I had thought that the PV business was stabilizing, but apparently the stiffening of the US tariff regime and presumably continuing declines in Europe have caused PV panel prices to soften on the spot market due to oversupply. This article paints a gloomy picture of the state of the PV business and discusses the possibility of a new wave of bankruptcies.
This report titled “Beyond Boom and Bust” , was published in April 2012 and I commented on it in this blog post. It was the work of several bodies and individuals, including the Brookings Institute.
It argued that US clean energy policy was producing boom and bust cycles, but making no progress in reducing atmospheric CO2. They advocated a more results driven “technology led” policy.
The recent EPIA report on PV market outlook for 2014 to 2018 had an interesting section that described the recent behavior of the PV market in Europe as a series of unsynchronized national boom and busts that were hidden by looking at the overall European market statistics. To quote from page 31:
PV seems to have always and everywhere followed a path of governments introducing subsidies, investors responding enthusiastically producing a rapid growth boom. Governments then belatedly see the costs mount and reduce subsidies, causing a market bust. Then investor confidence is broken and difficult to restore. Europe has few countries that have not gone through this cycle. Europe has gone from being the biggest PV market to number three or four, with little sign of a likely recovery.
The recent US rapid PV growth is driven by US subsidies enabling profitable investment in PV. The expiration of the Investment Tax Credit in 2016 will burst this bubble, just like all the rest. The governments in Japan and China are early in the subsidy cycle so the boom phase is only building up. In a year or two the costs will be un-sustainable and the bust will inevitably follow.
All of this makes it virtually impossible for PV to reduce in cost. Low and unpredictable PV market growth will not encourage investment in newer plant and equipment that can reduce costs. At current cost levels PV market cannot grow without more subsidies. As the boom and bust cycles clearly illustrate, more subsidy is unlikely to be forthcoming.
As the “Beyond Boom and Bust” report argued, current US clean energy subsidy policies are not succeeding. They only considered the US, but as we can see, the problem is worldwide. Perhaps it is time to consider the “technology led” policy reforms they advocated.
By Edmund Kelly
EPIA realistic PV market outlook report supports assessment of insufficient growth to reduce CO2 emissions
This sixty page report EPIA Global Market Outlook for Photovoltaics 2014-2018 paints a pretty accurate picture of the recent history of the global PV market and has realistic projections for the near term. It has detailed information for each geography and market segment. The graph below from the report shows the near term overall world market projection with optimistic, pessimistic and realistic scenarios. The realistic middle scenario shows slow overall market growth, but no spectacular take off.
The conclusion of the report is a welcome return to reality about the future prospects for PV and a marked contrast to the over optimistic assessments that still seem to pervade the PV business. The central point of the conclusion is that “ The PV market remains in most countries a policy driven market, as shown by the significant market decreases in countries where harmful and retrospective political measures have been taken.” A policy driven market is a euphemism for a subsidy driven market.
This lines up with my assessments of the prospects for PV business over the last several years as published in this blog. PV growing at this rate is fine for the PV business, but will not make PV a significant source of electricity anytime soon. It is not sufficient growth to drive costs down, so the business will need subsidy for the foreseeable future. The conclusion of the report backs this assessment as it clearly states that growth is dependent on “sustainable support schemes”. i.e. more subsidies.
At some point those that promote current policies in the belief that they will reduce CO2 emissions have to stand back and make a realistic assessment of what they are accomplishing, or more accurately failing to accomplish. By putting all their eggs in the current wind and solar baskets, they are actually precluding investment in possibly better technologies. The psychology seems to be driven by a fear that admitting that current wind and solar are failing, will lead to nothing being done, and something is better than nothing. The reality is that investing only in failure guarantees failure.
By Edmund Kelly
The energy impasse: The developing world accounts for the bulk of new generation but needs cheap energy.
If we focus on new electricity generation capacity worldwide a pattern emerges that somewhat explains the lack of progress on reducing CO2 emissions. New electricity generation investment is about $400B/y, $200B/y in wind and solar and $200B/y in coal, gas, nuclear and hydro. Another $300B/y is invested worldwide in electricity transmission and distribution.
Looking at how the investment is apportioned between countries, a convenient division is between OECD and non OECD. This is a pretty accurate division between developed nations and developing nations. Developed nations have a relatively low growth in overall electricity capacity, with most new generation replacing old generation. Developing nations are growing their overall electricity generation capacity at a rapid rate to balance their rapid GDP growth. Interestingly, from a dollar perspective OECD and non OECD spend about the same on wind and solar, about $100B/y.
