State of the Industry, 2013
By SETH MASIA
You are seeing an article in SOLAR TODAY’s first B2B industry buyer’s guide in two decades. There’s a reason we waited to publish it until now.
It’s hard times in the solar business. In fact, all times are hard in the solar business. Right now we’re struggling with oversupply and negative margins on modules, a trade war with mounting tariffs, and, probably right around the corner, another trade war over inverters. In the United States we deal daily with the absurdities of a volatile patchwork of incentives and interconnect policies.
On the other hand, racking and balance-of-system (BOS) sales have never been stronger. Many installer/developer firms are booming, to the degree that managing growth presents its own new problems. We see it in the magazine publishing business: After a couple of tough years, our industry readership tripled this year, to more than 20,000. Our readers tell us that the biggest impediment to growth is not government policy, nor slow delivery, nor even a shortage of qualified labor. What prevents out-of-control growth is simply the slow economy, slowly improving.
The Preparedness Market
In the wake of Superstorm Sandy, businesses, homeowners and local officials (both blue and red) are sharply aware of the need for reliable, survivable distributed power sources. In effect, New Jersey, New York — and all coastal areas — are in the same position as Japan after the 2011 tsunami. They’ll look for cost-effective back-up installations that don’t depend on fossil fuels delivered by road or pipeline. New backup systems should be located above high water. Solar installers and battery vendors will benefit from the coming boom in what I’ll call the preparedness market.
And the second Obama administration, backed by a more progressive Senate, appears ready to move on climate and clean-energy initiatives.
Solar power is a mature, stable, fully commercialized technology. We’ve known for 60 years how to make it, and since then we’ve learned how to make it affordable. Solar power today is a viable, profitable industry, with U.S. installations doubling every year, for the past three years in a row. The preparedness market may drive triple-digit growth for years to come.
That’s where we stand now. The reason: Solar power is NOW cost-competitive with fossil fuel. Solar power is NOW cheap enough to beat fossil fuels in key markets. Not next year: NOW. Spot pricing for silicon solar modules fell below $1 a watt in December 2011, down from about $4.70 in 2006 (when polysilicon raw material was in short supply). As 2013 dawns, silicon photovoltaic (PV) module pricing appears to have stabilized at about 70 cents a watt.
The price can go lower, but obviously not to zero. The manufactured price for thin-film modules suitable for large utility-scale power is now headed toward 50 cents a watt. Installed cost of a new solar generating array varies by region and large systems are now going in for $4 per watt, complete. Most of that cost — about $3 before incentives — is NOT for PV panels and inverters, but for BOS and construction materials, labor, permitting, equipment leasing and insurance. A study by Lawrence Berkeley National Laboratory economists last year concluded that the average residential installation, after incentives, cost just $3 per watt.
By contrast, the new 400-megawatt (MW) coal-gasification plant called the “Texas Clean Energy Project,” in Penwell, Texas, is budgeted at $6 per watt when it comes on line in 2015.
A new nuclear plant would now cost more than $10 per watt. Add the costs of fuel, maintenance, operations and decommissioning, and it’s pretty clear why free-fuel renewable energy sources have a growing cost advantage. A large photovoltaic array is now cheaper than most forms of concentrating solar power (CSP). To be fair, CSP now has the advantage in energy storage, which means its cost of dispatchable power can be lower.
The U.S. Energy Information Administration (EIA) estimates that by 2017, the average levelized cost to produce electricity by burning coal in a new plant will be 9.8 cents per kilowatt-hour, and 13.8 cents per kilowatt-hour in a cleaner-burning combined-cycle plant. New construction nuclear power will cost 11.1 cents per kilowatt-hour, if you can get anyone to invest in it. By contrast, new wind power electricity will cost 9.6 cents per kilowatt-hour and new hydro, 8.9 cents per kilowatt-hour. Historically, the EIA has underestimated both the rate of coal price increases and the rate of solar power cost decreases. The market has already decided that renewable energy is the way to go: The Federal Energy Regulatory Commission reports that in September, U.S. companies installed 433 MW of new generating capacity — and all of it was in wind and solar.
Competing with Gas
To be sure, natural gas generation is cheap right now. EIA says levelized cost of a new gas-turbine plant is on the order of 6.5 cents per kilowatt- hour. But that’s at a price (about $2.50 per mBTU) suppliers say is unsustainable. And in fact, as winter weather moved into the Northeast in November, natural gas prices doubled and tripled, to more than $8 in some places.
Utilities in the Southwest now buy distributed PV capacity at less than the cost of natural gas generation. They have an increasing appetite for it to meet peaking air conditioning and refrigeration loads late in the afternoon. That’s when solar works best, erasing the huge time-of-use premium paid for power on sunny afternoons.
And so huge projects are now going in across the American Southwest, and wherever electricity is expensive. Very large PV arrays serving utility companies now account for most of the growth in capacity.
Catching Up with the World
It’s true that the United States lags behind the rest of the developed world in wind and solar deployment. The United States comprises roughly 25 percent of the world’s economy and energy use, but has only 7 percent of the world’s solar thermal capacity (including CSP and water-heating arrays for homes and pools). We have only about 4.3 percent of the world’s installed PV capacity. Obviously there’s plenty of room for the U.S. industry to grow. In fact there’s about 15 gigawatts of solar projects now in the pipeline in the United States, which will roughly triple our nation’s installed solar capacity over the next three years. Renewables (including hydroelectric dams, wind and solar) now supply 14 percent of the U.S. electric power mix, and rising.
