Why Solar PV Has Reached Escape Velocity: Top 10 Reasons
Originally published on RMI Outlet.
By Laurie Guevara-Stone and Joseph Goodman, Ph.D.
With Nevada rolling back net metering and solar company stock prices falling, one might think the solar industry is in big trouble. In fact, a recent New York Times article stated that SolarCity and other residential solar companies face a cloudy future. The article implies that the solar business model is based largely on subsidies (federal, state, and local), and therefore highly exposed to regulatory changes. Yet we believe the opposite is true: the solar industry will continue to have sustained and significant growth despite SolarCity stock woes and net metering policy changes. And here are ten reasons why:
1. PV companies are diversifying
The PV industry is increasingly diversifying, making it more resilient to incidents of bad policy. “While the New York Times article focused on residential solar, that segment is less than 25 percent of the market,” according to RMI Associate Kevin Brehm. In fact, SolarCity, a company commonly associated with rooftop solar, is now building and owning utility-scale solar projects. As companies diversify they are less exposed to policy risk that may affect one segment, such as the Nevada policy change.
2. The PV industry is global
On a global scale, new markets will enable the U.S. PV industry to grow despite short-term recessions in local markets. In October of 2015, global information and analysis company IHS predicted 2015 global PV demand would reach 59 GW, 33 percent higher than 2014, and 2016 would reach 65 GW. This growth is largely due to increased demand in China, India, and other emerging economies. “It’s a growing global market and U.S. developers are really well positioned to capture that market,” says Brehm. For example, SunPower has been diversifying into markets including the Middle East, Latin America, and Africa, and 50 percent of SunEdison’s project pipeline is outside the U.S. First Solar is also going global with over 60 percent of its 2015 Q2 potential booking opportunities (16.7 GW) coming from international markets. “This global diversification mitigates local, state, and federal electricity policy changes to a great extent and helps to insulate the solar PV industry from microeconomic vagaries,” according to Anthony Coker, VP of Market Development for Hanna Solar.
3. Solar PV is a proven and robust technology
Standard solar PV module warranties currently range from 25–30 years and product lifetimes are far exceeding manufacturers’ warranties. Many early off-grid adopters are still harvesting solar energy from modules installed in the ‘70’s. Even inverters are getting out of the reliability hot seat with over 20 year warranty extensions based on the belief that if products fail at 15 years they will delight customers with higher-efficiency longer-lifetime replacements.
4. Solar PV cost is beating fossil fuels
According to Lazard’s latest Levelized Cost of Energy Analysis (LCOE 9.0), the levelized cost of electricity for utility-scale solar PV without subsidies is beating conventional alternatives in many parts of the U.S.—even with current low fossil fuel prices. First Solar recently agreed to sell power from its 100 MW solar plant in Nevada for 3.87 cents per kilowatt-hour (escalating at 3 percent per year), thought to be the lowest electricity price ever. And last June, Austin Energy received bids for over 1.2 MW of PV projects under 5 cents per kilowatt-hour.
5. Cost of solar PV will continue to fall
PV costs in all segments are expected to continue down. According to LCOE 9.0, “The levelized cost of rooftop solar PV is expected to decline in coming years, primarily as a result of more efficient installation techniques, lower costs of capital, and improved supply chains.” Canadian Solar estimates that the cost of the modules will fall 25 percent in the next three years, and GTM Research predicts that through balance of systems cost reductions, PV system prices will fall an average of 40 percent by 2020. Economies of scale along with improved business processes in a newly emerging industry will continue to drive down costs.
6. The industry is attracting top talent
Forbes “Top 30 under 30” list of the brightest entrepreneurs and change agents under the age of 30 has a disproportionate share of PV talent compared to market cap. The new generation of leaders is bringing a pragmatic outlook honed in the 2007–2009 financial crisis. Yet, where previous generations largely fled green agendas this pragmatic generation has analyzed the long-term trends that will play out in our lifetime and see renewable energy and energy efficiency as sure bets for both job security and satisfaction.
7. Decommissioned coal plants will drive surge in PV demand
Even with the unknown outcome of the challenge to the Clean Power Plan, a total of 46,000 MW of coal generation is on track to close in the ten years spanning 2012–2022. Just last July the 200th coal plant shut down in the U.S. As coal assets are decommissioned, solar PV is likely to step in and cover a large share of the capacity need. Solar PV is affordable, and with falling storage prices, it can be a great alternative to coal. According to Brehm, “The war on coal is over. Now it’s just a question of rebuilding and solar will be a large portion of that generation capacity.” Duke Energy, which installed over 200 MW of solar in 2015, has stated that despite what happens with the Clean Power Plan, any new generation it installs will be in natural gas and renewables. Coker adds, “No one is arguing for a single silver bullet—one generation source for the global economy’s electricity. Rather, we are seeing a displacement of coal by lower-priced gas, solar, and wind in many regions. Economics are dictating the change.”
