Solar’s Dramatic Price Plunge Could Trigger Energy Price Deflation

RenewEconomy, Giles Parkinson
April 14, 2014


Industry observers have seen many dramatic graphs about price reductions in solar recently, such as this one tracing price drops over the last 30 years and this one from Citigroup, but the following graph from investment bank Sanford Bernstein is quite stunning -- not just for its simplicity but because it draws attention to the potential impact of solar on the $5 trillion global energy market.

As shown in the chart, the cost of solar PV has come from -- quite literally -- off the charts less than a decade ago to a point where Bernstein says solar PV is now cheaper than oil and Asian LNG (liquefied natural gas). It does its calculations on an mmbtu basis (mmbtu is the standard unit of measure for liquid fuels, often referred to as 1 million British thermal units).

“For these [developing Asian economies], solar is just cheap, clean, convenient, reliable energy. And since it is a technology, it will get even cheaper over time,” Bernstein writes in a newly released report.



“Fossil fuel extraction costs will keep rising. There is a massive global market for cheap energy, and that market is oblivious to policy changes” in China, Japan, the EU or the U.S., according to the bank.

As Bernstein notes in its report, the share of solar PV in the global energy market is currently so small that “the idea that oil and gas is the 'loser' in this formulation is laughable...in 2014,” a contention confirmed by the following chart.



But that’s not likely to be the case a decade from now. Solar is already eating away at the margins of oil and gas demand. Bernstein says the adoption of solar in off-grid areas in developing markets will translate into less demand for kerosene and diesel. The adoption of solar in the Middle East means less oil demand. The adoption of solar in China and developed Asia means less LNG demand. And distributed solar in the U.S., Europe and Australia will likely serve to reduce natural gas demand.

And then Bernstein drops this bombshell: while solar has a fractional share of the market now, within one decade, solar PV (plus battery storage) may have such a share of the market that it becomes a trigger for energy price deflation, with huge consequences for the massive fossil fuel industry that relies on continued growth.

“The behavior from here seems clear: the solar industry will expand. Retaliatory steps from distribution utilities will increase the market for cost-effective battery storage. This becomes -- initially -- a secondary market for battery technologies being developed for the auto sector. A failed battery technology in the auto sector (too hot, too heavy, too rigid a form factor) might well be perfect for the home energy storage market...with an addressable end market of 2 billion backyards.

“And for some years, that will be the extent of the effect. We have previously calculated how large the solar sector would need to be in order to become a material share of incremental energy supply each year and therefore begin to displace high-cost oil and gas supply and start to depress prices.

“We estimate that the solar industry would need to be an order of magnitude larger than it is today to have this kind of impact. At the point where solar is displacing a material share of incremental oil and gas supply, global energy deflation would become inevitable: technology (with a falling cost structure) would be driving prices in the energy space. But even on an aggressive view, this could take the better part of a decade.”

But, the Bernstein analysts say, the chief risk is that they are being too conservative. The big oil and gas producers, and the investors that control the flow of capital, may not wait until energy prices do actually deflate; they will likely change their behavior well before that in anticipation that it will happen.

“If the downward sloping forward curve is ever accepted as permanent, rational behavior from energy producers will guarantee it is so. Sitting on oil and gas reserves for the benefit of generations yet to come ceases to be a rational strategy if that reserve represents a depreciating rather than an appreciating asset.”

This, Bernstein says, is the hidden flaw with the idea that solar is “too small to matter.” Ultimately, it says, what may kill the energy market for equity investors is not the fact that renewable technology and battery storage will turn into behemoths, but the realization of that future as inevitable.


Why the Current Energy System Is Unsustainable

RenewEconomy, Giles Parkinson 
April 9, 2014


Dan Arvizu, head of the National Renewable Energy Laboratory, the world’s largest renewable energy research facility, has some simple points to make when he says that the energy system of today is unsustainable.

The first point relates to cost, as renewables become a cheaper option than coal or gas; the second relates to environmental impacts, as the world finally absorbs the impact of coal generation; and the third relates to the arrival of new, disruptive (and mostly renewable) technologies, such as rooftop solar and storage.

