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Summary:

Two opposing reports were just published, each supporting solar. Which one should we listen to?

Solar Frontier 10 MW Komekurayama

Two opposing reports were just published, each supporting solar. Which one should we listen to?

The Brookings Institution published a paper, dated April 2012, authored by a collective of experts who I respect entitled, “Beyond Boom and Bust: Putting Clean Tech On a Path To Subsidy Independence.” It contends that “U.S. clean tech sectors could falter” based on the fall in U.S. Federal financial support from $44.3B in 2009 to $11B in 2014.

Separately, McKinsey just released a report dated Spring 2012 entitled, “Solar power: Darkest before dawn.” The McKinsey report notes: “Those who believe the potential of the solar industry has dimmed may be surprised. Companies that take the right steps now can position themselves for a bright future in the coming years.”

Clearly, these are opposing views. The view of the Brookings Institute is shaped by the need for continued renewable energy subsidies. The report notes:

“Without timely and targeted policy reform, several sectors are likely to experience more bankruptcies, consolidations, and market contraction ahead.  And yet the demise of the current clean tech subsidy system need not be disastrous.”

On the other hand, the McKinsey Report suggests “the unsubsidized economic potential for distributed residential and commercial solar photovoltaic (PV) in the United States is likely to reach 10 to 12 gigawatts (GW) by the end of 2012 – requiring $30B of new investment. “ This is the amount that could be installed at a profit because it would be competitive with retail rates charged by the local electric utility company.

As electricity prices continue to rise across the United States, more customers will be able to switch to solar PV – reaching almost 200 GW by 2020 –over $400B in new investment.

Two views

These two projects convey very different perspectives. One that shows that solar, and renewable energy for that matter, relies upon subsidies. Another that shows that technology and financial innovation will naturally take effect and solar will be deployed where it is profitable without subsidies.

I reject most of the findings from the Brookings Institute’s paper for maturing technologies like solar and the onshore wind industry. The reason? I believe it was written to evoke a response during a year of a Presidential election. Although it does note that the cost of solar is declining, it does not take into account the real cost increases caused by ever more complicated Federal policy.

Also, this report comes at a time when, according to Bloomberg New Energy Finance global investment in clean energy hit a record $260 billion in 2011, up 5 percent from 2010.

Rather than unwarranted concerns about investment in new energy solutions, it might be better for Brookings to uncover policy blocking a level playing field for energy investing.

Conversely, the McKinsey Report adds up demand from five customer segments sans subsidies:

  • 1). off-grid
  • 2). commercial and residential (good sunlight), commercial and residential (moderate sunlight)
  • 3). isolated grids
  • 4). peak capacity in growth markets
  • 5). new large-scale power plants.

McKinsey estimates that the amount of PV that could be cost effectively deployed globally could exceed a terawatt (1,000 GW) by 2020 based on costs declining to below $2 per watt peak (Wp) for a fully installed system – in the process saving over a gigaton of Carbon. McKinsey notes that even in the conservative case “the industry is still likely to install an additional 400 to 600 GW of PV capacity between now and 2020.”

According to both reports, 2011 global installed capacity exceeded 65 gigawatts (GW).

So, this recent data suggests that we are entering a new era of rapid solar deployment globally because of falling solar prices and dwindling government funding.

Dropping prices

The price of installed solar systems declined nearly 60 percent since 2009 and another 5 percent per year through the end of the decade.  The fact that over 300 solar panel manufacturers in China have closed their doors or Qcells filed for bankruptcy is a sideshow to global solar deployment. Panels are a commodity like a computer circuit board and costs should come down. It is a component of a system, not the system.

Second, whether by design, austerity, or political pressure government funding is dwindling.  This is good by forcing solar market players to become more efficient with their operations and to focus only on solar deployments that make financial sense on their own.

So, the Brookings Institute report was perhaps written to solicit a response for those who are perceived to “against” renewables.

The McKinsey report was written estimating real market demand. But it also does not address policy like phasing out all permanent subsidies that block a level playing field.

While the energy industry will always ask for more subsidies (natural gas, oil, and coal first in line), phasing out solar subsidies by 2017 is just fine. I believe that their end marks the beginning of a new era for solar power.  What we need now is more financial innovation to unlock free flow funding based on the best ROI for energy investments.

So, in the tale of two reports, may the market forces be with us.

