Solar Energy Markets

An Analysis of the Global Solar Industry

Philip G. Jordan

Introduction: An Overview of the Solar Industry

The 2007 US banking crisis was the first of a series of shocks to the global economy with trillions of dollars of wealth evaporating from the globe and years of scandal and upheaval to follow. Economic markets have been slow to recover, and labor markets even slower. Few industries have grown, let alone thrived.

Despite these unprecedented downward global pressures, the solar industry has experienced a global revolution with profound implications for business, government, and the environment. This text is intended to provide a unique, global perspective of the US solar industry, exploring the differences between the solar industry today and previous growth spurts such as the 1970s brief solar boom.

This book relies on information from the nation’s first comprehensive solar industry survey, pioneering survey work from adjacent industries, and insights from key thought leaders in the energy sector in the United States, and from international leaders in solar development.

At its most basic level, solar power is a broadly defined term for harnessing the power of the sun to generate heat or electricity, which humans have been doing for at least 5000 years! There are many different technologies at use in the commercially available products that capture solar energy, from passive design features of buildings to advanced thin film photovoltaic (PV) panels. Each of these products share similari­ties, such as shared incentives and market drivers, as well as many differences from their technological innovations to their economic viability.

Generally speaking, the solar industry is categorized by the various technology – driven product lines that make up the array of choices for the global consumer. The three largest categories by technology are PV (electric power generation), solar thermal (electric power generation), and solar water heating. Solar space heating and cooling are also growing areas with particularly strong potential in the northeast United States, though such applications are clearly well behind the other uses in terms of market penetration.

Solar thermal products use solar energy to heat water or other liquids. These can be used for heating water for domestic/commercial use or to produce electricity through the use of a steam turbine system. Solar water heaters employ a simple design utilizing aluminum fins and insulated storage tanks to supply hot water for pools or domestic use. To generate electricity, however, much more heat is needed, and the most common mechanism for obtaining this heat is through concentrating solar power (CSP). CSP uses mirrors to focus solar rays to provide intense heat that generate significant steam, which can then be passed through a variety of steam turbine systems.

The majority of this book will focus on the largest segment photovoltaics, but will also include pertinent details in each chapter regarding solar thermal technologies.

Solar Energy Markets. DOI: http://dx. doi. org/10.1016/B978-0-12-397174-6.00001-5

© 2014 Elsevier Inc. All rights reserved.

Due to recent price declines in photovoltaics and the much lower maintenance required (PV panels have no moving parts!), many projects throughout the southwest United States that were planned to use CSP have been changed to PV projects.

Across the globe, recent significant price drops in traditional PV panels have signif­icantly changed the solar industry, shifting interest away from producing more efficient products towards producing traditional photovoltaics even more efficiently. With price declines of approximately 70% over a 2-year period, the economics of PV power sys­tems have improved dramatically and far outcompete rival solar technologies.

PV products represent the lion’s share of the solar industry. In a recent survey of solar employers in the United States, over 90% of all solar installation companies work with PV products.1 Photovoltaics operate by using arrays of semiconductors, typically made of monocrystalline or polycrystalline silicon, to produce direct cur­rent (DC) energy from solar radiation.2 The global rise in PV panel installation has led to significant growth of solar electric power in Europe and the United States, and dramatic increases in panel manufacturing throughout the globe.3

The United States has installed approximately 4 GW of solar power through 2011, tying it with Spain for fourth place in total generation, behind Germany, Italy, and Japan.4 Though the total amount of energy generated by photovoltaics has increased dramatically over the last 10 years, the overall demand growth over the first part of that period has meant that PV merely kept up with other technologies, as the percent­age of electricity produced by PV systems had not changed significantly over time.5

This inability to capture increasing share of the electrical profile shifted in 2009, when the solar capacity of the United States experienced incredible growth, with no signs of a slowdown. During this solar boom, for the first time in generations, the United States experienced energy demand declines due to the great recession and accompanying slow recovery. And the pace continued to quicken; utility-driven PV installations increased 109% alone in 2011 representing an additional 758 MW of solar power.6

Installations only tell part of the US solar story. Despite widespread miscon­ceptions, perpetuated by media stories, the United States is a net exporter of solar products, meaning that US manufacturers produce more solar components than are installed domestically. Historically, only 30% of the photovoltaics installed in this county are domestically sourced, but the United States exports large quantities of solar products to other nations. In 2010, for example, the United States imported $3.7 billion of solar products, while exporting $5.6 billion, resulting in a net export of nearly $2 billion in the industry.7

Every mainstream discussion on photovoltaics eventually leads to China, but it is becoming increasingly apparent that it is for the wrong reasons. Though it is true that Chinese contribution to the global industry has been primarily related to production

1 The Solar Jobs Census 2011. The Solar Foundation, October 2011.

2 See http://science. nasa. gov/science-news/science-at-nasa/2002/solarcells/. 3http://www. eia. gov/cneaf/solar. renewables/page/solarphotv/solarpv. html.

4 BP Statistical World Energy Review 2011 (retrieved 8.08.11). EurObserver 202: Photovoltaic Barometer. 5http://www. eia. gov/totalenergy/data/annual/showtext. cfm? t=ptb1008.

6 SEIA and GTM Research, March 12, 2012.

7 id.

(as the largest producer of solar products), it is becoming increasingly apparent that demand-pull from China will be the single most important factor shaping the future of the solar industry in the United States, potentially remaking the economics and labor force of the US solar industry.