8. Completely untapped markets still exist
New solar business models will create access for more customers. There is currently a huge market for low-to-moderate income households in the U.S. Less than 0.04 percent of these families have solar PV systems, which we estimate at a $250 billion dollar market in the U.S. alone. And worldwide, over a billion people have no access to electricity at all. As PV costs continue to decline and more developing countries enact policies supporting renewable energy expansion and continue to push for electrification to drive economic development, the solar PV market is poised to grow at an incredible rate in those countries. Solar PV can reach these populations providing them with clean, reliable, and affordable electricity.
9. New solar markets segments are emerging in mature markets such as the U.S.
Even if some currently active solar market segments stagnate, there are significant new markets opening up. Community solar is a large currently untapped market. There are currently 65 MW of community solar installed in the U.S. with an estimated 250 GW market potential. “Community-scale solar is an exciting segment of the market. Increasing demand from rural electric coops, community-based organizations, and local municipalities is driving developers and service providers to innovate new technology and business solutions,” according to RMI Associate Kieran Coleman. “Clearly this is a very early stage nascent sector that has huge potential to meet broader need.”
10. Business models are being continuously innovated
While the New York Times article makes it sound as though SolarCity and other companies’ business models have inherent flaws and risks, we believe that business models are continuously changing. Whether it is a non-profit organization like Clean Energy for Us, a for-profit solar company such as PosiGen, or a utility such as Kit Carson Electric Cooperative, there is continuous innovation to make solar more affordable, accessible, and profitable. Even large, conservative investor-owned utilities are adding more solar (e.g., Southern Company with its three military bases of over 90 MW under construction and several large utility scale solar farms publicly announced by Mississippi Power) forging new solar business models in highly regulated markets. “And regulators like the New York Public Utilities Commission play an equally important role in opening the field in business model innovation in current and emerging sectors,” adds Coleman.
A Bright Future
So while states like Hawaii and Nevada end net metering, and solar companies’ stock values fall with the market like oil and gas or banking stocks, we feel the solar industry does not face a cloudy future. Far from it. Policies, regulations, and the stock market can’t stop the continued growth of this clean, affordable, reliable technology; the future of solar PV is bright.
Photo courtesy of Living Off Grid via Flickr, Creative Commons license (CC BY 2.0).
Reprinted with permission.
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I fully expect solar pv to be the next ‘bubble’. Just like the internet tech company bubble and then the housing bubble after that.
“Free” energy hype will come back (Remember nukes in the late 60s early 70s?). Solar is good, but it’s not THAT good 😉
I do remember that nukes were supposed to produce power “too cheap to meter” and fell far short of that, but I disagree that a ‘bubble’ has formed.
That was due to dodgy accounting where a value was given to the plutonium that was a byproduct of early nuclear power.
Right, whereas the plutonium is actually one of most expensive liabilities ever.
Not if you use it in fast reactors.
i left my fast reactor in my other trousers.
The solar bubble burst a few years ago when industry overcapacity bankrupted many high-cost players. The industry has moved-on since then and looks set to struggle to meet projected demand over the next few years.
There are different sorts of bubbles, some involve over-investment in tangible assets and others (like 2008) mostly in financial speculation. The funny thing about the “dotcom” bubble is it left behind an investment in fibreoptic and other internet infrastructure, much of which is still in use today. Without this bubble this buildout could have taken much longer. While I don’t see a bubble in solar pv at this point, given it only accounts for a few % of overall electricity generation, a “bubble” which resulted in a lot of solar being installed wouldn’t be the worst thing I imagine.
Yep. A financial bubble where we get huge amounts of solar power built very quickly and then a bunch of people lose money… would be great for the world, honestly!
Sorry to burst your bubble but Solar has busted its bubble some time ago. Now we are in reality. We only have to wait until the greedy companies will start marking down their installed prices.
Well, nukes didn’t improve over time – they got scarier and people realised they cost a bomb to decommission. Solar is great because it has a rapid innovation cycle – it gets better and cheaper each year. The hype is justified, IMHO. Still much innovation yet to come.
The only thing that can hold back solar is the lack of storage… and progress is quickly being made on that front… but, yes… once solar and wind are 100% of generation there’s really no where left to go 😉
Solar employees are like the wind. One day their shopping at the local store and then the next day their in China or India. You can’t build a local community on the wind. The economy is great one day and gone the next.
Huh? I am not sure what your point is here…
It’s a reference to the movie “Being There”. Oldies like me remember it – Peter Sellers character was regarded as visionary for making vague poetic statements that could mean anything.
Thank you, Chance the Gardener.
