Biofuels from 5000'

Biofuels are being used at 30,000' as airlines (and aircraft manufacturers) explore options for growing rather than drilling for Jet A feedstock. (They will actually be used at much higher altitudes if the DoD’s efforts to develop bio-JP5 and JP8 for military aircraft bear fruit.)

However, this week I gave a 5,000' overview of the biofuel industry to first year students at KGI, the Keck Graduate Institute of Applied Life Sciences. Although our college is primarily oriented towards biotech and big pharma, there is a substantial pocket of interest in biofuels.

The one hour talk was intended to help students understand the various economic, technical, and political issues regarding biofuels. It started with an overview of US energy usage, and the factors driving interest in renewable energy in the 1970s and today. It reminded students — some of whom are in their first semester of business classes — that preferences for commodities like energy are usually driven by price.

Why Biofuels? Why Now?

Even more so than solar, biofuels compete directly with oil. As a nice chart from oilism.com illustrates, the big issue is that across the past 40 years, almost every attempt to predict oil prices from the past has failed.

I still need to understand the technology better. My students are helping me learn more here, since our grad students with undergrad biochemistry or chemical engineering majors know far more about the science than I do. (Some of them are leveraging this expertise to get internships and jobs in the industry.)

In pulling together the talk, the one thing that was striking was how dependent the industry is today on policy. For example, on Wednesday Jim Lane of Biofuels Digest listed the 10 hottest topics facing the biofuels industry today — of which only four (or five) are under the control of private industry:

1. RFS. Hold or Fold? Critics want to scrap the Renewable Fuel Standard. …
2. Can Obama find the $510 million? The DOE, USDA and US Navy each pledged $170 million toward scale-up funding of advanced biofuels, for defense purposes. …
3. Elections. … Numerous Republican candidates … have decided to oppose ethanol subsidies.
4. Fuels, or chems, or something else? There’s been such a proliferation this year in target products, it hardly seems apt to call this publication Biofuels Digest anymore. …
5. The EPA’s attitude on waivers. WIll the EPA continue to enforce the RFS mandate for advanced biofuels based on production capacity …
6. RIN prices. Ethanol RINs remain at prices so low they hardly matter, but biodiesel RINs have been on a roller coaster…
7. BRICs and mortar. [interest in BRIC countries.]
8. Freshwater, arable land, potassium, phosphorus, nitrogen. … what about the looming shortages in freshwater, and nutrients such as phosphorus?
9. Feedstock development. … Where is all the low-cost camelina, jatropha, algae and so on? …
10. Money. … [As Phycal’s Kevin Berner said, “at scale, any advanced biofuels project is a capital pig.” For $100 million, you can finance maybe 20 strong pilots

At KGI, we’ve had two biofuels speakers so far this year, and expect another 3 or 4 before the year is out. I’m sure we’ll have more to report in the coming months.

Putting eggs in the wrong basket

The DOE’s loan guarantee program is coming to a close — going out with a bang and not a whimper. Today particularly it’s proving to be “news that’s fit to print,” as the old Grey Lady motto goes.

The political posturing in Congress over the Solyndra ”scandal” has its latest act today when the Solyndra CEO and CFO are scheduled to take the fifth today rather than tell what honestly happened. Meanwhile, the DOE Loan Programs Office is rushing to process the remaining Section 1705 applications in hopes of giving away $9.4 billion before the program expires a week from today.

The New York Times covered both stories on Friday, with Solyndra on the front page — above the fold — and an update on the LPO buried on page B7. Going with the politics angle, the NYT got its priorities backward — as did the LPO.

The article inside was the real bombshell:

First Solar Says It Won’t Meet U.S. Loan Guarantee Deadline
By Matthew L. Wald

First Solar, a major solar panel manufacturer, said Thursday that it would not be able to accept a partial loan guarantee of $1.93 billion for a giant solar farm in San Luis Obispo County, Calif., because it could not meet the statutory deadline of Sept. 30 to complete the Energy Department’s requirements.

To be fair, the NYT may have buried the story because it was scooped by TheStreet.com.

As the NYT and others reported, First Solar still expects to be funded for two other projects: Desert Sunlight (500MW) and Antelope (350MW). However, the 550 MW Topaz Solar Farm is one of the largest (global) PV installations ever planned, and is also an important project for California (specifically PG&E’s) efforts to meet RPS quotas). It would be located near the existing Diablo Canyon transmission lines, and also would also increase geographic diversity as one of the most westerly solar farms in a state that since the 1980s has sited generating capacity in the southeast (Mojave) desert.

First Solar shares are down 25% in the past week — both because of the specific concern about the loss of the loan guarantee and hit to projected earnings, but also the pall over the entire industry caused by the Solyndra scandal.

Testifying last week before Congress, LPO head Jonathan Silver emphasized that the DOE was emphasizing solar (and other RE) generating facilities over manufacturers (35+ vs. 4 IIRC) because the former have more predictable cashflows and thus are better investments. Particularly with power purchase agreements in place, once completed there is no market risk akin to what took out Solyndra.

Perhaps First Solar wasn’t going to get the loan for other reasons (such as environmental controversies). Still, leaving unfunded major solar farms is a big problem for industry, for society, for taxpayers and for greenhouse gas reduction.

It’s not that the Page One Solyndra story was uninteresting, as it noted all the warning signs available to the administration before the loan guarantee was issued. The online version released a series of documents showing various doubts about Solyndra’s application, impending commoditization, and then concerns by career officials about the process being rushed both in March and September 2009 for political reasons. It also shows the doubts that arose after the loans were granted, as well the successful efforts by Solyndra execs and lobbyists to convince officials to ignores these warning signs.

However, the DOE is rushing out the projects it can most quickly review which are not necessarily not the best projects. The problem of the frantic rush in the final month to commit half the loan balances — after badly investing the first loan guarantee — suggests a problem of prioritization.

A VC, startup or even a multinational knows that it can’t do everything and thus has to prioritize its efforts. Perhaps with the heady funding of stimulus windfall — plus an academic as department secretary — the DOE failed to have the market discipline and realism to focus its attention on the most important priorities. (Or maybe Congress just screwed up, by not allocating it as $6 million/year over three years.)

There’s the old saying: “put all your eggs in one basket — and then watch that basket.” With $18 billion available to invest, the LPO was not limited to a single basket, but there were other, safer investments it could have made that would have supported the cleantech industry.

Who lost Solyndra?

For the second time this summer, I found myself watching a C-SPAN congressional hearing on a major issue of economic policy. This time, the hearing was about the $535 million Federally guaranteed-loan to the now-bankrupt Solyndra, this time before a subcommittee of the House Energy and Commerce Committee.

The hearing was called by the (obviously hostile) GOP majority to compel testimony by two Obama administration representatives: Jonathan Silver (head of the loan guarantee program for the Department of Energy) and Jeffrey Zients, acting director of the Office of Management and Budget.

Silver, a former McKinsey consultant and private equity manager, didn't want to be bossed around by mere representatives with 1/10th or 1/100th of his net worth, but eventually settled down. Zients — with far narrower legal exposure — was much more cooperative and even a little more sympathetic to fiduciary concerns.

Some aspects of what happened were clear and undisputed:

• January 2009. The final decision of the DOE (under Bush) is to reject the loan without prejudice
• February 2009. After the stimulus bill passed, Obama's new DOE secretary wants to push through funding
• March 2099. The DOE offer a conditional loan commitment to Solyndra
• September 2009. The DOE approves the loan to Solyndra
• September 4, 2009 — Vice President Biden announces approval of the $535 million loan guarantee to allow Solyndra to build Fab 2.
• August 31, 2011: Solyndra declares bankruptcy, laying off 1100 employees

Before the hearing, the Washington Post published leaked e-mails that the approval was rushed so that Biden could make the announcement, although the Democrat majority argued it was quoted out of context. In one memo, a government analysts said the economic models forecast that Solyndra would go broke without additional funding.

The level of questioning by both sides was disappointing. Perhaps it is because both sides are populated lawyers who (mostly) are clueless about economics. Perhaps it’s because I know something about the industry and have been to Fab 2.

