In Solar Energy Tough Love, I described the perverse impacts of government industrial policy on the solar energy sector in its vainglorious attempt to choose winners and losers. That policy is failing, Solyndra aside.
The market gods hate to be trifled with, and they respond with thunderbolts and torment. Solar’s pain will continue until grid parity is reached. In the meantime, the solar energy sector must purge itself of government subsidies and address its weak financial performance.
So when I read the story in the trade press about SunPower’s wider Q2 losses I decided to get beyond the numbers to look at some of the market factors tormenting the solar business and holding back its true potential.
One key fact is that solar energy demand is up, but so are input costs for solar panels. Rising demand stimulates rising production and thus excess inventory is a persistent problem and results in falling prices for PV panels. Then there is the Feed in Tariffs (FiT) fits that cause burps and headaches as governments in Europe no longer able to afford the soaring cost of subsidies regularly adjust the tariffs—usually downward.
Changes in FiT shift demand from market to market as manufacturers adjust and seek to lose less margin on each incremental deal. Often, as was true in SunPower’s Q2 report, revenue comes in at or close to investor expectation because demand is growing but cost and margin control has proven difficult and can quickly eat away at profits.
Key Factors
It all sounded so logical and convenient until lien holders began to realize that the PACE loans would get priority ahead of the first mortgage in a bankruptcy since they were government bonds and that was a scheme not even Fannie Mae and Freddie Mac would tolerate.
This is like locking yourself into a 20-year lease on a Chrysler Sebring sitting unbought a dealer’s lot. This also sound more than a little like the no down payment securitized mortgages that just ate all the equity in our homes. The trade shows are filled with CEOs of solar companies touting these schemes and assuring us that default rates on solar rooftop system are very low.
This may be technically true today but it is still deceptively wrong and it will surely hit the fan. That is why many firms are not bankable because bankers have tried every scheme in the book and they know a bad deal when they see it.
The giants like Dow and others that make these new solar shingles have a competitive interest in driving down the price to make the solar shingles competitive with other roofing options. This is disruptive technology at its market best. That is why more and more established roofing companies are likely to displace many of the fly by night solar panel vendors—and the sooner the better.
The current EU problems with FiT volatility and the failure of the industrial policy of raising utility prices to subsidize the development of domestic renewable energy manufacturing proved a failure in the face of China’s export prowess. So as EU markets are saturated or the FiT subsidy money fades, solar manufacturers are looking for better global markets.
That is a lot of rooftop cheese to attract solar roof rats from around the globe. Those solar shingles I mentioned above use thin-film copper indium gallium diselenide (CIGS) cells instead of the older polysilicon. Dow claims its CIGS solar shingles are over 10% efficient, about 10 to 15% cheaper per watt, easy to install and harder to steal. If California is going to have a million solar roofs it wants them using the newest technology not the oldest, least efficient stuff.
The Grid Parity Imperative
Solar energy is still the only distributed generation technology capable of displacing the central station utility business model. Achieving that ambitious goal will require grid parity prices to compete with natural gas, improving solar technology efficiency, and bigger scale players with bankable integrated solutions. Consolidation is rapidly weeding out the smaller players in this sector and that is good.
Customer Aggregation will be the distributed energy business model of choice. We are seeing it first on the commercial and industrial side of the market with vendors offering demand response, energy efficiency and constant energy management to game the net metering and open access rules. But the menu will expand to include microgrids, combined heat and power, waste heat recovery, energy storage, renewable energy supply options and the expertise to put it all together and manage it to reduce total energy spend. As customer aggregation catches on it will accelerate the move toward a truly distributed clean energy economy as it wreaks havoc on the traditional utility business model.
But residential rooftop solar with higher efficient solar shingles is a game changer if the combination of better technology, stronger market participants, and customer aggregation as the business model that brings scale and diversity to solar to drive it to grid parity prices. Customer aggregation designed to scale a portfolio of residential customers across the three interconnected grids will bring customers new bundled solutions, give them a champion to help eek out savings and bring an end to the separate sale of commodity energy thus ending the traditional utility control over the gateway to customers.
Conclusion
Solar energy must flare off its toxic dependence upon subsidies, industrial policy lobbying and political correctness and embrace the full potential of competitive global markets, integrated grid parity-priced solutions and customer engagement to deliver good value, good service, and good outcomes for both customers and the environment.
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Assuming the Dow type shingles perform as described, I can see a market opportunity for power providers, builders and shingle manufacturers.
1. Shingle makers provide volume discounts to builders in return for guaranteed sales volumes.
2. Power providers and builders cooperate to subsidize the design and installation home electrical management systems required. (couldn’t this count as the providers “contribution” to renewable energy portfolio goals?)
3. Consumers aren’t faced with sticker shock. Just like car sales the selling point is “Our solar roof solution is only an extra $XX a month and of course it reduces your electric bill.”
4. Lost of builders are touting their “green construction”. Welcome to Sunny Acres our newest solar community!
An interesting point of view. I take issue with your characterization of home solar leasing, however.
If you look at the number of people who lease vehicles and are satisfied with the outcome, it should be clear that leasing is an attractive option for a good number of people. While it would be absurd to claim that solar leasing is the right thing for everyone to do, for those wanting to save money immediately on their electric bill who do not have the thirty grand needed to buy a system, and for those who want to make a move in favor of sustainability but face the same financial constraints, leasing ain’t bad.
Solar technology will get better and cheaper over the next few years (and solar shingles will certainly have to in order to get any significant penetration). But if customers can save money using this generation of technology, that argument fails at the gate. Unless you think utility rates are about to go down in the near future…
[…] Beyond Solyndra: Solar Energy’s On-Grid Torment – In Solar Energy Tough Love, I described the perverse impacts of government industrial policy on the solar energy sector in its vainglorious attempt to choose winners and losers. That policy is failing, Solyndra aside. (Gary Hunt, MasterResource) […]
It all boils down to cost. Solar Shingles are an interesting idea, and have been displayed at solar conferences for years. Solar windows are interesting too. We all hope the cost will come done and it is clear that shingles can avoid mounting structure cost, but the shingles are still far too expensive today. Installed solar needs to be in the range of 50-60 cents/watt for it to be viable as a fuel mitigation technology.
“Newer” is certainly not a metric for a rational financial decision. Nor is distributed power necessarily the optimal solution. I kind of like folks at the power company working to maintain power for my house rather than me having to trouble shoot issues with my inverter or other equipment.
I agree that our solar subsidies are driving China’s interest in the US market. And that is a huge waste of taxpayer money, so I also agree that solar subsidies for deploying on-grid systems should stop.
But I don’t see all the talk of ‘game changers’ and ‘disruptive technology’ as helpful. It seems a bit pie in the sky, and characteristic of the general non-sense that surround the solar industry.
It is very simple. Solar just needs to be a lot cheaper to work. I don’t care it if is a big step forward or a lot of small steps. That is not important. Cost is important.
I suspect the author may live in California. I am not so sure “solar shingles” make sense for most of the US, particularly the Midwest. Snow, dust, dirt, grime, hail, shade trees and falling leaves are less than helpful to roofs in general. Solar shingles strike me as not very practical.
Dow’s shingles have been the rooftop of tomorrow for several years, and will remain so as long as the hundreds of electrical connections required in a -50 to +90C wet environment are required. Rising costs and increasing intermittency of traditionally nearly-free fossil fuel powered generation will sell more solar than anything else, since energy is the power required to perform work over time – aka, the economy.
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