Jigar Shah is CEO of Jigar Shah Consulting and founder of SunEdison.  He is an entrepreneur and visionary committed to leveraging the next economy by solving the challenging issues of our time.  Shah has recognized this as “The Impact Economy,” in which mainstream investors team up with corporations, entrepreneurs, and governments at scale to solve the big environmental and social problems of our time while generating compelling financial returns – not just average returns.  
 
He was the first CEO of The Carbon War Room and is a current board member.  He works closely with some of the world’s leading influencers and guides policy makers around the globe on key issues to implement solutions for global warming and sustainability that will unlock that next trillion dollar impact economy.

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By Jigar Shah, CEO, Jigar Shah Consulting

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  1. i must conclude the author would argue for an end to subsidies to fossil fuel.

  2. Depending on what data you choose to believe, the US government (taxpayers) have invested more than $150 billion in the last few years on wind and solar schemes. This may have leveraged about $300 billion in total investment. It’s fair to ask what we have to show for it?

    Nothing.

    Numerous studies have confirmed the fact that we haven’t reduced CO2 at all. After subsidies run out, as your analysis shows, there will be no additional deployment.

    Why are we pretending that wind and solar make sense? This false hope prevents us from seeking a real solution.

    To further prove this reality, Washington and Oregon are gearing up to export massive amounts of coal to China, where it will be used to generate electricity and to make wind turbines and solar panels… then ship them back to us. Can’t you see the lunacy?

    Instead of continuing to waste billions on clean-tech subsidies, how about we find a solution first? DOE does not have a Plan – nobody does. If we simply posted a $1 billion reward (yes, prize money) to find a solution, we just might find it. Dr. Chu’s repeated assertion that “there is no silver bullet” has no foundation. We should find out.

    Wind and solar will never be a significant part of our electricity generation mix. They are simply unreliable and expensive “supplements.”

    Find a solution, then spend money on deployment.

    My work is here: http://www.Solutioneur.com

  3. James Christopher Desmond Thursday, April 26, 2012

    Well said, Andrew West. Your and Shah’s analyses, and the renewable power industry itself, sea-changes in a heartbeat once cost-feasible electricity storage is found. Then my own grid-tied, 10KW Solar PV system (installed at $1.40/watt) will make both economic and ecologic sense (right now it’s making/saving me $1000 year, fetching me a 14-year payback cycle, but 65% of it was subsidized, and my local utility was not chafing at the bit to buy my variable power).

    At $1.00/watt unsubsidized installed price — a not unrealistic probability by 2015 — 100 million such arrays will spring up across the North American continent because Joe Six Pack will jump on it as money-maker (own a 30-year system paid back in 10, plus immediately increase your home’s value/equity just by installing it).

    But that still results in variable power, the ugly duckling of “grid politics.” Cost-feasible electricity storage solves that problem. With it Joe can self-consume and feed any of his excess power in a steady, more base-load-like manner via electricity storage.

    Hence, if liberal greenies (if Obama gets re-elected) can’t resist distributing government largesse, then we can at least urge them to do it by X-prizing for cost-effective electrical storage.

    More of that concept here: https://sites.google.com/site/freemarketsolarpower/home/electricity-storage

    My other work on Solar PV is here: JamesChristopherDesmond.com

    1. There is room for some middle ground reporting on this subject. Canceling some of the federal subsidies which may not be fair when considering other industries you could argue, in some cases, are better supported. Putting that argument aside for the moment, we have driven the costs down by investment in research and creating a competitive marketplace. Again please put aside the obvious point of a particular country dumping PV product on European and North American markets. In the end after all of that is sorted out the price per Watt of PV cells and modules has fallen and expect the price for PV Inverters to follow suit. More investment in that area may be required however energy storage should be the next global big play. The price of regulation and permitting you might expect will rise in America and the EU, but in the end we are now at a reasonable price to go to market. Yes, some companies will fail, some will move to more suitable manufacturing locales due to taxes, business climate, labor availability and price. That is all a very natural progression of a market getting on its feet and moving forward. Now if you show real value and finance incentives to the consumer they will get involved in the market and the next step in market growth can be achieved. I am not arguing a need to cancel all subsidies however we must look across the range of tax dollars spent in all areas and spend in the right places that make benefit to consumers and attract consumer spending.

      Dean Boe

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