But the most stunning piece of evidence is this: the energy industry spends only 0.3 percent of its revenues, which are in the trillions of dollars, on R&D. And even that money is spent by new players looking to bring new technologies to the market.

In an interview on the sidelines of the 2XEP energy efficiency conference in Sydney this week, Arvizu said he knows of no other incumbent industry that has spent so little on securing its future and on innovation, and was relying so much on the models of the past.

“The energy sector has the highest level of conservatism and the lowest level of risk-taking,” he said. Change, via disruptive technologies such as solar, storage, and other renewables, along with smart devices, is now upon it. But the industry will be fighting hard to resist change.

“We need to change the business model. We need new infrastructure, and brick by brick we will dismantle the old system and make a new one,” Arvizu said.

“One hundred years ago, we looked at hydrogen and electric vehicles, and we made assumptions that fossil fuels were limitless, and we didn’t fully appreciate the environmental consequences.

“There’s no doubt that those technologies served the economy well. But now we have energy security issues, and carbon issues, and economic issues. We’re not meeting any of those challenges with the system that we created a century ago.”

NREL is the centerpiece of the U.S. Department of Energy’s commitment to renewables. It is a massive organization, based in Colorado, with more than 1,700 researchers.

Earlier this year, it released a study that looked at a variety of renewable scenarios for the U.S., ranging from 30 percent to 90 percent, but ultimately focusing on a scenario where the world’s biggest economy met 80 percent of its overall energy needs (including transport) through renewables by 2050.

The conclusion was that it could be done -- and that it could be done at a very modest cost.

“The future is much more promising than a lot of people expect,” Arvizu said, adding that even he is surprised at the pace of technological change and cost reduction.

He dismisses the protests of people who say that renewables are too expensive -- in particular those like Bjorn Lomborg who insist that more research should be undertaken (ironic given the industry’s low R&D commitment so far). “That’s just kicking the can down the road,” Arvizu said.

“If we are just talking about incremental changes to the existing system, we will never fully utilize the potential.”

It is, he says, a scary prospect for the incumbent utilities, who have enjoyed decades -- nearly a century -- of uninterrupted growth and extraordinary market power. And they are protected by layers and layers of regulation.

“We created this monster,” Arvizu said. “You often hear the words, ‘Let the market decide’, but this is a disingenuous argument in such a highly regulated market.

“The classic supply and demand equations do not work...because we’ve allowed the incumbents to create a set of highly regulated markets where they have tremendous market share, and there has been an alliance between public policy markets and incumbents, where reliable power supply has been exchanged for a high return on investment.

“But now we have other options in the market place, and in order to break into that market, they need to mature and they need an ecosystem around them.”

The key to change, he says, will come in empowering consumers, and that will come with the widespread introduction of storage technology.

“If we had storage that was cost-effective, [we] would very quickly be able to encourage the utilities to get with the program. Once you have the opportunity to say, 'I don’t need your electrons any more' -- that is when consumers will have the power.”

Arvizu says that storage costs may still be too high by a factor of two or three, but he points to the likes of Tesla, and its proposed Giga factory, as a key to bringing down those costs quicker than most expect.

“The game will change so that people will have a choice. Those costs will continue to come down, and [it is] happening at a rate that surprises even me, and I have been at it for 35 years.”

The next step, he suggests, is to scale up. In the U.S., this is not happening at a federal level, but it is happening at the state level. A total of 29 states now have renewable energy targets, and all are meeting them easily.

In the U.S., industry lobbying groups are trying to force state governments to back down on their renewable energy targets. So far, the legislators have resisted these efforts.

Arvizu says he's confident that the higher renewable targets can be achieved. It will require innovation and access to capital, but most of all, it will require vision.

“We can invent the future we desire,” he said.

The most ambitious state, California, is set to easily surpass its 33 percent target by 2020, and Arvizu's home state, Colorado, will surpass its 30 percent target by the same time.

In Colorado, he added, there was initially a cost cap of 2 percent of electricity bills on its renewable target, but it looks like the state will be able to achieve its goals at a cost of just 1.5 percent.

“The genie is out of the bottle,” Arvizu said.

