Saturday, September 17, 2011

Bloody waters

Evergreen and Solyndra have filed for chapter 11. These once promising manufacturers of solar panels based in Mass. and CA, USA, could not lower prices fast enough or gain enough market share or distribution partners to stem the increasing onslaught from Chinese manufacturers who are building US based factories and undercutting prices across the board.

While bankruptcy is always sad there are still 100’s of US based companies surviving and thriving in the overly competitive world of solar. This is also an incredibly exciting time to be in the solar industry. I can remember dreaming of a time when residential solar would be under $6 a watt installed. Well that day has come. I can also remember being disappointed when a utility industry leader told me that they would pursue solar when the install price was under $4 a watt. At that time I thought it was years away; well, that day has come too!

Solar in the US is actually an export business; $1.9B in 2011. The combined exports to China are in the $250 million dollar range. Most of this is in high-tech electrical components and industrial process machinery; areas of the market other than panels. (SEIA industry report 2011)

The political and economic uncertainty in the past 6 months has made this a very challenging time for most businesses but especially small solar companies in SC who have a product that is not yet critical to day to day operations. I think that is about to change.

Poly silicon prices have dropped dramatically and continued competition should propel that trend. The US economy is on the road to recovery. For the national market 1.8GWh of solar is expected to come on-line this year.

Several states currently have private leases for solar at the residential and commercial level. This influx of private capital has alleviated the up-front cost of solar and allowed securitization of solar projects. When investors get involved the market matures. $400m from Google to Solar City, $280m invested in Sungevity, Sun Edison offering leases in 6 states. This influx of capital is still generated by tax credits at the state and federal level so we are not at true parity yet.

What we do have is a way for both utilities and private companies to generate returns from solar projects that will enable growth and sustainable levelized costs.

One thing I have heard consistently from people in the energy industry in SC is that they do not want a mandate. We have mandates in 29 states; they specify a certain amount of energy must come from energy efficiency and renewable energy.

One way to ensure a mandate doesn’t materialize at the state level is to pre-emptively institute a PPA structure across the state that pays a small premium for renewable sources of energy. SC has the Progress Energy Sun sense program that is a perfect example of this.

If utilities paid 13c a kWh over a ten year contract then private equity can see returns, business owners can see the cost benefit and solar will grow in SC. 1% energy increases in NC has covered these costs. This creates jobs encourages out of state investment equity and shows a real commitment to community.

We have concrete proof in other states that capital market participation is the key to unlocking true ingenuity and job creation. I believe you institute this program and parity with coal will come years sooner. Ultimately diversifying our energy portfolio even on a small scale is good for all of us.

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