Category — Solar power
In Solar Energy Tough Love, I described the perverse impacts of government industrial policy on the solar energy sector in its vainglorious attempt to choose winners and losers. That policy is failing, Solyndra aside.
The market gods hate to be trifled with, and they respond with thunderbolts and torment. Solar’s pain will continue until grid parity is reached. In the meantime, the solar energy sector must purge itself of government subsidies and address its weak financial performance.
So when I read the story in the trade press about SunPower’s wider Q2 losses I decided to get beyond the numbers to look at some of the market factors tormenting the solar business and holding back its true potential.
One key fact is that solar energy demand is up, but so are input costs for solar panels. Rising demand stimulates rising production and thus excess inventory is a persistent problem and results in falling prices for PV panels. Then there is the Feed in Tariffs (FiT) fits that cause burps and headaches as governments in Europe no longer able to afford the soaring cost of subsidies regularly adjust the tariffs—usually downward.
Changes in FiT shift demand from market to market as manufacturers adjust and seek to lose less margin on each incremental deal. Often, as was true in SunPower’s Q2 report, revenue comes in at or close to investor expectation because demand is growing but cost and margin control has proven difficult and can quickly eat away at profits.
- Deal Flow is Up but VC Funding is Down. The consolidation process in solar energy is clearly underway with the mixed news on the solar investment and funding front. While the number of venture capital funded solar deals remained about the same in Q2:2011 as the previous quarter (25 vs 26) the value of those deals fell to $354 million in Q2:2011 from $658 million in Q1:2011. Even worse, that $354 million in Q2:2011 was down from $948 million in Q2:2010 even though deal flow increased 25 vs 18) according to Mercom Capital Group.
- Bankability is limited, but deal flow schemes are abundant. There are many vendors eager to sell solar energy systems but few of them are bankable meaning they look like what they are—a big credit risk. So these solar firms spend much of their time dreaming up schemes to finance their deals. Pace loans was one of those when upfront costs could be funded through government assessments like sidewalks and sewer lines.
It all sounded so logical and convenient until lien holders began to realize that the PACE loans would get priority ahead of the first mortgage in a bankruptcy since they were government bonds and that was a scheme not even Fannie Mae and Freddie Mac would tolerate.
- One of those schemes is residential solar leasing. Think about it! If you are a homeowner and you want to ‘do the right thing’, save the planet and stick it to your utility company. So you decide to put a solar rooftop system on your house but it costs thousands of dollars and tax credits and subsidies don’t cover all of it. No problem, the vendor says we will lease you the system with no upfront cost. This sounds like a great deal until you realize that you are signing a 20 year lease on equipment with rapidly falling prices and in a market of rapidly improving technology. [Read more →]
October 13, 2011 7 Comments
[Ed. note: David Bergeron is president of SunDanzer Development, Inc., a solar energy company located in Tucson. His earlier posts at MasterResource are Free-Market Solar: The Real Opportunity and Economic/Environmental Assessment of Grid-Tiered Photovoltaics: Arizona Lessons for the U.S.]
“The economic case for grid-tied PV is indeed quite hopeless, and the sooner we stop the misguided subsidies the sooner we can focus on actually addressing our legitimate energy and environmental concerns.”
The U.S. Energy Information Administration (EIA) recently published an excellent report on the projected cost of electricity generated by different technologies: coal, natural gas, nuclear, and various others, including renewables.
Levelized Cost of Energy
Their Levelized Cost of Energy (LCOE) calculation combines upfront cost with recurring cost to estimate the average cost of power produced by these technologies. Here is the EIA cost datafor coal, natural gas, and solar PV.
At first glance, it looks like PV could be competitive with coal or natural gas plants if the PV cost were to drop below 10 cents/kWh. But there is an important difference between PV and the traditional technologies which makes this simple cost comparison invalid.
But first, take a look at the cost of electricity from a coal plant. The total cost is projected to be 9.5 cents/kWh per the EIA study. About 6.5 cents of this is capital cost and about 2.5 cents is the cost of the coal. Looking at the natural gas plant, one can see the capital cost is about 2 cents, and the fuel cost is about 4.5 cents.
Solar has no fuel cost element but significant capital investment.
Intermittency = Backup Required
But here is the rub. If you plan to power a city with PV, it is not sufficient to simply build a large PV array, because PV only produces power during the day. At night and during cloudy weather, a back-up power source is needed since there is no practical way to store the PV energy. [Read more →]
October 12, 2011 23 Comments
[This post reproduces a front-page story in the New York Times business section that excitedly reported a breakthrough with solar energy as represented by a heady energy company named Enron. Formed in the mid-1980s, Enron had just entered into the solar business and was destined to revitalize--if not save--the U.S. wind industry just a few years later.]
