Good news on PV system trends?

On Friday, the San Francisco Chronicle reported on a new study on how the average cost of installed PV systems changed from 1998 to 2007. (H/t: Cleantech News). The report came from Lawrence Berkeley Labs, until recently the employer of Steven Chu, now Secretary of Energy in the Obama administration.

According to the Chronicle, the cost per watt of systems fell about 28% (presumably in nominal dollars rather than inflation-adjusted real dollars). The prices are approaching but have yet to reach grid partiy.

Small systems in Arizona and California (best in the country) have an installed cost of about $8/watt, while a UC study last year suggested that an installed prices $5/watt would be necessary to be cost-competitive.

Is the glass half-full or half empty? The author of the UC study, Prof. Severin Borenstein of UC Berkeley, argues for the latter

"What we're seeing in small-scale solar are incremental declines, not breakthrough declines," Borenstein said. "And in order for solar to really make sense, we're going to need breakthrough declines."

I don’t know what the appropriate analogies are. Going from the transistor to integrated circuits was a breakthrough, but most of what happened after that was incremental. Analog to digital communications was certainly a breakthrough, but most of what’s happened since has been incremental. And, of course, the nature of breakthroughs is that you usually can’t see them beforehand.

This morning, website BusinessGreen predicts that the price of (silicon-based) solar module prices will fall 30-40% in 2009, with an end to last year’s shortage of polysilicon. Angus McCrone of consultant New Energy Finance is quoted as saying that “massive increase in silicon supplies is coming through at the moment.”

Given that the capacity is coming online when capital is scarce for paying for solar systems, the increased supply and falling prices will either stimulate demand that might otherwise have disappeared, or lead to brutal price wars that weed out less efficient producers.

A glimmer of ethanol sanity

Political pandering to farm state politicians has caused the US government to waste taxpayer dollars on encouraging corn-based ethanol, which won’t survive without subsidies and has pushed up the price of food. I once had hope that the Obama administration would end the madness.

Fortunately, the market is going to solve the problem on its own, leading a shift to cellulosic ethanol that doesn’t consume food (or feedstocks).

BP (the former British Petroleum) has increased last year’s investment in Verenium Corp., creating a 50-50 joint venture to build a commercial-scale ethanol plant in Florida. The WSJ notes that their Louisiana pilot plant uses sugar cane stalks and the Florida plant uses inedible grasses. The announcement should have been good news, but Verenium stock has lost two-thirds of its value since the peak from the August BP investment.

For the industry, there is a question of how replicable the results will be. The WSJ environment blog notes this morning that reaching federal mandates for cellulosic ethanol would require $100 billion in capital investment and another 443 refineries the size of the BP-Verenium plant.

Still, the only way to find out whether cellulosic will succeed in the market is to try, so this week's news is a promising milestone.

14¢ solar?

The Cleantech Group posts an interesting article about planned price cuts in PV electricity generation in China:

Solar cell maker … were among the companies that submitted a proposal to the Ministry of Science and Technology to cut the allowance for solar power generation [from $0.584] to $0.146 per kWh in 2012. The government had planned to reduce the allowance to that price in 2015.

The 75-percent price drop by 2015 is feasible, according to the Jiangsu Photovoltaic Industry Association. Industry leaders had predicted last year that it would take until 2020 to reach solar electricity at a cost of $0.146 per kWh.

Part of the reason for the accelerated decline is the price drop for polysilicon, which makes up 70 percent of the cost of silicon solar photovoltaic products. Polysilicon hit a peak of $400 per kilogram in July 2008, falling to less than $100 at the end of the year. Polysilicon is now trading for $30 to $40 per kilogram and is likely to continue dropping.

The 14.6¢ cost is significant because it brings solar in line with fossil-fuel based energy.

If the policy takes effect, this would mark an important milestone on the path to grid parity.

However, I don’t quite know what to make of it: the article is unsigned and no source is given. And from my own research on telecom, when it comes to Chinese industrial policy, there’s always more than meets the eye.

Solar panel retail price index

One of the nice things about all the networking events in Silicon Valley is the chance to meet people who know more than you do (or at least know interesting things that you don’t). When it comes to PV, that includes pretty much the whole industry as far as I’m concerned.

