look – there were some great schematics explaining grid parity, self-consumption scenarios, and related topics. The basic idea for self-consumption is that, if the feed-in tariff continues to drop, it will at some point drop below the retail price of electricity, and at that point it makes more sense for consumers to use the energy themselves and thereby avoid purchasing electricity, rather than feeding it into the grid. Germany also has an extra incentive that it pays to encourage self-consumption as a way to reduce strain on the grid. Some potential consequences of this were presented by a speaker from Germany Trade & Invest (a government organization promoting investment in Germany):
- Need to match system size to load
- Proximity to customer important
- Quality and service important
- Systems approach needed (storage, EVs, heat pumps…)
- New financing opportunities/business models
- Maintenance & monitoring more important
Next up was a professor from HTW Berlin, whose slides have been posted online! Take a look at slides 17 and 18, which sketch out the scenarios for self-consumption without incentives, they are very interesting. In the first one, you produce your own energy for 18ct/kWh from a 1.5kW solar system, and are able to use half of it directly. The other half you store, which adds a cost of 14ct/kWh. The end result is an average cost of electricity of 25 cents, which is less than the cost of purchasing electricity from the grid. You can also sell excess electricity for 3ct/kWh (very little). The following scenario, set in 2020 and with a 5 kW system, assumes you can now produce your own electricity for 12ct/kWh. You only use 25% of it for regular electricity end uses (because it’s a bigger system), but you now use 35% of the energy for space and water heating (which in this scenario would cost more if you used conventional fuels, so it’s a good deal). The remaining 40% of your electricity you sell to the grid for a mere 1ct/kWh – but because of how much you’re saving relative to the >30 ct/kWh retail electricity price, the system is still cheaper than buying electricity from the grid.
The final speaker, from CentroSolar, addressed related topics, including sketching out a similar self-consumption scenario with heat pumps. He also agreed that self-consumption, sufficiently incentivized, is key to the grid-parity market. With that needs to come a shift in orientation from investment to insurance against rising prices. In particular, he suggested net metering for systems under 1 kW (limit hassle, and with high self-consumption so lower grid impacts), developing/improving the option to sell excess electricity to neighbors, and several other strategies focused on reducing the hassle factor and improving the value proposition for small systems. If you have access to the slides, go take a look!