“I started out in the AT&T Bell labs. When they said they would dismantle the monopoly of the mother Bell, we thought it was going to be the end of the world. But the regulators allocated the bandwidth and got out of the way. The phone calls of today may not be cheaper than they were, but there is a lot more choice and opportunity. In the energy arena, the principle is the same. If you open up that market to broad competition, and open it up to choice, then it will be very different than a market where people are just trying to sell electrons."

But, he notes, it is important that the new model be integrated with the old. In other words, the best of distributed generation must be merged with the best bits of the old centralized model.

This will be difficult, considering the regulatory hurdles, but it is important. And in the same vein, he dismissed the idea of “energy independence” for a country.

“I don’t think we need to go to 100 percent renewables, although I think we can,” he said. “And I don’t know why you would want to pay to be autonomous. The extra cost that it entails...to be isolated, [purely] as an act of bravado, is absurd; it is an interconnected world.”


US Wind Energy Output Breaks Records

Michael Goggin, AWEA
April 04, 2014


Wind energy is breaking records across the U.S., thanks to long-needed transmission upgrades that are relieving congestion on the power grid and allowing more clean energy to reach consumers.

Last week, a new record was set on the main Texas grid, the Electric Reliability Council of Texas (ERCOT), reaching over 10,000 MW of wind. This was the most ever for a U.S. power system, the equivalent of powering more than five million average Texas homes. In two previously unreported records, wind energy supplied a record 39.7 percent of total ERCOT electricity demand this past Monday, March 31, and two weeks ago the Southwest Power Pool region just to the north of Texas set a new wind record with 7,202 MW of wind production.

Nationwide, AWEA’s forthcoming U.S. Wind Industry Annual Market Report Year Ending 2013 finds up to 60,000 MW of new wind energy development would be enabled by major transmission projects that are in advanced stages of development. Texas is the national leader in wind energy in part because it has been a leader in creating policies that enable private sector investment in and open access to an expanded transmission grid. Broadly allocating the cost of transmission is key, as the large reliability and economic benefits of a strong transmission grid are broadly spread and a strong grid is essential for maintaining a competitive electricity market.

Texas’s recent wind records were made possible by the completion of the Competitive Renewable Energy Zone (CREZ) transmission lines earlier this year, which connect world-class wind energy resource areas in West Texas and the Texas Panhandle to electricity demand centers. The lines are allowing ERCOT to nearly double its use of wind energy. The latest ERCOT planning report indicates that 8,413 MW of new wind projects have signed agreements to connect to the grid, which if all built as expected would bring around $15 billion in additional investment to the state and take ERCOT’s total wind capacity to 19,478 MW. More than 7,000 MW of wind capacity are currently under construction in Texas alone.

Other regions are following Texas’s lead in adopting policies that will enable long-needed grid upgrades. The Midwest grid operator, the Midcontinent Independent System Operator (MISO), has adopted similar cost allocation policies for a set of transmission lines called the Multi-Value Projects. These projects will potentially integrate nearly 14,000 MW of new wind capacity. Similarly, the Southwest Power Pool has adopted a Highway/Byway transmission cost allocation policy and is making progress towards building a set of lines called the Priority Projects, which are expected to serve more than 3,000 MW of new wind capacity.

It may have taken a few years, but in many parts of the country the grid is finally catching up with wind energy’s rapid growth. These recent wind energy records, and the tens of billions of dollars of new wind energy investment in the pipeline, are a product of those transmission success stories.  

To summarize the recent wind energy generation records:

