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

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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.

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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.