The arguments boiled town to a handful of issues, with the two sides were broken records. Republicans were trying to find out who lost taxpayer money and fight against “picking winners and losers.” Democrats (including Silver) tried to argue it was equally Bush's fault (even though Bush never approved the guarantee) and were obsessed with national "competitiveness" of keeping up with Chinese subisides for their solar companies.

In the most quoted statistics of the day, Silver stated that US global market share in PV fell from 40% in 1995 to 6% today (2010) versus 6% for China in 2005 and 54% today.

The two sides argued about whether the government renegotiated the terms of the loan (in violation of Federal law) or allowed Solyndra a workout. (Either way, the government’s interest became subordinated to a new round of private lenders — making it unlikely that the US will see the 20¢/dollar that it would have recieved with a liquidation).

While Solyndra was burning cash at the time of the loan guarantee, Silver (correctly) noted that this was not atypical for a high-growth company. (The point was echoed by far less knowledgeable allies on the committee). But as one of the representatives pointed out, the appropriate risk profile for private equity is different than that for taxpayer dollars.

Both Obama’s friends and foes see this an increasingly embarrassing scandal for the president. Republican moderate (and former CBS news producer) Peggy Noonan wrote

[One thing I’ve admired about Obama] has been a relative absence of deep political scandal. It's been good not to have a Watergate, a Whitewater. But there are signs this week that could change with the Solyndra loan scandal. The White House apparently tried to rush almost half a billion dollars of taxpayer loans to a solar panel manufacturer that later went belly up and took a thousand jobs with it. The reason for the rush: The awarding of the loan would make good PR. This looks bad, and if it's true, heads should quickly roll. It's one thing to be branded as "out of your depth but not corrupt," quite another when it's "out of your depth and corrupt." That is much worse.

Meanwhile, on Thursday night Jon Stewart of Comedy Central told Obama’s enemies “That Custom-Tailored Obama Scandal You Ordered Is Finally Here.”

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As ABC quoted Stewart:

“You know, stories about incompetence in government are only going to get you so far though. For this to truly become weapons-grade political fodder, you’re going to need incompetence with more than just a whiff of sinister cronyism,” Stewart said.

If this week’s hearing is any indication, we are unlikely to have any substantive discussion of the issues raised by the Solyndra default. Unlike Watergate, there was no bipartisan approach akin to “what did he know and when did he know it.”

The debate is a crucial one for the future of the American renewable energy industry. One side asks: can (and should) the government pick winners among American firms? The other asks: can the US industry survive without cheap government financing?

Ad hominem attacks over cleantech VC 'disaster'

At a TechCrunch conference in San Francisco, PayPal co-founder Peter Thiel said (according to VentureBeat):

“Cleantech is an increasingly large disaster that people in Silicon Valley aren’t even talking about any more. …The failure in energy and transportation points to a larger failure in clean energy — we aren’t moving any faster, literally, than we were when modern airplanes first came out.”

In response, Greentech Media’s Eric Wesoff wrote:

Peter Thiel Doesn’t Like Cleantech VC, Mankind
Eric Wesoff

Peter Thiel, known as the "Don of the PayPal Mafia," declared clean technology a “disaster” at Venture Beat's TechCrunch Disrupt 2011 conference in San Francisco.

OK, folks, go on home. Stop all this saving-the-world, green-energy stuff. It just isn't working. Thiel has spoken.
…
Greentech Media is talking about it. And so are plenty of Silicon Valley venture capitalists. And Thiel, evidently, hasn't driven a Tesla.

So, he isn't a fan of cleantech -- or at least the way cleantech investments have progressed.

Judging by these quotes in a Cato Institute essay, other things that Thiel doesn't like include poor people and women.

• I no longer believe that freedom and democracy are compatible.”
• “Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women [voting-ed.] -- two constituencies that are notoriously tough for libertarians -- have rendered the notion of ‘capitalist democracy’ into an oxymoron.”

Apparently his other disreputable choices (at least for GTM readers) include backing a libertarian for president and a Republican for California governor.

I have met and like Eric Wesoff and respect his knowledge of the industry. However, this sort of ad hominem attack is unseemly and (I would have thought) beneath Wesoff and a reputable organization like GTM. However, the green/cleantech/RE/solar press sometimes seem like they confuse their role as conveyers of accurate information with being cheerleaders for the industry.

There are thrree reasons why the attacks on Thiel are inappropriate (and unnecessary).

First, we all know that rich VCs are opinionated, have big egos and make claims supported by intuition, preferences (or self-interest) rather than facts. For every Peter “emperor has no clothes” Thiel there’s two Vinod "save the planet yesterday" Khoslas. As with any prediction, there’s no way to know which one will be correct— but eventually these investments either will or will not produce the huge returns expected by the VC limited partners.

Second, Thiel is hardly the only one making these criticisms. Respected academics and other analysts are pointing to the scale of investments and risks for cleantech that dwarf software, IT or even biotech investments — and were doing so a year ago. To me, cleantech (at least at the Solyndra level) seems to be a level even beyond Fred Wilson’s bifurcation between software and biotech. (There’s also additional analysis suggesting that VC may no longer be adequate for biotech).

Frankly, the solar industry doesn’t need a lot of new investments to start yet another me-too module company. After excess entry, the brutal price wars and associated shakeout are underway, and VCs have seen such shakeouts before in hard disks, PCs, software, dot-coms and just about anything else funded by the VC herd.

VCs that invested in capital intensive cleantech companies (also including autos and biofuels) will have to decide whether to continue to support their companies (pre-liquidity event) or pull the plug.

It may be that the near-term future for cleantech investing is smaller bets on niche players or companies that can become self-funding soon. Since VC euphoria is cyclical, that would only be a natural correction while investors wait to see how the current wave of investments play out.

An end to ethanol pandering?

Subsidies for corn-based ethanol have for years been the third rail of politics in Iowa, home of the first presidential caucus. Just like social security in Florida, even suggesting that subsidies be cut has been the kiss of death for would-be presidential hopefuls. The Iowa Corn Promotion Board even has its own pro-Ethanol website.

Thus, it was very encouraging to see this article in Friday’s dead tree edition of the LA Times:

GOP presidential hopefuls take dim view of ethanol subsidies
Most of the candidates want to do away with the government subsidies, which cost $6 billion annually. The once-unimaginable message has support even in Iowa.

By Seema Mehta, Los Angeles Times

For decades, nearly every candidate who hoped to win the presidency has visited this state to pledge their allegiance to King Corn and to the government subsidies that have propped up its price and increased demand for it.

But for the first time, the GOP field is dominated by candidates who want to do away with such kickbacks. One even used his formal campaign kickoff in front of the gold-domed statehouse here to announce his opposition to such subsidies.

The reporter had chapter and verse about how the Republican presidential candidates were opposed to adamantly opposed to ongoing subsidies for corn-based ethanol. The reporter speculated that this might have to do with the importance of fiscal conservatism in the GOP primary this year, or even a decrease in the population of rural voters (who would presumably benefit from the subsidies).

The timing of the report might be a bit embarrassing to the NY Times, which in an unsigned editorial Monday called on Republicans to cut a $100 billion, 10-year ethanol subsidy. The NYT said that ethanol subsidies are being protected by House Republicans, even though (as it noted) the Senate has been unable to institute a reform that supposedly has bipartisan support.

I suspect what is protecting the ethanol subsidy is that the farm states are swing states in 2012 both for the presidency and control of the Senate. I suspect neither side wants to risk losing any votes in these states — since those who lose a subsidy are more likely to get upset than the general voting populace will be happy.

So despite the support of the GOP field and at least one former president, the corn ethanol subsidy is still with us — at least a little longer.

Runaway green jobs inflation

Last month, the Brookings Institute published a report entitled “Sizing the Clean Economy” which promises:

The “green” or “clean” or low-carbon economy—defined as the sector of the economy that produces goods and services with an environmental benefit—remains at once a compelling aspiration and an enigma.

The report claims to offer a definition of green jobs, but that was done several years ago by a San Mateo consulting firm working for a Next10, a California advocacy group.

