A tale of two solar energy reports

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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