“Federal officials, aware that solar power breakthroughs have shined and faded almost as often as the sun, say the Enron project could introduce commercially competitive technology without expensive Government aid.”
Allen Myerson, Solar Power, for Earthly Prices, New York Times, November 15, 1994.
The nation’s largest natural gas company is betting $150 million that it can succeed where the Government has so far failed: producing solar power at rates competitive with those of energy generated from oil, gas and coal.
The Enron Corporation plans to build a plant in the southern Nevada desert that would be the largest operation in the country making electricity directly from sunlight, producing enough to power a city of 100,000 people. It is expected to begin operating in late 1996.
Grand promises in the late 1970′s about the potential of virtually pollution-free, endlessly renewable energy sources like solar energy faded into an embarrassed hush. But several of the nation’s leading solar power experts say Enron’s optimistic goal is probably reachable.
The reason is that during the last decade, the cost of solar power generation has quietly declined by two-thirds. Far from depending on some wondrous breakthrough, the experts say, Enron can offer commercially competitive solar power by inexpensively mass-producing solar panels, and then employing thousands of them in the Nevada desert. [Read more →]
September 20, 2011 13 Comments
Part I yesterday described Evergreen Solar Inc.’s recent bankruptcy protection filing, which has left Massachusetts holding the bag for tens of millions of dollars in tax benefits and subsidies for a Devens, MA solar panel factory. Massachusetts wanted to be a true believer, and the promise of 800 jobs in a recession was too good to pass up even if the risks were high.
For politicians looking for good press this was a great opportunity—until reality hit the fan. So what lessons does this failed ‘green’ energy experiment impart for other political jurisdictions eager to create jobs? I offer five.
1. Being green does not mean being sustainable.
Evergreen Solar expanded just as the solar market was reeling from feed-in-tariff (FiT) subsidy cuts in Spain and later Germany, the then hottest markets in the world. Those FiT cuts were caused by rising and unsustainable costs to the Spanish and German governments seeking, just as Massachusetts had done, to prop up local business and create jobs when they were needed most.
2. Solar energy is governed by global markets for commodity prices—and few play that game better than China. So when China saw the luscious FiT subsidy fruit being dangled in Europe, it undercut the prices of local manufacturers for photovoltaic panels and took both market share and FiT subsidy Euros and sent them back to China. The European solar manufacturers were—pardon the pun FiT to be tied—but they were also still screwed because they could not meet or beat the low Chinese prices and saw their business fade away as unsustainable in a market that had become dependent upon unsustainable government subsidies.
These EU PV makers then dumped PV panels on the global commodity market at fire sale prices thus causing a worldwide problem of falling prices that swamped many solar players including Evergreen.
3. Feed-in-Tariffs are Risky Business. The EU story of industrial-policy good intentions gone unfulfilled is also a lesson unfortunately re-learned many times as disappointed results, this time in Massachusetts, remind us that when we seek to build entire new industries on a bed of sand. Our business future (sales, revenue growth, and supply chain channels) can be toppled by tremors in the markets half a world away. [Read more →]
August 24, 2011 10 Comments
Earlier this month, Evergreen Solar Inc. filed for chapter 11 bankruptcy protection, claiming the lower costs of Chinese competitors drove it to restructure. The Massachusetts Economic Assistance Coordinating Council, the Commonwealth board charged with overseeing MassDevelopment tax breaks to business, had previously voted May19 to end the 20-year, $15 million property tax break and terminate the $7.5 million in state tax credits for Evergreen, two months after the company shut its state-aided manufacturing plant in Devens, Massachusetts built and eliminated 800 jobs.
Adding insult to injury, Evergreen borrowed money to build a new solar manufacturing plant in China.
‘Clean-Energy’ Investments Up, but Performance Lags
According to Bloomberg New Energy Finance, new global investment in the clean energy sector (including solar) was up 27% to $41.7 billion in Q2:2011 from the prior quarter–and 22% higher than a year ago. This included several very large utility scale solar thermal projects including the BrightSource $2.2b 392-MW Ivanpah project in California, the 100-MW FPL Termosol project in Spain and Eskom’s 100-MW Upington project in South Africa.
Solar energy investment in the U.S. was also up 195% in Q2 to $10.5 billion according to Bloomberg, largely driven by successful financing of the Alta and Ivanpah wind and solar projects in California.
