Monday, April 15, 2013

Solar Progress

Photo: Randy Montoya
by Nick Cunningham

With dramatic cost declines in solar panels in recent years, solar power is making impressive inroads in electricity markets. On April 11, the Federal Energy Regulatory Commission (FERC) released monthly showing that solar energy accounted for 100% of new capacity installations for the month of March, a remarkable achievement.

The solar industry installed 44 megawatts of capacity, bringing its total to 537 megawatts thus far this year, or 28.5% of total capacity installed. This is enough to rank solar as the second most installed type of energy this year, only behind wind power with 958 megawatts (50% of total energy installed this year). By comparison, natural gas only installed 340 megawatts (other energy sources haven't added anything significant this year).

This is the first time that solar has ever captured the entirety of new power plant installations in a month, and adds further evidence to the notion that solar is transitioning into a mainstream option for generating power.

Costs for solar panels have declined by 60% since 2011, and as costs drop, installations surge. Last year was the best year for solar, a year in which the industry put up 3.3 gigawatts, a 76% increase over 2011. (For some nice charts on declining solar costs, check out this article)

To be sure, solar power's swift growth rate comes from a low base. In 2012, solar accounted for less than 1% of total electricity generation, a sector still dominated by coal, natural gas, and nuclear power. Critics also point to the mounting bankruptcies in the sector, as one solar manufacturer after another shutters its doors.

Suntech, a Chinese solar panel maker, was once the largest manufacturer in the world, but recently declared bankruptcy. Suntech's CEO, Shi Zhengrong was China's richest man in 2006, and carried the moniker "The Sun King." Once a billionaire, his net-worth has rapidly vanished. Clean energy naysayers point to Suntech as evidence that solar energy only fills a niche market - that it isn't ready for prime-time.

In fact, it was because of companies like Suntech that solar panel prices have plummeted so rapidly. Aided by cheap state financing and government subsidies, Suntech and other Chinese solar companies ramped up production, creating a glut in the solar market. Consequently, prices dropped, putting pressure on solar producers worldwide. Investment analysts downgraded company after company, seeing dark days ahead for the solar industry.

However, this is not a story of failure. Quite the opposite. We are merely in the midst of the maturation process - solar power is growing up. Like any maturing industry, which begins with tons of start-ups, not all companies make it. The more successful companies reduce costs, revealing the weaknesses of inferior competitors. High-cost companies (see: Solyndra) fold up shop, and the better ones move on and consolidate. This is what is happening now.

In fact, despite the spate of bad news from some solar companies, the future has never seemed brighter. While price declines may be bad for some producers, low prices are a boon for customers. A recent study found that the cost of electricity from solar photovoltaics could reach grid parity in some U.S. markets by 2014, and nearly all markets by 2017.

While it's still early times for solar, as it captures more and more market share, the business model for utilities is put at risk. Recently, several interesting articles have cropped up, arguing that utilities are going to either need to adapt or suffer a slow death. After all, utilities make money by selling electricity; if more and more people are generating their own electricity with solar panels on their roofs, utilities will begin to lose customers. Utilities will then be forced to jack up prices to make up for the shortfall, and customers without solar panels will have to pay more. But, when electricity prices for these customers go up, solar panels look even more attractive. David Roberts of Grist wrote about this phenomenon extensively last week.

Whether or not it occurs as Roberts describes remains to be seen. However, it does seem inevitable that solar will begin to rapidly capture market share. Prices for fossil fuels, a finite resource, must rise over the long-term as they are consumed. Coal-fired electricity is not getting cheaper. Easy, low-cost coal seams have been mined already, and companies are moving on to higher cost resources.

The reverse is true for technology (like solar). As more solar is consumed, manufacturing techniques become more efficient, panels are tweaked, materials science improves, etc. So, over time, panel prices will decline. Just look at cell phones or personal computers - they have become better and more powerful while simultaneously becoming cheaper.

Therefore, it is a near certainty that we will reach a point when renewable energy is vastly cheaper than fossil fuels in most places around the world. For solar, the future looks good, and FERC's March report is confirmation that the industry is on its way.

1 comment:

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