Tuesday, December 11, 2007

Solar news and notes

I've been tracking the PV solar sector for a while, and have a report coming out on it sometime in the near future (the date keeps getting pushed back). After decades of false promises and missed opportunities, we are definitely witnessing a re-emergence of distributed solar technology, with astounding growth rates in demand and production capacity, innovative R&D, billions in capital investment, sizable annual cost reductions, and a changed political landscape.

I find it interesting that until this year, much of this progress appeared to be occurring under the radar. Now of course, you can't stop reading about solar (too many articles to link), or how to make money investing in it and the inevitable backlash has already begun.

"Why" this is happening is a complicated tale. Too much for this post. The recent McKinsey report had some very interesting things to say on the potential future for PV solar:

By 2030 the US could have somewhere between 28 gigawatts (low-range case) and 148 gigawatts (high-range case) of solar PV capacity [ed. note: this is actual capacity, not peak] depending largely on the degree of cost compression and learning rates achieved from production and installation. Solar PV could achieve growth akin to that of the semiconductor industry, if conditions are favorable.
And ultimately how does that happen according to McK? Grid parity - ie solar cost per watt being equivalent to traditional gas and coal generating sources without subsidies. I'll be writing a lot more on this, but for now, I just wanted to highlight some recent stories I've come across, which highlight some of the key themes in the solar space: policy, investment, and market economics.
  • Solar Showdown in Congress: Green Wombat highlights something I'd discussed a few days ago, the fear that vital renewable energy tax credits won't be extended by Congress. This would severely damage the near-term prospects for solar - both on the large utility-scale segment, and in the residential market. Long-term extensions of these incentives would help to create stability in investment and manufacturing, moving away from the damaging volatility of past years. Everyone expects the subsidies to end at some point in the future, but their presence is vital now while the solar industry builds capacity, improves technology and reduces costs. On average, manufacturing costs come down 20% for each doubling of capacity. As highlighted above, eventually you reach the important level of grid parity. This article is a week(ish) old, so extension of these credits has been included in the House energy bill. But it is uncertain if they will remain in the final version of the bill sent to the President (if one gets sent at all).
  • First Solar Buys Ted Turner's Green Energy Company: One issue I highlight in my to-be published report is the value and importance of marketplace consolidation horizontally and vertical integration up and down the supply chain. This is an example of the latter. It will be interesting to watch if the pace of this activity increases. Also, Ted Turner exited this investment after 10 months. I wonder if it was the return multiple or the industry itself.
  • Chinese Solar May Trade Margins for Market Share: Two years ago, analysts and experts began forecasting that silicon pricing would return to normal in a few years. Recently, the timeline for this "decrease in price" continues to get extended. Over the past year, I've seen it move from 2007 to 2008 to 2009, and now some say silicon prices won't drop until 2010. Too much demand, too little supply, coupled with poor policy and manufacturing planning decisions. As this article states, nothing has changed to date with silicon prices and they continue to stay high. Those solar panel manufacturers best positioned are the ones signing long-term contracts. More importantly, you can expect consolidation among those companies least able to weather the shrinking margins. More on the silicon shortage here.
  • German Subsidies Could Decline 9% in 2009: The boom in German solar interest caught everyone by surprise (manufacturers, politicians, investors, etc.). But I sometimes wonder what people expected, after giving feed-in tariffs for solar that were 55 eurocents per kilowatt hour generated - this was ten times the level of other renewable subsidies. The German proposal still needs to be voted into law, but given past statements from environmental ministers and politicians, I expect this to occur. Meanwhile, California is now contemplating a feed-in tariff. Feed-in tariffs concern me somewhat - they are wonderful at spurring demand, but can cause severe market disruptions, if they push demand too high too quickly. Germany is a prime example of this phenomenon.
  • 2008 Cleantech Predictions: Solar. Interesting predictions from a solar VC: I think he's too aggressive in his forecast for the alleviation of the poly-silicon supply crunch (he says late 2008, I see this going well into 2009...excluding the possibility of a global recession of course). Completely agree and welcome his prediction that entrepreneurs will move outside cell and module production into various downstream aspects of distribution, installation, financing, etc. Squeezing costs out of distribution and installation could drop overall solar costs 20% and more. Compare Japanese costs to California for evidence. (about $6/watt versus $9/watt, with most of the difference coming on the distribution and installation side). Also, I understand his interest in focusing on China and India, but as the solar sector grew 500% in Spain in 2006, and Italy and Greece are making a lot of noise, I wouldn't stray too far from Europe (or the U.S.) next year.

UPDATE: One other article I forgot to add which I thought tied together several of the themes from above:

Solar Installers: Cutting Costs to Compete: As per the CEO of SunPower - 50% of the cost of solar is in its installation. This sounds high, but I'm not the CEO of a large solar power installer. So go with him on this one. Couple good insights from the panelists this article references, especially that solar installation on the residential level is just like any other consumer product: a lot of it comes down to trust and marketing.

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