At Wednesday’s meeting of the Silicon Valley Photovoltaic Society, I met a few old faces (like SVPVS head honcho Jurgen Daniel) as well as a few new ones. In the latter category was Barbara Nussel, who has a PhD in Chemistry from LMU in Munich. She worked in industry for 12 years before becoming a consultant here in the Bay Area helping companies “all along the solar value chain.”

As I do at any meeting, I ask basic questions that will help me explain the solar industry to my students (and eventually in a research paper). For PV, the main economic questions are “how soon to grid parity” and “what’s holding us up.” Leaving aside that grid parity is a moving target — between the cost of conventional grid energy and changing subsidies — and it’s still an impossibly complex topic.

After the meeting, Barbara sent me some information about the allocation of costs in the PV value chain which I’m still trying to digest. However, one really cool site she pointed to me was SolarBuzz.

In particular, their monthly US/EU “Solar Module Retail Price” report looks like an invaluable resource to provide a starting point for outsiders (journalists, academics, students) to get a relative sense of changing costs in the industry. According to report, the price of larger PV modules in the US fell from $4.84 to $4.81 per peak watt.

Of course, the price of a peak watt is not the same as the price per average output, let alone the levelized cost of energy. But that’s a subject for another time.

Is cheap oil bad news?

The NY Times today has caught up to the idea that good news for consumers (low oil prices) is bad news for the renewable energy industry. This is actually a story that’s been building for months.

Consumer are thrilled that oil prices have pulled back some 50% from their summer record highs, putting money in everyone’s pocket. Oil that was once $147/barrel is now hovering around $40, slightly up from $34/barrel in December. Local gasoline price (with high California taxes) went gone from over $4/gallon to less than $1.70/gallon before coming slightly above $2. These falling oil prices have meant falling consumer prices, down 1.0% in October and 1.7% in November — increasing consumer purchasing power.

By the same token, environmentalists have been worried that falling oil prices will lessen national interest in renewable energy and energy efficiency. I think the worries are overblown for several reason, not the least of which is the strong support for EE/RE that’s a certain outcome of the Obama administration.

Business Week attributes the current turmoils of the PV industry to falling oil prices. I’m not sure I follow the argument, given how small a role oil places in US electricity generation. Coal provides half, and together coal, nuclear and natural gas account for 88% of US electricity.

I think the other factors listed by BW are more important, specifically the excess entry of new startups fueled by VC investments (as they did with dot-coms in the 1990s, and disk drive and PC companies in the 1990s). There is also the general decline of capital spending by firms and consumers — both because cash is scarce (so long-term spending is being deferred) and due to difficulty obtaining financing. No cash, no panels, no sales.

While the nature and amount of Federal support for PV is unknown, our new president has already said he’ll spend money to improve the energy efficiency of Federal buildings. Although no public promises have been made yet, some activists predict this will include LED illumination —which would drive the new technology down the learning curve.

Also, the energy/environment “dream team” nominated for the new administration are expected to take steps to reduce CO2 emissions. The #1 target will be those coal-fired power plants, thus increasing the price of electricity more directly than any changes to oil prices.

On the transportation side, falling gasoline prices have cut sales of hybrid vehicles in half. Hybrids are more expensive up front, and payback periods have doubled since last May’s levels. But I think there will be an opening for real economy cars — like those we had in the 1970s after the first two oil shocks — which are both cheap to operate and cheap to buy. Honda is already on this trajectory

I originally thought there wouldn’t be much impact on electric vehicle sales in the near term. EVs penetration is well under 1% — not yet the early adopters in the diffusion of innovations (Everett Moore) sense. These earliest adopters (called “innovators”) want to be the first on their block to own one, and are not motivated by cost-benefit calculations.

However, I’ve since changed my mind. Everyone’s feeling poorer, including the rich who are willing to pay a premium for an EV: their stock portfolios are down, their retirement portfolios are down, their real estate portfolios are down. Like everyone else they are deferring capital expenditures as much as possible.

With or without cheap oil, there will be a shakeout of EV manufacturers. There has already been excess entry (30+ companies thus far) and thus consolidation or shakeout is inevitable. If the Big Three survive, they will add to the competition during a period with high up front costs and limited range. The pressures will be exacerbated by the wariness of individuals and businesses to make capital purchases.