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.