Currently, increased production of low-cost Chinese panels has resulted in signifi­cant price declines for global PV installations. In 2011, prices dropped by an incred­ible 30%, as part of a 70% decline over the last 30 months.[1] This price drop has clearly negatively impacted manufacturers outside of China, prompting a trade com­plaint filed (and won, at least temporarily) by US manufacturers.

Equally apparent, however, is that the price declines have spurred the US installa­tion market. Together with strong federal and local incentive programs, the low price of equipment has led to significant global increases in solar installations, leading many experts to believe that PV-produced energy will soon reach price parity—some believing as early as 5-10 years from now.[2]

Price parity, the elusive holy grail of the industry, will have as much (or more) to do with China than perhaps any other region. On the one hand, and as previously mentioned, module price declines from Chinese manufacturers have brought PV power dramatically closer to parity. Declining cost trajectory would obviously hasten this trend, however, China’s direction in terms of installations will likely be the key to prices in the future.

Like any commodity, supply and demand dictate pricing, and the future of Chinese demand has as much to do with forecasting prices as does the supply output. As of 2012, China has installed approximately 7 GW of solar power, but it has set a goal more than doubling that by adding 10 GW of solar power in 2013 alone.[3] [4] As reported in Reuters in January of 2013, this sets China on a strong path to achieve their previously stated goal of 21 GW of solar power by 2015.

As noted in that report, however, this alone is not sufficient to significantly drive prices up or spur greater innovation for future market response. According to Morningstar Analyst Stephen Simko (as reported by Reuters), “If you look at how much supply there is in the world relative to demand, even if China grows by 10 GW this year, it really is not enough to fix the problems that exist in the solar sector.. ,”n

A persistent and sustained increase in capacity additions in China together with continued growth in Europe and the United States would likely bring supply to a level that would increase prices in the short term. This spike is inevitably followed by greater manufacturing innovation and efficiencies, which lead to permanent price declines. As a result, one likely pathway for sustained price parity with fossil genera­tion includes temporary price spikes due to rapid expansion of installed capacity.

Germany has the world’s most mature solar market with nearly 28 GW of installed solar capacity in 2012, adding nearly 7.5 GW in 2011 alone. Coupled with its 18 TWh of thermal energy, solar power contributes 3% of Germany’s overall output, an increase from 0.01% in 2000. Germany presents a compelling example of how to build a solar industry in a large country with a significant economic and manufacturing base.

Throughout this text, each chapter will include a topical overview for the global industry with specific emphasis on the US markets. In addition, trends in Germany and China will provide additional detail and serve as reference points for compari­son. In this way, three of the major solar markets will be covered in detail.

Any analysis of the economic or workforce implications of solar energy must delineate not only by technology (and to some extent, geography) but also by scope. Distributed generation, or production of electricity at the site of consumption, includes projects that are much smaller in size and scope than utility-scale projects, where power is produced in mass quantity and delivered to customers through the grid. Much more labor intensive, distributed generation maintains its cost competitiveness because there is virtually no loss in transmission and in most cases, no payments or fees to the electric utilities. In fact, in many regions of the country, grid-tied distributed generation system owners receive credits or payments from their utilities for their surplus power production that can be transmitted to other customers.

Solar installations are therefore generally segmented into three categories: (1) res­idential, such as homeowner, rooftop solar; (2) nonresidential, such as commercial building or campus-wide systems; and (3) utility-scale, large systems designed spe­cifically for feeding the grid rather than specific uses.

In addition to price declines in manufacturing and installation, low interest rates, beneficial tax policies, state renewable energy credits, and new financing models, solar power is rapidly approaching price parity with traditional, fossil-fuel electric prices in the retail market. Despite the many economic and social benefits of solar power, however, consumers have responded more slowly than expected and most of the new solar megawatts installed in the United States come from commercial and utility-scale projects.

Recent estimates indicate that the United States installed 1.85 GW of PV power in 2011. These new additions were led by commercial installations of about 800 MW, followed closely by utility-scale projects (758 MW) and 297 MW of residential PV generation.[5]

Some of this is likely due to concerns about the boom-bust history of the solar indus­try, particularly during the 1970 energy crisis. The crisis and accompanying oil embar­goes spurred America to action to develop and refine technologies to generate power.

Current solar panel designs were developed in the late 19th and early 20th cen­turies (both thermal and PV), but they were very expensive to produce. Around the same time that the energy crisis was in swing, new technologies brought the price down from nearly $100 per watt to $20. The price declines and political will for a sus­tainable source of domestic energy led to late 1970s production exceeding 500kW of solar power and widespread use from oil rigs to spacecraft, and all manner of off-grid applications in between. By 1983, solar projects were generating more than 21 MW of energy, and the solar industry was a $250 million per year business.

The mid-1980s brought an end to the energy crisis and oil dipped below $15 per barrel. American consumers resumed their pre-crisis consumption patterns, and political leaders heeded the changing winds and ended or dramatically reduced sub­sidies. The industry that looked to have such promise was, for all intents and pur­poses, dead.

This boom-bust cycle has led many to be cynical, suggesting that the solar indus­try will yet again fail to live up to expectations. There are significant differences between the solar industry’s current position and its past, however, which make it unlikely that—despite recent headlines regarding Solyndra and other high-profile bankruptcies—history will repeat itself in this instance.

This book examines the key drivers of why the present success of the solar indus­try differs from past experience by examining six key drivers of the solar industry in a global context: (1) a new culture of environmentalism, (2) policy and markets, (3) financing and venture capital, (4) economics and cost competitiveness, (5) inno­vation, and (6) labor.