Of more concern is that Brookings is perpetuating — if not magnifying — the use of “green” as a political statement rather than an economic concept. For as reputable a group as Brookings — the most prestigious economic thinktank on the left — this is troubling.

In previous incarnation as a green jobs project director, I decided that the “green” jobs concept seemed like sausages — you didn’t want to see how they were made (calculated) or it would make you squeamish.

An article from the Mackinac Center for Public Policy (in Michigan) shows how we should ignore the command to “pay no attention to that man behind the curtain” — because (as in the movie) he is no wizard. (Yes, Mackinac is trying to unmask the wizard while Toto is just a naïve little dog, but…)

I was aware of one of the problems in the existing definition. Suppose a building contractor switches from installing inefficient windows to energy saving windows? Voilà! We’ve created a green job!

At least that building contractor (or roofer or electrician) is doing something to make the world a greener place by reducing the need for carbon-based fuels. However, what happens if a janitor switches from traditional chemical cleaning solutions to natural ones? Voilà! Another green job!

Jack Spencer of Macinac interviewed one of the authors, Brookings analyst Jonathon Rothwell, and it gets worse.

First, all mass transit jobs are counted. So if we had bus drivers 20 years ago or Pullman porters 75 years ago, they were working in green jobs and they didn’t even know it.

Then there’s the unappealing matter of garbage. As Spencer puts it:

Regarding the matter of waste industry jobs being included as part of the “clean economy,” did the report include everyone from the designer of a landfill to the person who picks up the trash from the curb?

“Yeah, that's pretty much it,” Rothwell said.

In other words, much of what is counted as “green” jobs are jobs that already exist, have existed for decades, and (unless we have gross labor inefficiencies) are not really growth areas of the economy.

If you add up all the bus drivers and trash truck drivers, it certainly dwarves the number of people working in companies that make renewable energy products. It probably even dwarves the people in the building trades installing solar panels, double-pane windows and CFL light bulbs.

Meanwhile, advocates, politicians, and reporters are republishing these estimates without reservation or qualification. The politicians are intentionally misrepresenting the truth — because they want to claim credit for private sector job “creation”. VCs seeking government subsidies also want to exaggerate the benefits of their tiny little companies. I guess (as in other stories) the reporters are merely economically ignorant naïve.

This is not particular to green jobs, but is a problem anywhere politicians get involved. The arguments for attracting sports teams and their stadia are similarly suspect, both because of the “multiplier” effect but also because money visibly spent at a pro football game is money not spent on a college game, movie, or just a 24-pack of beer. (The problem of unseen substitution is exactly as predicted by Frederic Bastiat 160 years ago).

Again in my efforts to develop renewable energy jobs, we found there weren’t all that many in California, and that the perception this was a growth area exacerbated the mismatch of supply and demand by attracting more job seekers than there were jobs.

One of these days people will realize how much fewer jobs have actually been created (as opposed to shifted) by green technologies. I look forward to the day when we measure such jobs the same way we measure IT jobs or aviation jobs — in specific (identified) companies and industries. Certainly that’s the only measure that matters to entrepreneurs, employees, investors and others that have real skin in the game.

Livin' On A Prayer

While I was out of town at a conference, one of the big RE stories in California was the 2010 year end report of the California Solar Initiative. California added 194 MW of solar generating capacity in 2010 (vs. 132 MW the previous year).

As Dana Hull of the Merc explained it (with my commentary inserted inline)

In January 2007, California launched an unprecedented $3.3 billion effort to install 3,000 megawatts of new solar over the next decade and transform the market for solar energy by reducing the cost of solar-generating equipment.
…
The California Solar Initiative's road map calls for 1,750 new megawatts of solar power to be installed on residential and commercial roofs in the state by 2016. [Presumably the other 1.25 GW is utility scale. But does state really require that they be on rooftops rather than (say) a carport in a high school parking lot?]

Through the end of the first quarter of 2011, California had an estimated 924 megawatts of rooftop solar installed at nearly 95,000 sites -- putting it more than halfway toward meeting the solar initiative's goal.

Overall, the report left me puzzled as to the efficacy (or expected outcomes) of the CSI program. If in 4.25 years we’re about halfway to the residential/commercial goals — but incentives are almost entirely depleted — where will the remaining adoption come from?

This called to mind the refrain of the Bon Jovi hit that should be familiar to anyone who’s been to a teen dance in the past 25 years:

Whoa, we’re halfway there
Whoa-oh, livin’ on a prayer
Take my hand, we’ll make it I swear
Whoa-oh, livin’ on a prayer

I don’t be able to predict the future, but I can see two possible scenarios for how the remaining 5+ years of CSI will play out.

One is that the price of the equipment is close enough to grid parity that the additional 800 MW will be installed over the remaining years without resort to subsidies (despite calls for California to institute a feed-in-tariff).

The other possibility is that with subsidies gone, adoption will plummet. In that case, the people hoping for success without money behind it inhaled a few times too many when attending rock concerts.

Commodity competition: good for buyers, bad for sellers

Except for those favoring symbolic consumption, electricity is by definition a commodity. For most intents and purposes, the sale of equipment that produces electricity is also commoditized.

Through technology improvements, manufacturing improvements, scale economies and good old fashion competition, prices are getting lower — bad for sellers, good for buyers.

One data point on wind comes from a GE executive, speaking Tuesday at the Renewable Energy Finance Forum-Wall Street. The quote comes from Kevin Walsh, who the GE website says is “Managing Director and Leader of Power and Renewable Energy at GE Energy Financial Services” — in reality the GE spokesman for its RE businesses, part of the $18b/year “Ecomagination” line of products and services.

The quote was in a Renewable Energy World Twitter tweet:

@REWorld: "Cost of wind down 40% in the past 3 years. Call it grid parity -- it's happening folks and that's exciting. " Kevin Walsh of GE #reffws

I looked for RE World to post a real story but so far it hasn’t happened. Still, 40% in 3 years is pretty impressive: not quite Moore’s law (50% in 2 years), but (at 80% every decade) well ahead of the historic PV trend of 50% a decade.

Still, on an annualized basis, PV can top that — both for the past month and the past three years. Prices plunged recently for the upstream supply of crystalline silicon, at least according to Bloomberg New Energy Finance:

The June issue of the Bloomberg New Energy Finance Solar Value Chain Index shows that the spot price of solar grade silicon fell by 28% month-on-month to $53.4/kg, relieving some pressure on downstream manufacturers of wafers and solar cells.

The price of 6" multicrystalline silicon wafers dropped by 23% in June to a record low of $2.39/piece. At the next point in the production chain, multicrystalline silicon cell prices were down 15% in June to $0.92 per Watt.

Module prices are also falling, though at a slower rate, with a 6.5% decline in June bringing crystalline silicon modules to $1.68/W. Chinese manufacturers are offering modules at significant discounts, with prices at $1.49/W, while modules manufactured outside of China are still priced higher, at $1.79/W. Prices for solar modules are now 58% lower than in the third quarter of 2008.

The “June” results are based on a survey conducted between June 2-8; “The Solar Value Chain Index started in May 2009 and the Module Price Index was launched in November 2010.”

Why the precipitous fall?

Martin Simonek, solar analyst at Bloomberg New Energy Finance, said: “Currently the markets are oversupplied with modules, as manufacturers seek to reduce their inventories in markets that are demanding cheap modules because of reductions in subsidies. Producers are preparing for a painful consolidation that could see several players exit the solar industry.”

Naturally, price cuts are a double-edged sword for the industry: lower prices spur adoption and total industry volume, but hurt (or kill) profits.

Or as another speaker at the REFF Wall Street conference remarked this morning:

@REWorld: Solar system costs cut by 1/3, now they don't like the stocks. People still aren't happy but we'll get there. -- Amy Smith #reffws

Note: I interviewed Simonek today for additional clarification. More in my next post.

Rational non-adoption of PV

On Monday, Matt Hunter of CNBC asked provocatively “Does the Solar Industry Have a PR Problem?” The story was based on a fall study done by students at the SJSU Sbona Honors Program, and as someone who helped mentor the students, I was proud to see it published.