Developing nations spend most of the $200B/y that is spent on coal, gas, nuclear and hydro, over 66%. They also spend most of the investment for transmission and distribution, about 66% or $200B/y.
Because of the rapid pace and large scale of development, developing countries follow a well proven path of investing in low risk, proven, safe, and cheap technologies. Developing countries account for the bulk of investment in electricity infrastructure: about $450B/y (200 T&D + 150 G + 100 A)of the $700B/y. (T&D is transmission and Distribution, G is conventional Generation and A is Alternative generation)
All of the OECD invests about $250B/y (100T&D +50G + 100A). In the OECD, wind and solar investment exceeds other generation by a significant margin, but in the non OECD the ratio is reversed.
We are at point where PV is still too expensive to compete without subsidies. So what do Europe and America do? Introduce tariffs to protect domestic producers from Chinese imports. This protection supports already inefficient subsidized industries. What is the incentive to reduce costs through innovation when profits are guaranteed and competition is blocked?
PV at current price levels will not become a significant enough producer of energy to have any affect on reducing CO2 emissions. Perhaps rising PV prices will break the cycle of over optimism about PV and get some focus on investments that might lead to competitive, clean, sustainable sources of electricity.
Investors in Solar projects in the US and Europe think it burnishes their image as responsible planet aware companies when all they are really doing is partaking in corporate welfare on a grand scale. Public funds are subsidizing half the costs of private PV investment and guaranteeing large profits. Their actions prop up inefficient PV industries who rely on subsidies and now protective tariffs. There is little incentive to lower cost to where the PV business can grow without subsidies and perhaps help reducing CO2 emissions. Solar investors are reinforcing the equivalent of fiddling while Rome burns.
In the computer industry there is the concept of “computer platforms” Examples are the PC platform, the MAC platform and the Android platform. The platforms are combinations of hardware and software that act as a standard basis for many applications. In a different more physical way, StratoSolar technology has evolved into a platform for multiple applications.
We initially developed the technology targeted at solar PV electricity generation. Doing this involved solving a series of significant problems that led us to methods for the design, construction and deployment of small to large scale modular, buoyant-platform systems.
The first additional platform application beyond PV generation we serendipitously discovered was gravity energy storage. This is very synergistic with intermittent PV generation. Cost effective energy storage is an area in great demand without any clear solution today .
As well as complementing PV generation for the energy market, this also means that small stand alone platforms can supply energy for other platform applications. Such an emerging application is wide area wireless internet communications. The platforms we have evolved can quickly and cheaply provide very cost effective wireless internet communications. Other more conventional broadcast and cellular communications can also easily benefit.
One thing leads to another. The use of winches to store energy by transporting weights from the ground to the platform and 20km altitude also enables the transport of goods, equipment, and ultimately, people from the ground to platforms at 20km and back. This means that communications and observation equipment can be deployed and recovered without bringing platforms down to the ground.
The weights involved with gravity energy storage can get to several hundred tonnes. This leads to another possible application; containerized goods transportation. At various times attempts have been made to revive the use of airships without success. Airships suffer from their fragility. Within the troposphere violent and unexpected weather can destroy airships, either in flight, or more commonly in accidents when near the ground for docking and undocking. However, large stratospheric airships based on the StratoSolar construction method could carry payloads of several hundred tonnes between platforms while remaining permanently in the stratosphere. They would be powered by fuel delivered to the platforms, perhaps augmented with solar energy during the day. Containers would be transported with winches up to a platform, transferred to a docked airship, transported by airship to another platform where the airship docks and the containers are transferred to the platform and lowered with winches to the ground.
Airships would be relatively cheap to buy at around $5M, cheap to operate, and would transport goods at about 100km/h from platforms that can be positioned anywhere. The cost of transportation would be somewhere between ships and aircraft, perhaps similar to trucks, but would be point to point and relatively high speed.
Transportation is currently a long shot for StratoSolar, but indicates how a technology can evolve far from its original source. Many other expected and unexpected StratoSolar platform applications will inevitably evolve.
