Clean Power

Published on May 23rd, 2013 | by Giles Parkinson

Solar – It’s Barely Scratched Surface Of $2 Trillion Market

May 23rd, 2013 by Giles Parkinson

This article was first published on RenewEconomy.

As operators of utilities desperately clinging to their WWI-vintage business models prepare their Maginot Line defences of altered tariffs and higher connection fees, it might pay them to pull out the periscope and peer over the trenches to see what exactly is about to come their way.

Last week, the top executive team from the US-based solar company SunPower held an all-day analysts briefing – their first for a few years.

It was fascinating stuff about the future of the multi-trillion global electricity market. And if they are right, the flood of panels on rooftops, and pooled together in large scale solar plants, may be the least of the problems for the utilities. The solar industry is not just intent on hitting the industry on the flanks, it intends to come right over the top of the present incumbents.

There were a couple of key points that were made, and we’ll go through them one by one. If anyone is interested in seeing their slide-pack, and listening to their briefing, they can find it here.

Solar has barely scratched surface of $2.2 trillion market

The first point made by CEO Tom Werner is that the solar industry has barely scratched the surface of the $2.2 trillion global energy market (that’s an annual figure by the way).

Sure, it’s recorded spectacular growth through the “first mover” market that has been mostly been subsidised. “We are just at the beginning of a fundamental transition,” Werner said. “We are going to have huge market opportunities. The non-incentivised market is way bigger than the early adopter market.”

To flesh out that point, Howard Wenger, the firm’s president of regions, presented this graph below. It highlights just how nascent the solar technology is. There is an “addressable market” of 23,000TWh in the world, or which less than a third is made up of buildings (homes and businesses). So far, SunPower has just 0.01 per cent of that market, and just 0.02 per cent of the utility market.

The key point is that because of grid parity, which has been reached in numerous countries over the last few years, the solar industry is now able to attack that market with gusto. “We are just at beginning,” Wenger said.

Costs will continue to fall, efficiency will rise

Grid parity already exists in many market – not just at the “socket”, where electricity from rooftop panels is far cheaper than grid-sourced power – but also at utility scale, in competition with fossil-fuel plants. And solar will continue to increase its competitiveness.

SunPower boasts the world record on efficiency with 21.5 per cent from its commercial modules. It expects that to grow to 23 per cent over the next few years, which will translate into a fall in costs of 35 per cent – even after the dramatic falls in recent years.

“There will be fundamental change over next 3 years,” products chief Jack Peurach said. “We will be on offence on LCOE (levellised cost of electricity). That’s the foundation of this technology.”

To illustrate that point, Peurach presented this graph below about the LCOE of rooftop panels. Even though SunPower’s upfront costs are higher than the “commodity market”, its higher efficiency (40 per cent above the rest) and reliability means that its long term costs are lower. (This is something that most consumer buyers of household appliances understand, but seems to escape most of our large utilities and pricing regulators).

Solar companies will not just produce modules, they’ll manage energy

This is the key, because it marks an important evolution of the solar industry. Werner noted that over the last 10 years, the company has moved from selling solar cells, to selling solar modules and then solar systems.

Within three years, however, that will change again. It won’t be just energy, it will be energy management solutions. That will include storage and the smart controls to allow homeowners and businesses to manage their energy production and consumption. That’s a whole new ball game, it’s what the utilities have been doing for the 100 years and presumed they would continue to do.

One of the reasons that is happening is that in most markets outside the US, the value of rooftop PV is found by consuming on site. That’s because, as in Australia, the utilities pay little (or in some cases nothing), for the energy that is exported back into the grid. And they want to hit the solar households even harder with higher network costs.

This may suit the utilities now, but it is a dangerous game, because it invites the solar industry to find other solutions – such as adding storage and smart controls.

“Storage will be economical in the very near future,” Peurach said. “When it is, it will become a vital part of the solar PV system, and storage systems will easily integrate into the energy management platform.”

It should be noted that SunPower has recently bought a stake in Australian retailer Diamond Energy, and Australia is one of the seven key country markets that it is targeting – along with the US, France, Germany, Italy, Spain and Japan. It will be fascinating to see how that evolves, and the impact on the market.

And now for Big Solar

SunPower says it was the first company to build a 10MW utility scale solar PV system – that was less than 10 years ago – and it is currently building the world’s largest again – the 579MW Antelope Valley solar farm in California. It has a total of 2GW in contracted and constructed projects, and says it has another 6GW in the pipeline.

SunPower says one of the advantages of its technology is its modularity. It developed in 2010 a standard system, the Oasis 1.5MW “power block”, that is simply repeated over and over to meet the specifications of a particular plant.