However, the conclusions reported by CNBC were different than those of the March webinar that discussed the report. To quote from Hunter’s report:

Jim Nelson, CEO of solar manufacturer Solar3D, says that, true to the perception, solar technology is not quite ready for prime time.

The problem, says Nelson, is that solar is generally still not price competitive with fossil fuels for energy generation, says Nelson. Paradoxically, government efforts to subsidize the purchase of solar panels actually slow down the adoption of innovation that should ultimately make renewable energy more affordable.

By encouraging consumers to buy immature and inferior solar technology right now, government subsidies risk locking people into solar systems that are inefficient, expensive, and may or may not ultimately pay off to the consumer. “They’re encouraging people to use things that don’t work,” he says.

At current kilowatt-per-hour rates, solar energy costs about 4 times more than power drawn from the grid, says Nelson. (Energy Secretary Steven Chu aims to bring down the cost by 70 percent to 75 percent by 2020.)

Reduce that by another quarter, and solar becomes attractive for both residential and industrial customers. (10 cents a kilowatt hour is the average cost of electricity in the U.S.)

Hunter quoted another expert that noted the payback period for residential PV is normally 10 years or more.

The reality is that today, solar makes economic sense for some people but not for others. (As Hunter notes, some people who are affluent or “passionate about green energy” may buy it even if it doesn’t pencil out.)

There are five things that drive the economics o PV adoption:

1. cost of the system
2. subsidy for the system
3. amount of sun
4. cost of capital to finance the system
5. the price of the substitute (grid power)

The press tends to focus on the first three. However, in talking to people in industry, the real action is where electric rates are high: with PG&E’s tiered rate structure, running an air conditioner in the Central Valley is prohibitively expensive and thus even an expensive PV system looks attractive.

Certainly the “grid parity” curves on PPT decks for the past decade assumed increasing fossil fuel prices (which may be a false assumption). In places like the Central Valley — or especially Hawai‘i — the substitutes are already expensive enough to make solar cost-competitive.

As it turns out, on Monday I had a farewell lunch with one of my coworkers, Gita Mathur of the SJSU College of Business. Gita noted that her 1985 first doctorate (of two) was on GaAs photocells, and the lab efficiencies she was demonstrating 25 years ago were almost the same as those for commercial products today. In her view, the subsequent innovation was mainly in the packaging — reducing the balance of system costs (including labor) to get those cells installed and available to generate power. This is certainly the area where industry continues to make strides, and in fact the basis of the low cost (and low efficiency) thin film startups.

Green vs. Green

USA Today updates the rest of the USA today on the fight in the Mojave between the supporters of Tortoises for Global Warming™ and the anti-AGW environmentalists.

The headline and the first paragraph say it all:

Solar plans pit green vs. green
By Keith Matheny

Plans to create huge solar energy plants in the deserts of California, Arizona, Nevada and elsewhere in the West are pitting one green point of view vs. another.

The There’s really nothing new for those who have followed the controversy for the past two years, but the article does update the score: 9 projects approved and 2 pending (plus 2 approved in Nevada). It also mentions “More than a dozen other utility-scale solar projects are in the permitting pipeline in California, Nevada and Arizona.”

The article does briefly mention the controversy over Ivanpah — as well as its $1.37b in Federal loan guarantees — but not the planned IPO of its intended operator, BrightSource.

I’d commend Matheny (of the Palm Springs Desert Sun) for bringing this to a national audience, but Ivanpah alone has been covered a few dozen times in the New York Times. Still, any publicity on the issue is good for the public policy debate over the serious tradeoffs here between the predicted (although not provable) impacts on AGW or certain endangered species.

What counts as renewable energy?

While working on a paper, I was looking through my notes about eligibility for California’s Renewable Portfolio Standard.

The California PUC has an interesting and comprehensive taxonomy of what counts as renewable energy:

• Biomass - any organic material not derived from fossil fuels, including agricultural crops, agricultural wastes and residues, waste pallets, crates, dunnage, manufacturing, and construction wood wastes, landscape and right-of-way tree trimmings, mill residues that result from milling lumber, rangeland maintenance residues, sludge derived from organic matter, and wood and wood waste from timbering operations.
• Biodiesel - Biodiesel is a type of biofuel made by combining animal fat or vegetable oil (such as soybean oil or recycled restaurant grease) with alcohol and can be directly substituted for diesel. (Source: MTC/link)
• Fuel cells using renewable fuels – electricity produced from the creation and breakdown of hydrogen. If the hydrogen source is a renewable fuel, this technology is RPS eligible.
• Digester gas - gas from the anaerobic digestion of organic wastes.
• Geothermal - natural heat from within the earth, captured for production of electric power, space heating, or industrial steam.
• Landfill gas - gas produced by the breakdown of organic matter in a landfill (composed primarily of methane and carbon dioxide), or the technology that uses this gas to produce power.
• Municipal solid waste - solid waste as defined in Public Resources Code Section 40191.
• Ocean wave - an experimental technology that uses ocean waves to produce electricity.
• Ocean thermal – an experimental technology that uses the temperature differences between deep and surface ocean water to produce electricity.
• Tidal current - energy obtained by using the motion of the tides to run water turbines that drive electric generators.
• Solar Photovoltaic - a technology that uses a semiconductor to convert sunlight directly into electricity.
• Small hydroelectric (30 megawatts or less) - a facility employing one or more hydroelectric turbine generators, the sum capacity of which does not exceed 30 megawatts.
• Solar thermal – Use of concentrated sunlight to produce heat that powers an electric generator.
• Wind - energy from wind converted into mechanical energy and then electricity.

Does anyone notice what’s missing? (Hint: it’s only the largest source of renewable energy in California, the US and the world.)

BFD: Biofuels boom or bubble?

The next few weeks will bring two more IPOs by California biofuels companies: Solazyme (of South San Francisco) and Ceres (Thousand Oaks.)

Francis Gaskins of Seeking Alpha analyzes the Solazyme IPO (SZYM, due Friday) while Jim Lane of Biofuels Digest (BFD) analyzes that of Ceres. By my count, this will mark five IPOs by US biofuels companies in 15 months, following Codexis (CDXS, April 2010) Amyris (AMRS, Sept. 2010) and Gevo (GEVO, Feb. 2011). All but Gevo are based in California.

Gaskins is bullish on Solazyme while Lane has a healthy skepticism about the industry, especially the pre-revenue companies. In fact, Lane’s treatment of the Ceres S-1 is the funniest (or at least snarkiest) S-1 analysis I’ve seen in years. (Lane was equally through but a little less cynical when he analyzed the Solazyme S-1.)

The best part of Lane’s analysis of Ceres is when he reads between the lines on the discussion of risks:

In IPOspeak: We have a history of net losses; we expect to continue to incur net losses and we may not achieve or maintain profitability.
In English: Our investors are tired of losing their money, and may wish to lose some of yours before reaching profitability.

In IPOspeak: The markets for some of our dedicated energy crops are not well established and may take years to develop or may never develop and our growth depends on customer adoption of our dedicated energy crops.
In English: If biofuels and biopower do not scale globally, we are toast.
…
In IPOspeak: We are at the beginning stages of developing our Blade brand and we have limited experience in marketing and selling our products.
In English: Sir Richard Branson doesn’t work here.

In IPOspeak: Our principal competitors may include major international agrochemical and agricultural biotechnology corporations, such as Advanta, Dow Chemical, Monsanto, DuPont and Syngenta, all of which have substantially greater resources to dedicate to research and development, production, and marketing than we have.
In English: Big Ag may swoop in and take away all our toys.

In IPOspeak: A significant portion of our revenue to date is generated from government grants and
continued availability of government grant funding is uncertain.
In English: Uncle Sam is out of money.

Profits are scarce among this crop of young companies:

• Ceres is in the business of developing seeds for sweet sorghum that are optimized for making biofuels; it is essentially pre-revenue.
• Gevo was also pre-revenue.
• Amyris IPO’d after it had significant revenues.
• Codexis had revenues but with $150+ million in accumulated losses, about 3x that of Solazyme.

