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.
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.
This is like locking yourself into a 20-year lease on a Chrysler Sebring sitting unbought a dealer’s lot. This also sound more than a little like the no down payment securitized mortgages that just ate all the equity in our homes. The trade shows are filled with CEOs of solar companies touting these schemes and assuring us that default rates on solar rooftop system are very low.
This may be technically true today but it is still deceptively wrong and it will surely hit the fan. That is why many firms are not bankable because bankers have tried every scheme in the book and they know a bad deal when they see it.
The giants like Dow and others that make these new solar shingles have a competitive interest in driving down the price to make the solar shingles competitive with other roofing options. This is disruptive technology at its market best. That is why more and more established roofing companies are likely to displace many of the fly by night solar panel vendors—and the sooner the better.
The current EU problems with FiT volatility and the failure of the industrial policy of raising utility prices to subsidize the development of domestic renewable energy manufacturing proved a failure in the face of China’s export prowess. So as EU markets are saturated or the FiT subsidy money fades, solar manufacturers are looking for better global markets.
That is a lot of rooftop cheese to attract solar roof rats from around the globe. Those solar shingles I mentioned above use thin-film copper indium gallium diselenide (CIGS) cells instead of the older polysilicon. Dow claims its CIGS solar shingles are over 10% efficient, about 10 to 15% cheaper per watt, easy to install and harder to steal. If California is going to have a million solar roofs it wants them using the newest technology not the oldest, least efficient stuff.
The Grid Parity Imperative
Solar energy is still the only distributed generation technology capable of displacing the central station utility business model. Achieving that ambitious goal will require grid parity prices to compete with natural gas, improving solar technology efficiency, and bigger scale players with bankable integrated solutions. Consolidation is rapidly weeding out the smaller players in this sector and that is good.
Customer Aggregation will be the distributed energy business model of choice. We are seeing it first on the commercial and industrial side of the market with vendors offering demand response, energy efficiency and constant energy management to game the net metering and open access rules. But the menu will expand to include microgrids, combined heat and power, waste heat recovery, energy storage, renewable energy supply options and the expertise to put it all together and manage it to reduce total energy spend. As customer aggregation catches on it will accelerate the move toward a truly distributed clean energy economy as it wreaks havoc on the traditional utility business model.
But residential rooftop solar with higher efficient solar shingles is a game changer if the combination of better technology, stronger market participants, and customer aggregation as the business model that brings scale and diversity to solar to drive it to grid parity prices. Customer aggregation designed to scale a portfolio of residential customers across the three interconnected grids will bring customers new bundled solutions, give them a champion to help eek out savings and bring an end to the separate sale of commodity energy thus ending the traditional utility control over the gateway to customers.
Solar energy must flare off its toxic dependence upon subsidies, industrial policy lobbying and political correctness and embrace the full potential of competitive global markets, integrated grid parity-priced solutions and customer engagement to deliver good value, good service, and good outcomes for both customers and the environment.
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