The company says this has helped in the reduction of balance of systems costs – installation, maintenance, financing etc – which one of the key targets for the solar industry beyond the actual cost of the modules.

According to SunPower it has achieved a 50 per cent reduction in BoS costs in just the last two years, and is well ahead of its plans. (See graph below)

SunPower says this power block is standardized and bankable. And it sees a sweetspot in the global market of 10MW to 50MW installations. That’s what is being touted as the idea size for Australia in coming years.

Interestingly, France will be its focus for new growth this year (French oil giant Total is its major shareholder), and it is already laying claim to 10 per cent of the burgeoning Japanese market. Its relationship with Total could also give it inroads into the Middle East and north Africa markets, which are looking seriously at utility scale solar. It already has 1.5GW in the pipeline from MENA countries.

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Tags: 2.2 trillion market, global electricity market, large-scale solar, solar, solar plants, Sunpower

About the Author

Giles Parkinson is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.

Anteaus

You wonder how much of this is based on FIT subsidies. All very well if they can make it pay without robbing the rest of us by way of utility bill surcharges, but I strongly suspect that is what is intended.

The simple fact is that even with high efficiency equipment in a sunny region, costs are several times those of Grid power. That is at retail. When the solar farms start trying to compete with wholesale power prices, thn it just becomes ludicrous. It’s basically an industry that is designed around creaming-off subsidies, and without those subsidies it would fail.
- Bob_Wallace
  
  Wrong.
  
  Solar has reached grid parity in several counties.
  
  Solar farms are producing electricity cheaper than average sunny hour wholesale prices.
  
  Subsidies have been necessary to take an idea to a mature, highly useful technology. Subsidies have almost finished doing their job and given us a way to generate lots of affordable, clean electricity.
  
  Giles is posting from Australia. The average cost of installed roof-top solar in AU us now around $2.50/watt. That is with zero subsidies.
  
  $2.50/watt solar in a sunny location generates electricity at about $0.10/kWh. That is considerably lower than the cost of grid power.
  
  And, no, the high cost of grid power in AU is not due to solar supplements.
  - Anteaus
    
    Since a metre-square panel is rated at about 150W, by your figure of $2.5/W that will cost $375 per sqm of panel.
    Meanwhile, the sunnier parts of the globe tend to get about 2,000kWh of insolation per year. If we take a solar and inverter efficiency of 0.16, that gives us 320kWh of actual energy per year. At $0.10/kWh that is worth $32. At these retail rates, payback will take 12 years, not including compound interest on the capital. Not sure what wholesale rates apply in Oz, but I’m sure you can follow the arithmetic I’ve given you, and do likewise.
    - Bob_Wallace
      
      I’m not going to check your math. Let’s assume you did it correctly.
      
      OK, 6% return. How many places can you put your money that will earn a fixed 6%? A very low risk 6%.
      
      Well, your math is a bit off. You’ve failed to include electricity inflation costs. Your $0.10/kWh will be something more like an average $0.134 over 20 years with 3% inflation. And your panels may well be kicking out the power when they are 40 years old. That would mean an average electricity cost of $0.168/kWh.
      
      —-
      
      Now, what is your argument again? That solar at $0.10/kWh isn’t competitive at the wholesale level?
      
      Check the wholesale prices paid during high demand/peak hours. It is quite expensive to purchase peak power from gas peakers. And with merit order pricing the utility pays every supplier the highest rate.
      
      Having solar on the grid has cut the heck out of wholesale peak prices in Germany. They are down by about 40%. That is an enormous savings for consumers.
      
      “The rest of you” are in line for some very sweet savings provided by the rather modest amount of assistance you’ve paid to get solar on your grid.
James Wimberley

Just how does SunPower count on BOS costs a third cheaper than its commodity competitors? SFIK they don’t make inverters and mounting racks, and permitting is outside their control.

While SunPower does produce high-efficiency panels, it has competitors at that end like Canadian Solar and Panasonic, and there’s a spectrum of costs and efficiencies all the way down to the second-tier Chinese producers that are being squeezed hardest by the glut.

What’s interesting to me here is that Total is bucking the trend of disinvestment by Big Oil in renewables (see BP).
- JustSaying
  
  SunPower says one of the advantages of its technology is its modularity. It developed in 2010 a standard system, the Oasis 1.5MW “power block”
  
  Note sure what that really means, but also they require less panels for the same total power. So they BOS would be lower that way. You need less hardware/labor to mount same kWs.
- ASolarEngineer
  
  SunPower absolutely makes their own mounting racks. The Oasis T0 platform in particular, which has been a huge part of lowering BOS costs on a utility scale. Also part of their product portfolio are T20 and C7 in the utility space and T5, T10, and PowerGuard in the commercial rooftop space. Currently they do not have any residential rooftop mounting products of their own.