As it is, at the close of business Wednesday, Amyris was up 80% from the IPO price, Gevo up 20% and Codexis down 30%. Three is not a large enough N to generalize, but it does suggest the risks of the segment.

Solazyme has a better story to tell than Ceres. In 2010, it had losses of $16.2 million on revenues of $37.9 million. So the “history of net losses” comment from Ceres (and Lane’s translation) might also apply to Solazyme, but their revenue growth certainly provides more of a track record for investors. Solazyme is also #2 on the Biofuels Digest top 100 list of 2010, or #4 in the expert’s list — after Amyris, LS9, POET and ahead of Gevo. (Ceres is #13 on both.)

While biofuel IPOs are happening now without profitability, for most of the past 30 years, a new company had to be at least cash flow positive (or positive EBITDA) to IPO. A firm that’s coming out pre-revenue (or at least pre-profitability) suggests it believes that it’s more urgent to get the cash sooner from newer investors rather than waiting to solve its profitability problems and thus command a higher multiple. That also suggests that the current owners think there is a chance that the company won’t make it to sustained profitability, or (as Lane put it) “we are toast.”

The only time I remember that tech company IPOs were dominated by money-losing (or pre-revenue) companies was the late 1990s. And we all know how that turned out: there were a few winners and lots of losers. A case can be made for any of these companies being the survivor, but the odds are most will be gone (or merged away) in 5 years.

A call for government inaction

A recent S&P report suggests that the US electric utility industry would be better off if the US government picked consistent inaction over inconsistent intervention in the energy sector.

The report, “U.S. Electric Utilities Seek Clear Direction From Washington On Energy Policy,” suggests major uncertainty for US utilities until more coherence is achieved. (I haven’t seen the report because it seems to be only for RatingsDirect subscribers unless you want to pay $500.)

Energy policy is of course one of the messiest examples of government intervention in the entire country, with national, state and municipal policies that include direct regulation, taxation, subsidies and land use. A consistent policy is essential for industry to make long-term capital investments, whether it’s a 10 year search for oil or gas, a 20 year lifespan for solar panels or a 30-40 year lifespan for a power plant.

A posting by Mimi Barker on RiskCenter summarizes the problem:

Standard & Poor's Ratings Services believes that U.S. electric utilities and their bondholders would benefit from a clearly articulated, comprehensive, and consistent U.S. energy policy.
…
Any energy policy evolves from a complex and intertwined system of legislative bodies, executive departments, and courts, not all of which are federal, that influences how the private sector develops energy resources and allocates capital. So when we say energy policy, perhaps what we mean is political leadership that coalesces and shapes public opinion in a way that supports long-term investment in energy assets.

"In some ways, overall regulatory risk in the sector has moved slightly from the states to the national stage as big-picture issues--with big price tags--like climate change, economic stimulus, and the reliability of the transmission grid threaten to overtake the mundane matters of rate cases and earned returns as the key factors supporting credit ratings," said Standard & Poor's credit analyst Todd Shipman.

Sheila McNulty on the FT offers another quote from the report:

Making resource decisions and committing a utility’s balance sheet to support those decisions has never been more complicated or littered with more potential pitfalls, and diminishing credit quality is a result.

And, as she notes, industry is starting to feel the confusion.

John Rowe, chairman and chief executive of Exelon, the power producer, spoke about this issue in a recent speech when he said US energy policy has been driven by a mess of mandates and power subsidies for nuclear, cleaner coal, gas, wind solar and other renewables – a constant urge to pick winners and losers. In his words: “Congress needs to slow down. We are already doing enough to give all of these things a chance.”

We have a fundamental collision between the political world — where the goal is a 15 second soundbite on tonight’s new and long term is an election 2 years away — and the long-term time horizons of all companies in the energy sector.

In the US, we’ve come to take a steady reliable supply of electricity as a given, something that distinguishes us from, say, rural India. The mismanagement of California’s electricity deregulation shows us that policy that can make the system less reliable and more expensive. And the recent contraction of Japanese industrial production due to electricity shortages shows us the broader economic impact of an unreliable energy infrastructure.

It would be nice if that would be enough to make the politicians pick stable rules and then butt out, but of course that’s not going to happen. This is one of those rare cases where I wish we had a Lee Kuan Yew.

A testament to the power of bureaucracy

While many Californians seek to promote green power, there’s an even strong and more renewable form of power: government bureaucracy.

On behalf of SolarTech, the PV trade association, our SJSU business honors students have completed one study on overcoming permitting obstacles for residential solar in the state, and are about to finish another.

Meanwhile, the Sacramento Bee shifts the problem from an insider’s concern to a broader political audience in an article entitled “Permit Process Clouds Solar Energy Project.” It notes that politicians have talked about streamlining permitting for utility-scale solar, but not residential solar. This oversight calls into question the goal of a “Million Solar Roofs” by 2018.

A few paragraphs capture the heart of the problem:

Solar providers often complain about having to wait hours in line to submit permits and weeks to get final approval.

The result: Installing rooftop solar panels often takes two to three months from start to finish. In contrast, installing a central air conditioning system, which requires about the same amount of work, can take two weeks, Hahner said.

PV may have some safety issues. The industry clearly needs a technical solution — say UL certification of computer-controlled panel/inverters — that would make connecting a solar panel as foolproof as plugging in a refrigerator or room-sized air conditioner.

Even more crazy is when these regulations apply to solar hot water, which as my colleague Jim Mokri pointed out, is not high technology but 19th century plumbing.

The Bee offers this vignette:

Ed Murray, president of Rancho Cordova-based Aztec Solar Inc., said he ran into a number of hassles trying to get a permit from San Joaquin County for a simple $5,000 solar water heater.

Usually these kinds of permit applications are handled over the counter, but this one turned into a drawn-out process. Murray said he and his employees had to drive to the unincorporated Stockton area three times as part of the review.

"The customer was about to pull out of the project because he was so frustrated that it was taking so long," said Murray, who noted that the permit was approved Thursday.

This is one of the main reasons that I see California’s RE policy as mereley Grand Kabuki by publicity-seeking politicians, rather than a serious attempt to reduce carbon emissions or the use of fossil fuels.

Politicians can’t change the cost of silicon, the efficiency of CIGS, the cost of capital or the scale efficiencies of the big five Chinese manufacturers. They can, however, change regulations — if they really want to. But obviously they don’t want to.

The one and only century of fossil fuels

In doing research for a paper, I came across a really helpful review paper by Vaclav Smil, published in 2000, that summarizes the trends of mankind’s energy consumption in the 20th century.

The abstract (accurately) promises a broad overview:

Civilization’s advances during the twentieth century are closely bound with an unprecedented rise of energy consumption in general, and of hydrocarbons and electricity in particular. Substantial improvements of all key nineteenth-century energy techniques and introduction of new extraction and transportation means and new prime movers resulted in widespread diffusion of labor-saving and comfort-providing conversions and in substantially declining energy prices.

The paper was published at a time when concerns about depleting natural resources and polluting the environment were long established, but before the recent emphasis on renewable energy sources and reducing carbon emissions.

Smil offers a particularly vivid illustration about how changes in our lifestyle have changed per capita energy consumption

In 1900 even a well-off Great Plains farmer holding the reins of six large horses while plowing his wheat field controlled—with considerable physical- exertion while perched on a steel seat and often enveloped in dust—sustained delivery of no more than 5 kW of animate power. A century later his counterpart driving a large tractor effortlessly controls more than 250 kW while sitting in the air-conditioned and stereo-enlivened comfort of his elevated cabin.

In 1900 an engineer operating a powerful locomotive pulling a transcontinental train at a speed close to 100 km/h commanded about 1 MW of steam power, the maximum rating of main-line machines permitted by manual stoking of coal. In 2000 a pilot of a Boeing 747-400 retracing the same route 11 km above the Earth’s surface merely supervises computerized discharge of up about 120 MW at a cruising speed of 900 km/h.