  • The Electric Reliability Council of Texas (ERCOT) set a national record on March 26, with 10,296 MW of wind output, enough to power 5 million typical Texas homes. On Monday of this week, wind output provided 39.7 percent of total electricity demand, breaking the previous record of 38.4 percent that was just set last Friday. This is a major accomplishment as ERCOT operates the power grid for around 85 percent of the state, and Texas alone accounts for about 10 percent of U.S. electricity demand. ERCOT’s previous record for wind output had been 9,674 MW, set in May 2013, and in April 2013 wind output had provided 35 percent of electricity demand. Jeff Clark, Executive Director of The Wind Coalition, noted "Texas has made visionary investments in its electricity infrastructure. These investments are paying off for Texas consumers as record levels of inexpensive wind power is lowering electric bills with power that is truly 'Made in Texas.'  Wind energy is a home grown success story that is demonstrating that Texas energy can power Texas."
  • On March 18, wind energy output set a new record of 7,202 MW in the Southwest Power Pool region just to the north of Texas. Wind output exceeded 6,000 MW on each of March 16, 17, and 18, including setting a record on March 17 that was then broken the next day. Before that, SPP’s record output had been 6,816 MW on October 10, 2013, and on April 6, 2013, SPP wind output provided a record 33.4% of electricity demand.

Chile Installs Record-Breaking 150MW of PV in Q1, 380MW Under Construction

Mike Munsell
April 7, 2014


According to GTM Research's Latin America PV Playbook, Q2 2014, released today, Chile installed 153 megawatts of utility-scale PV in the first quarter of this year. That's more than three times the amount that any Latin American country has ever before installed in a single quarter. 

“The last quarter has been a testament to the real pipeline now emerging in Chile,” said GTM Research global solar analyst Adam James. “The market has strong fundamentals, and we are seeing that companies like SunEdison can leverage a variety of business models to execute deals on those fundamentals. Both the PPA and merchant markets in Chile have exciting near-term potential, and several companies have secured financing and have projects moving forward."


Source: GTM Research Latin America PV Playbook, Q2 2014

One completed project of note is the San Andres solar power plant. Its 50.7 megawatts make it the largest merchant project in the world with spot prices competing on the open market.

Chile is also adopting large-scale PV systems to support the nation's mining industry, which makes up a significant percentage of its GDP. Copper mining alone represents 20 percent of the economic activity in the country.

SunEdison connected two of last quarter's four projects, including San Andres, totaling 148 megawatts. An additional 380 megawatts are now under construction by a handful of other developers including Solarpack, Selray, Enel Green Power, Mainstream Renewable Power, and SunPower.


Source: GTM Research's Latin America PV Playbook, Q2 2014

This quarter should see two project completions, totaling 23.5 megawatts. GTM Research is forecasting that Chile will install 244 megawatts in 2014.

"With energy reform legislation chilling the large-scale project pipeline in Mexico, Chile may emerge as the regional leader by the end of 2014 in both annual and cumulative PV installations,” said James.


Solar Frontier Sets Another PV Efficiency Record

Renewable Energy World Editors
April 02, 2014


Being able to increase the amount of electricity generated by a single PV module is an important facet of the work that solar PV manufacturers undertake in their R&D efforts. The greater the efficiency of the panel, the less panels are needed to produce a certain amount of energy. This in turn then lowers installed costs for solar PV developers.

That’s why when a company achieves a new efficiency record, it shouts about it.  And that is exactly what Solar Frontier is shouting about today.

In a joint research effort with the New Energy and Industrial Technology Development Organization (NEDO), Solar Frontier said that it has achieved 20.9 percent conversion efficiency on a 0.5cm2 CIS cell. This is a world-record conversion efficiency for thin-film PV technologies, according to the company, beating Solar Frontier’s previous world record of 19.7 percent conversion efficiency set in January 2013 for CIS thin-film cells that do not contain cadmium, on top of the previous 20.8 percent cell efficiency record for all thin-film PV technologies, set by Avancis in February of this year.

The highly respected Fraunhofer Institute verified the result.

According to Satoru Kuriyagawa, Chief Technology Officer of Solar Frontier, the new record is from a CIS cell cut from a 30cm by 30cm substrate, “the same method we use in our factories,” he said. Kuriyagawa believes that this means that Solar Frontier will be able to mass-produce the new more efficient cell easily.

The efficiency record was achieved at the Atsugi Research Center (ARC) in Kanagawa, Japan. ARC focuses on boosting the conversion efficiency of its customers CIS modules, developing proprietary mass production machinery, and reducing overall system costs for end users. The ARC has been at the forefront of advancing CIS technology, setting numerous world records since it was established in 2009, according to the company.