Monday, October 4, 2010
Why Solar Will Make or Break its Own Future
Why Solar Will Make or Break its Own Future
Every industry has a rock star. The financial industry has Warren Buffet. The tech industry has Steve Jobs. The oil industry (and now wind industry) has T. Boone Pickens. And the solar PV industry has Jigar Shah.
So what makes someone a rock star in the business world? Well, success is a prerequisite. As the founder of SunEdison, a firm that pioneered the commercial solar power purchase agreement in North America, Shah's rise in his mid-thirties was one of the first high-profile success stories in the modern solar industry.
But achieving rock-stardom is about much more than being a good businessman. Even Shah (who has never proclaimed himself a star of the solar industry) admits that financial success is only a very small part of industry success – especially in renewables and efficiency.
“You can really make a ton of money in these areas and never make a difference. And that's really sad,” he says.
He points to the energy efficiency sector where numerous $50 million-a-year businesses have barely made a dent in Americans' wasteful energy consumption. The same could be said of the solar industry, where a company like thin-film manufacturer First Solar – with revenues of over $2 billion and a market capitalization of $12 billion – is leading a market that represents a tiny fraction of the overall energy mix.
But Shah believes that solar is on a path toward high penetration. He criticizes those who say solar is too expensive, or that we need breakthrough technologies to make any difference. He believes that the positive indicators are staring us in the face, and anyone who doesn't see them is blind or purposefully ignoring them.
And this brings us to another defining trait of a rockstar: Someone who is able to envision and articulate the future of an industry, even if that vision is not always consistent with conventional wisdom (i.e. solar is too expensive, solar is too intermittent, the technology is not ready).
I had the opportunity to co-host a web conference this week with AltaTerra research about the outlook for the solar industry through 2013. Shah was the featured speaker, and he offered a lot of insight into how this very volatile market will play out over the next few years.
The theme of his talk was “The Solar Industry Controls its Own Destiny.” By this, he means that the pieces are already in place for companies to put massive amounts of solar online. It's about building strong businesses now, not blaming politicians or the fossil energy industries for setbacks.
Here's a quick summary of the key points he made:
• The magic number for solar is $2 a watt installed. At that price, 30% of the global electricity supply could be cost-competitively met by solar PV.
• By 2012, the price of a 1 MW crystalline-silicon solar PV system will dip as low as $2.60 a watt installed, putting solar well within the $2 per watt threshold.
• Due to these prices (ranging between $4.60 a watt and $2.40 a watt), existing solar technologies will make a substantive impact today – no third-generation solar technologies needed. Shah believes the incessant focus on “breakthrough” technologies, while important in the long-term, distracts us from the realities of what we can do today.
• We can expect to see about a 35% compound annual growth rate through 2013, with a 65% growth rate in North America, 18% growth in Europe and 68% growth in emerging markets like India, Singapore and China. The industry will put about 20 GW of global capacity online in 2012.
• As solar reaches the $3 per watt installed range and starts to move below that level, utilities are developing solar for reasons other than regulatory pressure. For example, according to a Florida Power and Light executive, solar PV is now cheaper than new coal facilities in that utility's service territory. In addition, the Georgia PUC reported that a new nuclear facility would raise utility bills in the state by $1.30 a month. But a combination of solar, thermal storage and dynamic load control would have raised rates by only $1 a month.
• Due to fewer regulatory and capital constraints, distributed generation will rule the day. With over 3 billion square feet of flat roofs installed globally each year, around 20 GW of solar could theoretically be accommodated. While centralized generation like CSP will be important, Shah says that the complications associated with permitting and building new transmission lines for mega-projects will slow down growth of that sector.
• The best companies will be all-stars in international finance. As markets shift year by year, understanding how to finance projects across a variety of markets will be critical to success. Companies that are financially nimble and sophisticated will lead in solar.
• Most innovation will take place downstream, not upstream. Shah believes that the low hanging fruit to reduce costs is in the balance-of-systems sector (inverters, power optimization, tracking software, racking, wiring, labor) and in sales and distribution. (If we can create incredibly sophisticated channels for toasters and flat screen televisions, why can't we do the same for solar?) He also believes that lead generation, sales and installation will be separated.
• Given all these trends, Shah says that solar will reach a 5% penetration in the U.S. by 2020.
• He admits that the policy environment for solar is still sketchy in some markets. But rather than "bitch" about not getting equal support, he says the industry should be telling the fossil energy industries, "we'll get rid of our tax incentives if you get rid of yours."
Shah's main point throughout the presentation was that the industry already has a good business environment to build from – it is no longer about what “they” are going to do to support solar. It's about what “we” are going to do to grow the industry. Even without the full support of heel dragging politicians and utilities, there's still plenty of business to be done.