He notes that the shift to fossil fuels actually only happened late in the 19th century, and supplanted biomass only in the 1890s: “The twentieth century was thus the first era dominated by fossil fuels, and the 16-fold rise of their use since 1900 created the first high-energy global civilization in human history.”

No matter what happens on RE policy, global warming and related issues, it’s clear that the relative (if not absolute) contribution of fossil fuels to the operation of society will be considerably diminished at the end of the 21th century. Since I won’t be around to see it, I can only speculate on what Smil’s successor will write in 2100.

Worst case, we’ll run out of energy (or it will become so expensive) that our standard of living crashes to 19th century levels or below. Best case, we both reduce per capita consumption (through insulation, online meetings, transportation improvements) and increase our supply of renewable electricity and fuels that a larger fraction of mankind enjoys a high standard of living while the total consumption of fossil fuels falls dramatically.

Dr. Smil is a prolific author on energy and the environment, with 22 books to his name. I’ve already purchased one book from Barnes & Noble (for my NookColor) and will look into others.

References
Vaclav Smil (2000) “Energy in the Twentieth Century: Resources, Conversions, Costs, Uses, and Consequences,” Annual Review of Energy and the Environment, Vol. 25 (2000) pp. 21–51. DOI: 10.1146/annurev.energy.25.1.21

A new class of carpool cheaters

The Merc reports that the Prius and other California hybrid owners are finally losing their carpool cheating stickers. Come July 1, the 85,000 privileged owners of a yellow sticker will no longer be allowed in the carpool lane.

Instead, the $1,500 subsidy to affluent buyers of expensive high-mileage cars will pass to those who buy an EV such as the Nissan Leaf. (Chevy Volt owners need not apply). We are repeating the mistake again, just with another class of privileged few.

Transportation writer Gary Richards found at least one honest Prius owner who recognizes the mistake:

“I am happy to see the carpool access experiment come to a much-deserved end,” said Ted Coopman of Santa Cruz, who never applied for stickers for his 2005 Prius. “While I support inducements for buying hybrids, granting carpool access was a major mistake. Hybrids don't get people off the road, and reducing traffic is the primary reason for carpool lanes.”

If gasoline prices remain high, California is going to need the lanes for actual carpoolers. So lets hope that the state doesn’t fill those lanes with 85,000 single-occupant EV owners.

RE: viable niche vs. subsidized mass market?

In Wednesday’s WSJ, engineering consultant Josh Prueher argues that the way to promote renewable energy is to encourage adoption in self-funding niches rather than proffering government subsidies to help spur adoption in mass markets.

Prueher points to the inherent problem with any subsidies:

In the renewable energy industry, subsidies typically involve federal and state governments imposing a small tax or an electricity rate hike on each one of us. The government then awards the proceeds to a few winners that, in the best case, have demonstrated the technical and business potential to grow into competitive companies. In the worst case, they've demonstrated little more than superior lobbying capability. In all cases, subsidies deny the market its proper role of directing capital. It's important to note that the traditional energy industry also receives billions of dollars in government subsidies each year; perhaps it's more effectively hidden from public scrutiny.

The PV entrepreneurs and managers say that subsidies are a necessary evil in the short term but they look forward to when they are no longer necessary. Some seem more sincere than others.

Instead of these subsidies, Prueher notes that we already have a fully functioning unsubsidized market where RE has a cost advantage: the off-grid market. This market — whether rural US or military outposts — is typically served by diesel generators.

The logistics cost of supplying fuel to these generators — whether on an offshore platform or the military front lines — are “staggering”:

For instance, unlike you and me, who pay on average from 3 cents to 16 cents for a kilowatt hour of electricity from the grid, these large consumers pay between 50 cents and $2.

From this, we already know what an unsubsidized RE market looks like:

Those high costs are sending a strong, clear price signal to the energy market to provide cheaper and more reliable sources of electricity and fuel. Namely, we need to develop renewables, energy storage and energy-efficient technologies that do not require expensive logistical support. While the off-grid market is small relative to the on-grid energy behemoth, it is of sufficient size and depth to justify strong competition, private investment and product development—without subsidy.

While he’s right in principle, in practice I don’t see how we get from here to there. The venture-funded SV PV companies and the Chinese-funded Big Five are addicted to purchase subsidies, whether as taxpayer rebates or (as in feed-in tariffs or RPS standards) mandated wealth transfers from electricity users.

If I were doing a bootstrap startup, I’d make a self-funded startup that targeted a cost-effective niche. But the nature of venture-funded startups that their founders/owners have to bet it all on double-zero — to swing for the fences — because it’s better (at least for venture investors) to have a small chance of huge success rather than a good chance of a modest success.

Total eclipse of independent US solar companies?

The purchase by Total SA of a controlling interest in Sun Power is sending shock waves through the solar industry.

The investment in 60% of the Class A (SPWRA) and Class B (SPWRA) shares would value SunPower at around $2.3 billion — up about 40% from the pre-offering price.

Even with the jump, Sun Power is only the second most valuable US solar company. First Solar (FSLR) now has a market cap of $12b. Of course, First Solar is the world’s second largest solar company (by 2010 PV capacity) and thus is nearly in a league by itself.

Various reports position this as a decision by oil companies to diversify their energy business against future shifts in supply and demand. Here’s the Dow Jones version:

Total, which has had an active solar focus since 1983, decided to invest in SunPower after a two to three-year search "for a strategic partner in the solar business," Philippe Boisseau, head of Total's gas and power division, said in an interview. He added that solar power will become a crucial energy source in Europe and North America and that Total intends to become a global leader in the solar industry, in addition to its core oil and natural gas businesses.

"Solar will gradually take its share" of the world's energy market, Boisseau said. "We want to be there when this happens."

Of course we’ve been down this road before — oil companies bought solar companies in the 1980s but didn’t do a terribly good job of running them.

Given the IPO difficulties faced by other solar companies (like other other tech startups), the idea of acquisition by big oil companies has raised the market value (and hopes) of other solar companies — both private and public. For example, Motley Fool wonders whether LDK Solar might be undervalued.

But will there be any US solar companies a decade now? Will they be subsidiaries of oil companies (or Chinese solar companies)?

I would think that a company that manufactures a high-volume, high-demand product should be able to create a positive cashflow self-funding business. The real problem is how much capital does it take to get to that point?

The seven large Chinese crystalline silicon PV companies got $30b in government money to create scale. There’s no US company that’s going to get $4b in private venture or debt financing. Being acquired by a big sugar daddy is the only way they can get this kind of money.

At $4.2b, Total SA’s recent quarterly profits are only the fifth largest of the world’s oil companies, leaving four other companies with even more cash to fund expansion of a PV manufacturer.

Cashing out on Mojave solar bonanza

BrightSource Energy — the Oakland-based builder and operator of California solar thermal plants — has filed for a $250 million IPO. The S-1 doesn’t say how many of the 94.3 million shares it plans to sell

According to its S-1, the company was losing $40+ million/year but last year losses rose to $71.6 million with cumulative net losses of $177.3 million. The company did end the year with $37.8 million in cash equivalents on hand. But the S-1 says “executing on our pipeline and expanding our business requires significant additional capital.”

The S-1 said that it‘s signed 14 contracts with PG&E and/or SCE to deliver 2.6 GW of solar capacity. The first of these is the Ivanpah project, with a gross capacity of 392 MW on 3,600 acres near Baker in the Mojave Desert, on the I-15 between Los Angeles and Las Vegas.

The S-1 says this is the first of the company’s projects, with construction begun in October 2010, the first phase due in 2013 and the remainder in 2014. The project received a $1.6b loan guaranteed by DOE, as well as $300 m in equity from NRG Solar, $168m from Google and $130m from BrighSource.

Veteran solar scribe Ucilia Wang sees this as a multi-million dollar bet on Ivanpah — and that seems like a good way to interpret it. The success of Ivanpah (and Coalinga Solar-to-Steam) are essential to getting financing for the remaining projects.

Some have questioned whether solar thermal (such as the BrightSource solar tower) can be cost competitive with PV in the long run. That’s not the real question: can BrightSource execute on its current plans (without internal or external delays) and deliver the contracted energy reliably?