The developing world (non OECD) is on a path to a high energy future based on fossil fuels. It is simply the affordable path and as such the only viable path out of poverty. Most of the of the doubling of world energy consumption by 2050 is projected to come from the developing world, by which time it will consume more energy than the developed world.
The developed world (OECD) is already high energy and despite much weeping and gnashing of teeth, is projected to continue burning more fossil fuels at current rates into the foreseeable future.
Interestingly, the world already spends about $200B/y on alternative energy generation, over half its $400B/y overall investment in new electricity generation. This is divided roughly equally between the OECD and non-OECD countries. This is an objective measure of the considerable amount the world is collectively currently willing and able to pay for fossil fuel free energy.
Unfortunately this currently only buys about 17GW average generation, or about 1% of world electricity generation, or about 0.1% of world primary energy. This is insufficient to reduce CO2 emissions which are projected to rise every year into the foreseeable future. The level needed to be on a path to reduce CO2 emissions is 500GW to 1TW average new clean generation every year. This is twenty to fifty times current levels.
This highlights the patently obvious but constantly ignored fundamental nature of the problem. To paraphrase James Carville “Its the economics, stupid.” This succinct phrase gets to the heart of political reality. No matter if the energy problem is seen as climate change, energy security, resource depletion or poverty, the real problem is the economics. Energy is just too big a part of the world economy for it not to be so. Significantly increasing the cost of energy by replacing fossil fuels with current high cost wind, solar and nuclear will never be politically acceptable.
So we are at an impasse. The current technologies lead to policy proposals that are politically unacceptable and a very polarized debate that can never succeed in forming a consensus.
The politically viable solution to this economic problem is new sources of clean sustainable energy at lower cost than fossil fuel energy. Unfortunately the current energy policy consensus is frozen like a deer in the headlights. The common wisdom is no such present or near future low cost technology exists and the need for immediate action means we should find ways to finance more of current high cost technologies. Unfortunately this policy approach violates the first law of politics and as such has failed and is doomed to continue to fail.
Breaking the impasse needs fresh thinking to get more options on the table. The consensus that there is no possible low cost energy alternatives is a self fulfilling prophecy if it leads to no attempt to search for such solutions.
Policy proposals tend to be broad and vague. Here is an explicit proposal that is not meant to compete with the status quo. Relative to world energy investment of about $1.6T/y, $10B/y seems an affordable amount to spend on energy R&D focused exclusively on high risk, clean electricity generation, power plant solutions. This is not basic research and it is not government R&D. A model is Space-X. Space-X is a private company focused on a product and works on fixed price contracts with fixed deliverables. Its like venture funding. Say The US, Europe, and China each established $3B/y venture funds to fund high risk energy development companies. By high risk, I mean high risk.
Already, despite starvation levels of investment, some such companies exist. There are several fusion energy companies. There are several companies focused on sustainable fission of Thorium and U238. There are high altitude wind companies, wind on the ocean, solar in space, the desert, and the stratosphere. Funding these and others to start with would bring out a lot more. Companies would start at say $10M/y or more depending on their current stage of development. Funding would be for fixed deliverables and if on successful paths a few would get to say $500M/y, keeping the average at around 100 companies at $100M/y. This portfolio approach would lead to exploring many approaches and the probability of significant advances in less than five years. One significant success is all that is needed. Its not inconceivable that private equity would eventually join the party, and share the risks and rewards.
By Edmund Kelly
This Reneweconomy article points at China's problems in meeting its Solar PV objectives of about 14GW for 2014. In 2013 as Europe reduced its PV demand, China basically rescued its PV business by introducing a $0.15/kWh incentive which resulted in about 12GW of mostly utility scale PV capacity in western China. The returns for investors exceeded 10% which explains the rapid deployment.
For 2014 policymakers wanted to move a substantial portion of new PV to rooftop installs. Its more difficult to ramp installations on lots of rooftops compared to large arrays in open fields. Its also more labor intensive and more expensive and the incentives for rooftop installs are not much higher, so the investor returns are substantially lower. As a result, as the article points out, Deutsche Bank analysts think the 14GW target may be in jeopardy.
I’m only bringing this up because it illustrates the direct link between subsidies and PV installs. Subsidies almost completely determine the size of the PV market. Overall worldwide, subsidies pay for more than 50% of PV capacity. This means that until PV costs come down by more than 50% from current levels, PV industry survival is dependent on subsidies continuing, and PV market size is determined by the amount of subsidy.