Beyond electricity, solar water heat- ing is a clear winner for any region. Water-heating systems are roughly five times more efficient than any PV system of equivalent area. Residential water-heating systems are now plug- and-play, and small commercial heating systems and residential space heating are fast becoming so. This means that a licensed plumber with minimum solar training can install a system quickly, at reasonable cost, with no call-backs. A near-term growth market is commercial and industrial heating, and solar cooling installs are more common each year.
Renewables Are More Affordable
While the price of fossil fuel continues to rise, the price of renewable energy continues to drop. The Department of Energy’s SunShot program now stands a very good chance of meeting its goal of $1 per watt, installed, for utility-scale PV, by 2020. At that point we can probably expect small-scale systems to install for about $2 per watt. And levelized cost to produce peak-solar electricity should drop sharply below the cost of conventional power generation.
The key to low price is economies of scale. Very large factories are succeeding, and smaller ones are failing or selling their intellectual property to larger factories. Economy of scale comes only with massive capital investment, such as the Chinese government began making five years ago. The difficulty in competing for capital is the root cause of the solar industry’s family squabble over high tariffs on Chinese-built modules. This dispute needs to be resolved in a way that maintains both low pricing and a viable production base. We need a domestic production base to prevent the establishment of a permanent Chinese monopoly.
The suicidal price war in module production does have a silver lining. As long as the price of modules remains low, U.S. solar construction will continue to boom. That boom will drive improved economies of scale in inverters and construction processes. It would be nice to think that our construction and BOS costs will match those of Germany within a few more years. It may do so in states with progressive building codes and streamlined permitting. A key goal for SunShot, for the Interstate Renewable Energy Council, for Vote Solar and for the American Solar Energy Society (ASES) is to streamline distributed-power regulations, building codes, permitting and inspections at the national, state and local levels. The ASES Solar Citizen initiative works through our many local chapters to accomplish local change. This is especially important in assuring that all states require utility companies to buy power from small private and community power generators.
Cost of Regulation
It’s been said often enough to sound like a cliché, but the U.S. market for renewable energy is really 50 individual state markets, each with its own set of interconnect rules, local electric utility rates and rebates, tax incentives and permitting procedures governed by local jurisdictions. It means that financing packages have to be designed locally. Even national corporations funded by venture capitalists must now tailor financial packages state by state, county by county, even town by town. To the extent that states and regions can consolidate standards, large companies can standardize their financial packages and projects can be financed and built more quickly.
A number of states and cities have made great progress in simplifying permit applications and inspections. Vermont and Colorado are leading examples. But many more are still capable of tying up solar applications for weeks or months. Many homeowner associations and local zoning authorities have been slow to accept solar arrays in residential areas. These barriers will retreat, but slowly.
Community solar farms are just becoming practical and popular in key states (Colorado, California, Massachusetts, Utah). Sometimes called solar gardens, these projects enable solar investments for renters, apartment and condominium owners, and homeowners with shaded or covenant-restricted properties.
Another driver for the future growth of the residential and small-business PV market will be the rising cost of gasoline. All-electric and plug-in hybrid cars coming into the market right now from General Motors, Ford, Toyota, Nissan-Renault, Volkswagen, BMW and all the other large manufacturers will quickly become the commuter cars of choice, especially in geographically contained markets — islands, small nations and geographically constrained metropolitan areas. Hawaii, Denmark, Israel and California’s Bay Area cities are already installing the charging infrastructure to support this development. The average American commuter does about 40 miles a day. An electric car can do this for about $1.50 a day in recharging costs.
To the owner of a rechargeable commuting car, it quickly becomes obvious that a power source on the garage roof is the equivalent of free gasoline. Across most of the United States, a 2.5-kilowatt solar array will provide up to 40 miles of driving in a car per day — so an investment of about $9,000 would provide the equivalent of free gasoline for the 25-year life of the modules. In a decade, that might be a $5,000 investment, to offset gasoline costs of about $2,000 a year. Ford and General Motors have already forged partnerships with installer companies to help sell vehicle-charging solar arrays. If 1 percent of U.S. new-car sales partner with a new solar array, that could drive about 250 MW of new residential PV annually, worth more than $1 billion to the solar installer industry. The combination of home charging stations with community solar ownership is going to be an attractive proposition for millions of suburban American commuters.
Hot Markets Emerging
We’ve already mentioned a fast-emerging market for emergency preparedness. Solar heating and cooling and distributed PV also have a bright, fast-growth future across North America. Economies of scale dictate that a big piece of the growth in solar thermal over the next couple of years is going to be commercial- and industrial-scale heating for industrial process water. Solar thermal heat can also drive chillers for solar-powered cooling. We already see breweries, car washes, hospitals and hotels heating water with solar panels, instead of burning unpredictably priced natural gas. It’s very clear: Solar power is today’s technology, now.
So while it’s a tough time in the solar business, it’s also a boom time. The barriers to growth are not technical — the important technical problems have been solved. The barriers are institutional, political and economic. They consist of old rules, old bureaucracies and old ideas about marketing. We have friends among consumers, in state capitols and in Washington.
Go get ’em.
Seth Masia is an editor of SOLAR TODAY and director of communications for ASES. Contact him at firstname.lastname@example.org.