But after lusting for clean energy investment opportunities, the performance of many of those investments is not very satisfying. The WilderHill New Energy Global Innovation Index (NEX), which tracks 98 clean energy shares worldwide, fell 13% in Q2 2011 after a strong first quarter. Bloomberg New Energy Finance says the story is the same in every corner of the global with continued strong interest in investment in clean energy but poor performance has often been the result.
Evergreen blamed falling prices from Chinese competitors for solar panels, reductions in feed-in-tariff subsidies in Europe and the failure of the US to adopt supportive policies.
Let’s face it, if you can’t make a project go in a market where the state permits the project, mandates that utilities must buy renewable energy even above cost (and where the deals are done typically on long term power purchase agreements that substantially reduce the risk), and where the U.S. government writes you a Treasury Tax Grant check for 30% of the cost, the problem CANNOT BE a lack of policy support. [Read more →]
August 23, 2011 2 Comments
At a time when the federal government is debating whether to raise the debt ceiling, the U.S. Department of Energy’s Loan Programs Office (LPO) is offering guaranteed financing to First Solar Inc. for three solar panel projects in California for $4.5 billion. Not million but billion.
Carefully analyzed, these projects do little to fund efficient energy production or create permanent jobs. Such largesse is one of many rich targets for immediate deficit reduction in any budget deal.
LPO specifically targets projects that promote clean energy and includes “job creation; reducing dependency on foreign oil; improving our environmental legacy; and enhancing American competitiveness in the global economy of the 21st century.”
Specifically, these loan guarantees promote projects that include biomass, hydrogen, wind and hydropower, advanced fossil energy coal, carbon sequestration practices and technologies, electricity delivery and energy reliability, alternative fuel vehicles, industry energy efficiency projects, pollution control equipment, nuclear, and solar power.
Moreover, support by the LPO is for borrowers in case they default on their financial obligations while the project is constructed. Clearly, this is all about government picking energy winners at the expense of market preferences and forces. [Read more →]
July 28, 2011 5 Comments
Free-Market Solar: The Real Opportunity (this solar executive tells the feds and Arizona to cool the subsidies)
[Editor note: David Bergeron is president of SunDanzer Development, Inc., a solar energy company located in Tucson. His first post at MasterResource was titled Economic/Environmental Assessment of Grid-Tiered Photovoltaics: Arizona Lessons for the U.S. More information on Mr. Bergeron and SunDanzer is provided at the end of this post.]
It’s Saturday. I’m testing a new solar powered vaccine refrigerator that uses ice packs rather than batteries to store energy and maintain cold temperatures. This is a key component of the distribution chain for vaccines and part of a global effort to eradicate polio and other preventable diseases.
Solar energy is my passion, field of study, and occupation. It started when I was 13 years old, a time of the Arab oil embargo and gasoline lines at the pump. Only later did I realize that the long lines were caused by misguided government price controls, not a tiring mineral-resource base.
Today, our government is again engaged in misguided energy activism, policies that mandate inappropriate solutions to real and imagined problems.
Such is the case with grid-tied solar panels, an energy alternative which fails to effectively address either energy security or environmental concerns. Although unintended by state and federal lawmakers, preferences and mandates for political correct energies will ultimately stifle creativity and generate false solutions to our energy dilemma.
Sunny Arizona–Cost-Prohibitive Solar
Solar Photovoltaic (PV) electric panels are far too expensive to provide a sustainable energy alternative to homes and businesses already connected to the electric utility grid. The on-grid solar industry and associated jobs are artificial and only exist because of special government favor.
The solar industry today is a bubble ready to burst. It is similar in many ways to the housing market bubble created by easy mortgages enabled by government favor. When the subsidies end, the solar bubble will burst, and much of the industry and jobs therein will vanish overnight. [Read more →]
October 21, 2010 16 Comments
The New York Times ran an article highlighting the findings, but the article was so criticized that the newspaper’s editors responded with what amounted to an apology.
NC WARN’s startling, untenable conclusion is the subject of this post, which is based on a longer paper.
The group’s central graph (Figure 1), which took the media hook, line, and sinker, shows a steep decreasing cost curve for solar over time coupled with a pronounced increasing cost curve for nuclear.
Figure 1. Generation costs from solar and nuclear power according to Blackburn and Cunningham (2010).
But nuclear power is less, not more, expensive than solar power. It is also reliable, or in industry terms, dispatchable, which adds value that is not reflected in simple cost comparisons.