Assuming there are no loopholes in the contracts, the Power Purchase Agreements are (by design) bankable revenue sources — representing the desperation of California utilities with the RPS gun to their head, buying from (thus far) the only gigawatt-scale game in town. Still, it’s hard to see how a successful IPO for BrightSource helps any of the PV companies, or for that matter those of the solar thermal operators who lag BrightSource by several years.

California PV: at what price?

With Gov. Brown’s assent, the California legislature has formalized the 33% in 2020 Renewable Portfolio Standard imposed by Gov. Schwarzenegger. Even without a feed-in tariff, the state is marching towards having more RE usage than the rest of the US or Western Europe.

A quick glance at the California Solar Initiative data — back when the CSI incentives were relevant — shows that residential solar is relatively inconsequential in the state’s RE energy footprint. The real action is on large commercial and utility scale installations.

Last year saw a huge rush of utility scale plants being started in the Mojave before before federal subsidies expired.

However, energy writer Richard Nemec wonders whether these plants ever made economic sense. Earlier this week he wrote in the Los Angeles Daily News:

nine projects were given the green light, collectively totaling enough megawatts to equal about two San Onofre nuclear plants. Three months into 2011, however, two of the largest projects slated for the Southern California desert regions have been sold, utility contracts canceled and their futures put in doubt.

To date, three of the major projects are under construction, but a lot of that work is preliminary, awaiting more complete financial backing.

In addition to problems completing projects, there is also the price that the utilities (and thus businesses and consumers) will be paying for their power:

The state regulatory commission's consumer unit report concluded that approved solar contracts for the state's major private-sector utilities have collectively been about $100 million overpriced. This sort of largess does no one any good.

One reason for paying inflated prices is the RPS standard. Another is the expiring federal subsidies which caused firms to rush deals to regulatory approval before key issues were resolved.

This is perhaps the Achilles heel of utility scale: the small-numbers irrationality. When you have nine deals, it takes only a few bad decisions to have one-third or half of the projects collapse.

For residential and small commercial, some owners may behave irrationally, but in the long run we’ll expect buyers to act in their own self-interest: if the systems make sense, people will buy them and if they don’t, they won’t. (Yes, some consumers will pay a green premium to save the planet, but most probably won’t.)

The CPUC report looked at 184 projects — you would think enough to see a pattern in the proposals, and perhaps for the industry to figure out what’s feasible and not feasible. But I think the combination of RPS and federal subsidy deadlines induced an irrationality into the process.

The legislature (and the new governor) has made it clear that it wants more RE power used in the state. It remains to be seen whether they will pay attention to the inherent flaws in their mandated approach — rushing adoption ahead of grid parity — or will just ignore the wasted millions (if not billions) because it doesn’t show up as a tax that they can be blamed for.

US: the once and future PV market

Once upon a time, the global PV market was a US market.

Some 60 years ago, AT&T created the PV market. The industry was sustained during the 60s from military and space applications.

This is not just PV. Meanwhile, during the 1970s energy crisis solar hot water became mainstream (at least temporarily) as Californians replaced water heaters and pool heaters with rooftop collectors. In the 1980s, California created SEGS, the largest facility in the world that once comprised more than 90% of the world’s capacity.

As any reader of this blog knows, the German feed-in-tariff (and similar subsidies in selected other EU countries) has created huge growth and shifted the bulk of the global PV demand to Europe. In 2010, 80+% of the global demand was in Europe — and of that Germany was by far the largest with 8+ GW of capacity added in 2010.

Wednesday at the SolarTech 2011 Solar Leadership Summit, Shayle Kann of GTM Research talked about the growth of US PV demand, based on a state-by-state survey it did in cooperation with SEIA.

First off, Kann said "There is really no such thing as a US market. There’s a loose collection of 50 state markets” or even 3000-utility-specific markets.

In 2010, the US installation of PV reached 878 MW (volts DC, i.e. pre-inverter), up from 290 MW in 2008 and 435 MW in 2009. While US growth has been explosive, so has the US share of the global market , flat at 5-6% over the past six years.

However, GTM is expecting the US market growth will now outpace global sales — continuing to double annually, with global growth only 17-18% per annum. If these trends hold, the US share of the global market could triple to 16% by 2015. With European growth slowing, PV companies are seeking growth elsewhere and Kann said they're targeting the US for that growth.

The top 10 states account for about 85% of the US market. According Kann's data, 2010 was the first year that California did not garner for the majority of the US market: from 50.3% down to 29.5%. NJ remains number two (up to 15.6%), but Nevada (6.9%) and Arizona (6.2%) leapfrogged Colorado (6.2%) within the top 5. Florida fell both in absolute and relative terms (from 8.3% to 4.0%).

One key element of growth will be utility scale systems: 6.4 gigawatts (7 years of demand) of utility scale capacity is contracted — with all of that online by 2015. Another 13.6 GW are announced but do not have a signed PPA.

Interestingly, US manufacturing (per GTM numbers) has remained constant at around 38-40% of the market. While Chinese makers have gained share, it’s been at the expense of Japanese makers rather than US ones.

Still, PV remains a drop in the bucket for US electricity generation: PV to date totals 2 GW peak capacity, whereas 50 US power plants (mostly hydro and nuke) have 2GW capacity each. So, as Kann noted, it will be a while before PV actually has a meaningful impact on US electricity generation.

The Tohoku Earthquake and the future of nuclear power

Both the Mercury-News and the LA Times had articles today on whether the problems of Japanese nuclear plants after the Great Tohoku Quake of 2011 (now upgraded to a 9.0 on the Richter scale) could happen in California. This of course is part of the renewed stirring of the nuclear controversy in the light of this tragic quake.

The Merc story was disappointing. After noting that two plants provide 4.7 GW (12%) of California’s electricity, it quoted PG&E (operator of Diablo Canyon) and Southern California Edison (operator of San Onofre) saying predictable things and opponents saying predictable things. It also (as is want around here) gave undue credence to fringe critics rather than actual experts.

Perhaps the most interesting thing in both articles is the discussion of the seismic fault under Diablo Canyon that was discovered after the plant was built. In particular, the Merc quoted the hometown state senator, Sam Blakeslee, who has a Ph.D. from UCSB and various published papers on seismic issues. It quoted Dr. Blakeslee as asking experts to study fully the safety implications of the new fault.

On the other hand, the LA Times quoted actual independent experts (i.e. university scientists) saying that a 9.0 is not very likely to happen near either plant, with “low 7s” being the largest quake expected at either plant. Big tsunamis won’t happen here either because we don’t have offshore subduction zones.

However, as an engineer, I found troubling two questions that were not directly addressed.

The Great Tohoku Quakeis larger than any in Japan’s recorded history. This reminds me of Katrina, which was a large hurricane than was anticipated — after the fact, the Army Corps of Engineers called it a “400 year” storm, but the city had planned for a “100 year” storm.

The largest earthquake in California’s history is the Fort Tejon quake of 1857 (magnitude 7.9). However, the largest earthquake in US history was the 1964 Alaska quake (9.2) which also caused a tidal wave in California, killing 11.

When it comes to record high and low temperatures, record wind or rain, record earthquake magnitude — these are always a first. If every city plans for a 100 year storm, some will not see that 100 year storm over a 100 years, and others will see the 200 or 400 or 1000 year storm. (And, of course, many cities are over 100 years old.)

This suggests to me that planning for earthquakes — at least when there’s a high safety implication — should be planning for more extreme events. If NorCal doesn’t have a 200 year quake in the 21st century, perhaps SoCal will.

Estimating the size of the largest quake is not a policy — or political question — but a scientific question. Of course, science is so politicized nowadays (particularly due to the impact of groupthink on access to funding) that a purely scientific evaluation may be impossible.

Finally, the biggest lesson of TEPCO plant in Fukushuima — the one that will cause power engineers to rip their plans and start over — is that what happens outside the dome is as important as what happens inside the dome. The engineering failure was not nuclear or structural, but in systems design.