While world combined PV subsidies last at current levels (which overall are reduced from 2011 levels), PV will grow and be a profitable business, but will not be a significant contributor to reducing CO2 emissions.
The cost reduction path of PV is well understood and is slow and painful. If subsidy support is maintained for long enough, PV costs will eventually come down to where the business can grow substantially, but affordable energy storage and other constraints will then become the factors limiting growth.
By Edmund Kelly
There has been a series of recent articles that paint a picture of the improving state of the PV business. This article highlights that China is starting to deal with the zombie 2nd tier companies. The first tier like Jinko, Trina, Canadian, Sun Edison are pretty strong. This Jinko report shows them profitable with panel ASPs of $0.63/W in China. This matches well with $0.75/W in the US and Europe. China is lower cost because it has cheaper financing and cheaper labor. Also there is starting to be life in the Polysilicon market as polysilcon price has rebounded from $15/kg to $20/kg, with several new factories being announced by REC in China and GTAT in Malaysia.
China is the key. As European demand collapsed last year, China's new subsidies for local deployment provided the foundation for their PV panel makers and confidence for future stability. However if prices stay stable at current levels, more subsidy will be needed to grow the market. Projects in the US are profitable with current subsidies and apparently there is enough investor confidence in solar to support projects with IRRs below 10%. Projects in Texas have been bid at PPAs of $0.05/kWh based on low financing costs and current subsidies.
Chinese panel makers are becoming project developers as a means to ensure a market for their panels, following the example of US panel manufacturers First Solar and Sunpower that have successfully used this strategy to survive with uncompetitive panels.
Overall PV growth projections seem to hinge on new markets in the developing world. Panel prices should stabilize at current levels of around $0.75/W, or even rise over the next few years as the industry returns to profitability.
This is all good news, but does not paint a picture where the PV market is likely to grow to the level needed to make a significant impact on CO2 emissions any time soon.
By Edmund Kelly
This chart visually illustrates the economics of energy discussed in the previous post. The left column shows all major energy segments. The middle column expands the energy investment segment and the right column expands the power generation investment segment. The numbers in each segment are Trillions of dollars. Its interesting that Solar is the biggest segment of power generation investment but it provides the lowest average power, a testament to the political power of renewable energy.
By Edmund Kelly
Looking at the money, for 2013, world GDP was $72T, of which energy was $6T, or about 8% of GDP. That $6T can be thought of as the income of the overall energy industry. This income balances with industry profit, investment and O&M. From IEA data the energy industry investment part was about $1.5T, of which about $0.8T was in oil and natural gas infrastructure, $0.4T was investment in electricity generation and $0.3T was investment on electricity transmission and distribution.
From Bloomberg data, investment in wind and solar generation in 2013 was about $200B, with additional clean tech investment of about $50B on smart grid, biomass and bio fuels. Some of the investment in transmission and distribution is to integrate wind and solar and some smart grid spending is also related to wind and solar integration. So current investment in clean energy generation is over half of all investment in electricity generation . I have to admit I found this surprising. I always see alternative energy as the underdog, not the biggest player.
That $200B bought about 45GW ($82B) of nameplate wind and about 35GW ($114B) of nameplate solar. Using average generation as the metric, conventional power plant capacity runs on average at about 50% utilization worldwide, so the world’s almost 6TW installed capacity generates an average 3TW of power. The 45GW of new wind generates an average of about 12GW and the 35GW of new solar generates an average of about 5GW, for a total of about 17GW of new average generation. That's 17/3000 or about 0.5% of current average electricity generation.
The other $200B bought about 140GW of coal, gas, hydro and Nuclear power plants, mostly in China and India, that generate more than 70GW of average power or about four times the 17GW average of the new wind and solar. When we account for the cost of fuel, wind and solar electricity averages about two to three times the cost of electricity from other sources.
Most of the investment in new electricity generation is driven by economic growth which needs to add about 3% of new generation every year. If just that increase was met with current wind and solar, it would cost close to $1T/y. That does not cover replacing the existing generation.
Of the $200B spent for wind and solar, government subsidies account for at least half, or $100B.
This is a look at the money. The bottom line is that wind and solar are already the biggest money part of electricity generation but are not providing much electricity. To scale wind and solar up just to meet current new generation demand would mean they would probably be the biggest industry on the planet.
By Edmund Kelly