NC WARN estimates the cost of nuclear power by increasing the estimates from one single piece of literature (Cooper 2009). (We will discuss this later.) With regard to the costs of solar power, they employ the following formula: [Read more →]
October 20, 2010 14 Comments
[Editor note: David Bergeron is president of SunDanzer Development, Inc., a solar energy company located in Tucson AZ. This is his first post at MasterResource. More information on him and his company is provided at the end of this post.]
The proponents of the Arizona Renewable Energy Standards (RES) make various claims in order to promote grid-tied solar photovoltaic (PV) electricity. Unfortunately, the use of grid-tied solar PV is unlikely to accomplish any of the objectives suggested by its proponents. Specifically,
- It will not create jobs in Arizona;
- It will not reduce global warming;
- It will not reduce electricity prices;
- It will not reduce our dependence on imported oil; and
- It will not position Arizona to be a leader in renewable energy.
Furthermore, there is a good chance that the RES will have outcomes that are directly opposite its intended effects.
The suitability of Solar PV as a grid-tied energy source can be analyzed in a straightforward manner. In Tucson, Arizona, a 1 kW residential or commercial grid-tied PV system costs approximately $5,000 installed and may offset up to $66/year of fossil fuel use. This 76 year simple payback is well beyond the life of the equipment and does not include maintenance cost.
Adding PV to the grid offers no other significant savings in utility generation and transmission requirements and only adds to administrative and engineering burden for the utility. Despite idealistic claims of infrastructure savings from distributed grid-tied PV, these do not exist in the real world because PV is not reliable power, so no significant reduction in generation or transmission infrastructure is possible.
PV system costs must fall by at least a factor of five to offer real value in reducing fossil fuel use. Additional evidence of this is the fact that current federal, state, and utility subsidies cover 65-75% of the up-front cost of these systems and net metering laws provide a rich subsidy for energy produced and yet the systems are still only marginally viable. [Read more →]
June 7, 2010 7 Comments
The higher costs and inferior reliability of government-mandated wind power and solar power are well known to students of the electricity market. Many analyses on wind and solar have documented their real-world problems.
But another negative aspect of wind and solar technologies is their failure to live up to their raison d’être: emissions reduction. As I have explained in a four-part post, firming intermittent electric generation requires very inefficient fossil-fuel generation that creates incremental emissions compared to a situation where there is not wind or solar and fossil-fired generation can run more smoothly. This is a huge insight, a game changer, that could take the renewable energy debate in a new direction entirely.
A number of studies are emerging that quantify both the cost premium of politically-forced renewables and the minimal amounts of emissions reduction (and even notable emissions increase) resulting from their use. Country-specific studies (such as the one under review) present a methodology that is applicable to other jurisdictions (such as the U.S.) to better assess policy options and their consequences for all stakeholders, including taxpayers.
Peter Lang’s important new study, Emissions Cuts Realities – Electricity Generation, analyzes five options for the Australian electricity system for cutting CO2 emissions over the period 2010 to 2050 compared to business-as-usual (BAU) in terms of cost. The range of CO2 emissions reductions by 2050 compared to 2010 is from zero to 80%.
The conclusions that Lang draws include:
- The nuclear option provides the largest reduction in CO2 emissions – 80%.
- Any CO2 emissions reduction achieved with wind and solar thermal (there are arguably none and even increases) is “achieved” at a very high cost – 250-300% of 2010 costs.
Lang’s analysis is very conservative. The author’s preference seems to be to gain an unassailable beachhead in a very contentious debate. But in reviewing his data, I see confirmation that new wind or solar capacity provide marginal reduction in CO2 emissions at best. I would even argue that there are emission increases because any reductions due to new renewables are dependent upon solar thermal technology development by 2020 providing sufficient thermal storage to allow operation for 8,000 hours per year.
Other conclusions that can be reached are:
- The nuclear option provides an effective ‘bridge’ to future generation technologies.
- The extraordinarily large funding required for the implementation of new renewables in this period would be better spent on energy efficiency/conservation programs and in research and development for other technologies, such as carbon capture and storage (CCS), nuclear waste management, nuclear fusion and solar.
In summary, Lang’s study and other considerations provide another illustration of the failure of industrial-scale new renewables, particularly wind and in the near future, solar, to meet societies’ goals. They do not provide the impact that is needed in terms of energy independence, avoidance of fossil fuel use and reductions in CO2 emissions that conventional wisdom, with all its inadequacies, dictates.
My summary of Lang’s paper follows. [Read more →]
January 21, 2010 9 Comments