The 40-year-old Japanese reactor containment vessel did its job, holding up to the largest earthquake ever. However, the emergency cooling plans depended on the availability of power from outside the plant, and the infrastructure did not survive the quake well enough to provide power for the cooling pumps. Apparently the backup diesel generators worked, but did not survive the tsunami.

The LA Times article talks about gravity fed emergency cooling reservoirs located onsite at Diablo Canyon and San Onofre. Will those reservoirs (and their piping) survive a direct 8.0 earthquake? Will that onetime supply of water be enough to keep the reactor cooled if there is no electric power for 7 days? 14 days?

Again, these are engineering problems, not political problems — Californians should hope that PG&E and SCE will share their revised emergency plans after the lessons of Fukushima have been fully studied.

A smarter way to deploy smart meters

It’s no secret that PG&E has created an enormous controversy in California — encouraged by the PUC — with its aggressive push to force smartmeters on its customers. The newspapers and TVs have run story after story on the controversy, there have been hearings and a state investigation, and still cities are “banning” smart meters on a variety of grounds.

The imposition of smartmeters is the ultimate manifestation of a technocratic view of energy management, fueled by $3 billion in stimulus money. On the one hand, smart meters allow demand management and time-of-day metering, and are seen by many as the lynchpin of $200 billion in worldwide investment on bringing the electric distribution grid from the 19th century into the 21st.

On the other hand, customers are seeing their bills increase — both to pay for the meters and for time-of-day use — without any increase in the available energy. The meters are being fought on the left over price increases and on the right over the invasion of privacy.

Now a Texas utility wants to try a different approach. As VentureBeat reports:

It’s interesting to see that one pilot happening in the U.S. is coming at the game with a new approach: Focus on the making the consumer happy about the smart grid. In particular, it wants to demonstrate that the smart grid can improve the quality of consumers’ lives, much in the same way apps add value to the lives of iPhone and smart phone users.

Brewster McCracken, director of the Pecan Street Project in Austin, Tex., says its smart grid demonstration project is unlike any others in that is most concerned with the value to the customer, and not the utility. Part of the project’s goal will be to study how — and whether — the smart grid can provide value to the customer.

How about that? A public utility working to do something that benefits customers? (I’m guessing they came up with this on their own, without any help from the Public Utility Commission of Texas.)

The idea of being customer-driven is not something that comes naturally to big monopolies, particularly utility companies who get their revenues by spending money by lobbying for rate increases, then increase their rate base that is multiplied by guaranteed rate of return. (NB: This culture proved to be a disaster for the phone companies during the 1980s and 1990s when they actually had to compete for customers.)

This also applies to the big suppliers to the power companies, who wouldn’t know a consumer if one bit them on the backside. Even GE — with more than $90 million spent on its Ecomagination consumer PR blitz — isn’t really interested in listening to customers, but instead wiring its meters into local smart grid procurements.

With their assumption of all-knowing, all-seeing command-and-control planning, the top-down government bureaucracies are even worse than the top-down ones at the utilities or the industrial manufacturers. If you want to see Soviet-style central planning in North America 20 years after the collapse of the Soviet Union, this is where you’ll find it.

So the Austin public-private collaboration and its leaders should be applauded for their initiative. The old “small is beautiful” Jerry Brown would have loved and trumpeted a decentralized initiative like this, but I guess the state budget quagmire and its $25 billion deficit are occupying 110% of his attention right now.

Solar Leadership Summit coming to Santa Clara

The annual Solar Leadership Summit is being held here in Silicon Valley March 28-29. The theme of the conference is “Solar 3.0--A Path from Policy to Profitability.” Speakers include the president of the Public Utilities Commission, CEOs of REC Solar, Cleanpath Ventures, Serious Materials and SolarNexus, and other public and private RE leaders.

The summit will be held at the Santa Clara Hyatt and is sponsored by SolarTech, the solar energy industry trade association. For more information, including pricing and a detailed agenda, see the SolarTech website.

Thank you, Mr. President

The retired POTUS on Thursday voiced his own concerns about the effect corn-based ethanol is having on food prices and political stability in the developing world. As the AP reported:

WASHINGTON (AP) — Former President Bill Clinton on Thursday warned farmers that using too much corn for ethanol fuel could lead to higher food prices and riots in poor countries.
…
He said the United States needs to look at the long term, global effects of its farm policy.

“I think the best thing to say is we have to become energy independent, but we don't want to do it at the cost of food riots,” Clinton said.

In doing so, he was somewhat less decisive than his vice president, Al Gore. (Perhaps Bill’s wife still expects to run for president in Iowa some day.) Still, this is moderating his position clearly in support of ethanol three years ago, as expressed in his book, Giving.

Despite this equivocation, corn ethanol’s most adamant opponent, the Wall Street Journal, offered rare praise for the former president:

America's political addiction to ethanol has consequences, from raising the price of food to lining the pockets of companies like Archer Daniels Midland. So we're delighted to see another prominent booster—Bill Clinton—see the fright.

Actually, the effect of American ethanol consumption on overseas food riots was noted last month by critics on both the left and right, tied to UN statistics showing skyrocketing food prices to record highs over the past six months. The pressure and evidence have been building ever since.

A Princeton researcher, Tim Searchinger, published a thoughtful commentary in the Washington Post two weeks ago, which was followed up by articles in Time and a scathing editorial in the Chicago Tribune entitled “Burning Dinner.” The rebuttal to Searchinger (a former EDF activist) was to call him a “Gasoline Whore.”

While the unrest in the Middle East is new, the opposition to shifting food for use in fuel is not, as 2007 articles in Business Week and Technology Review make clear.

What’s changed in the last four years has been an increasingly wide range of biofuels that can provide a greater quantity of fuel without this impact on food prices. (Some of these alternatives would be very good for California.) Overseas food riots have raised the urgency enough to spark interest in ethanol alternatives across a wide political spectrum.

Given this elevated level of discourse, the time has come for Energy Secretary Steven Chu to re-emphasize that corn-based biofuels are only “a transitional crop” and for the budget-cutting Congress to start the phaseout of subsidies for them. The country has less than a year to forge a new national consensus before the 2012 presidential election prompts a new round of farm state pandering.

Wind: commodity prices, commodity pressures

Last year was not a good year for Denmark’s Vesta, the world’s largest manufacturer of wind turbines. Like the German PV companies, it grew its business based on home country government support, but like the PV companies is facing tougher competition in the global marketplace.

In 2009, publicly traded Vesta announced layoffs of 1900 workers, and last October axed 3000 more, closing four factories.

Now Renewable Energy World has a 2,500 word profile that’s supposed to be an upbeat update on the company’s fortunes, but to me sounds like more bad news. Europe faces overcapacity and 2010 sales were down because government buyers realized they’re broke. The industry’s trade association says their only hope is more aggressive GHG reduction mandates by EU governments.

At the same time, uncertainty in the US — the world’s largest installed base — is increasing.

Meanwhile, the article notes that Vesta faces increasing competition from Europe (Spain's Gamesa, Germany’s Siemens) and the US (GE) which are offering improved products and increasing European production.

If that’s not enough, Vesta — like the German PV companies — faces increasing competition from low cost producers in China and elsewhere in Asia. The money quote of the paper:

"You could say we have been too optimistic for too long," Ditlev Engel, chief executive of Vestas said last October as the company cut its workforce by 15%. He later qualified these words, saying it was right to study the markets before taking "tough decisions" to close four production units in Denmark and another in Sweden, but it was inevitable this phrase would make headlines, sending shockwaves across the industry.

Vestas' move was in response to shifting fortunes, and shifting global markets. "If you can make a turbine in Asia and deliver it to Europe at a comparable price to making it in Europe, we have a problem," said Engel. "So we have to make sure we can always compete with what we call 'Asia plus freight'."

In the comments section, one reader wrote:

He said it all in the beginning...
"Asia + shipping"

The wind folks like to think they’re a tech industry (not really) or a growth industry (depends entirely on subsidies and mandates). The reality is that they make equipment for producing commodity electrons, which makes theirs a commodity industry as well.