The story of solar is a fascinating one. After half a century of false starts, it does seem like escape velocity has finally been achieved. The tech is proven and the cost trajectory appears locked in. There is little doubt that power generation and distribution in 25 years will look very different from how it looks today. Although this overstates it for sure, in some ways electricity generation and distribution is undergoing a transition from a service industry to a consumer products industry.
Perhaps surprisingly, the one group that clearly understands the magnitude of the change that’s ahead is incumbent utilities. They know they’re engaged in a death-match with distributed energy generation systems and that their best hope is to fight against a rising tide for maybe a decade or two, as their revenue and their political power wanes.
Ironically, the recent attempts by utilities to hobble net metering will help speed this transition. Unfavorable net metering policies are essential to creating the robust markets that emerging storage technologies need to mature and grow.
The cost trajectory has been coming down since 1975 (see all those Swanson’s Law charts). It just started so high that nobody was paying attention until recently.
Dream on people! For as long as SolarCity, SunPower, SunRun, Sungevity and other big companies keep pegging their installed costs at more than $3/Watt for residential or commercial use, it will not take off that much. These companies are holding solar back in the US! Greed is holding solar back.
Meanwhile, it has taken off in Germany and Australia. What are we, in the third world?
Note that in the Fresno area there are some 12 installers not named Solar City, are they installing at a better price? Or is it the fact the USA has not yet created a national install standard like Germany so local issues add cost in every state/city…
Naw, these companies are run by used car salesmen. They will spend days trying to get you to buy a system. Then it takes them half a day to install it. They spend their time and resources trying to jack up the prices instead of doing decent jobs and relying on word of mouth.
I love solar, and I meet people all the time with different systems from different companies. Like anything in life you get what you pay for. When you buy your own powerplant you need more than just a cheap local contractor to install parts for you…there are a ton of long term costs that need factored in. That’s the part that bites so many people in the butt that I have met. “Oh your roof is leaking…past the 2 year contractor warranty in AZ. You can pay us to come remove it for you…that will be about $2k”, or “Your 6KW southern facing system has only produced 800 kwh over the last two years…you need to call the manufacturer of your panels and inverter….no we don’t deal with that…no we did not guarantee production…no it was not our responsibility to inform you that your system was not performing as we told you it would….none of that was in the contract.”
I have met too many chuck in a truck, fly by night, ma and pop idiots trying to run a solar company that just screw people over for the long term. We are talking 20+ years people. Contracting companies, especially MA and pop shops, are not known for their longevity. People die and family businesses are not what thwy used to be. Meaning it is you left dealing with manufacturers when you finally realize something is wrong…shipping parts back to be tested…paying some other guy to reinstall the materials, etc. And if the ma and pops were so superior in their pricing then how come their marketshare is tiny? Maybe because they barely have money to survive, let alone undertake in the massive marketing campaigns necessary to cracking the surface of politically driven solar myths? Or fund the political campaigns necessary to fight against greedy utilities that control all power at the moment?
So I should save a couple of bucks now to go with a chuck in a truck?
Screw that.
With SolarCity you know exactly what extra money you may have to give out and when during the lifetime of the system. Their contract is clear, concise, and covers all the bases. And all of their systems have money back production guarantees.
And if their power costs less than the utilities price for power then how is that a bad thing? People are getting energy from the sun for goodness sake! That’s the dream people!
Ok, rant over…..
I think you got this backwards. I contacted tons of installers. SolarCity was the only company which couldn’t even tell me what hardware they would install, let alone specify it in the contract.
Their proposal was a joke (solar modules installed over skylights, too close to the roofline to satisfy the fire dpt requirements, etc), on top of being way more expensive than pretty much everyone else.
Lots of companies have been in business longer than SolarCity, and will be happy to show their track record. Do your homework people. Ask for references. Insist on quality hardware, monitoring capabilities (not just “we’ll monitor for you”) and actual warranties (most of which are coming from the manufacturer of the equipment anyway), not merely some low-ball production minimum.
You must be profiting from SolarCity somehow. Throwing FUD on other companies about roofing and what not. It sounds a lot like the Bush and Obama justifications for wars with sheep herders.
Sorry but everywhere else in the world the cost of solar is about half the price of SolarCity. SolarCity may be able to pull an “apple” out of the market but it doesn’t make it right.
We others at work bought residential systems this past year (Bay Area), one used Solar City and paid $5.10/watt, the other used a Mom and Pop local installer, and paid under $3.20. You need to shop around.
Too many times I’ve gotten someone to look into getting solar, and naturally they only try the biggest fish, and come away not getting a system, because its too expensive.
Your best choice is always a reputable local installer. Here in Ithaca, we have several which have dozens of employees and have been in business for over a decade. Of course the DIYers install their own panels.
It’s a balancing act. Those companies need to charge enough to make enough money to pay to hire more people and buy more facilities and vehicles so that they can expand. If they charged half as much they might get twice the orders, but wouldn’t have the extra money to hire twice the people or buy twice the facilities and vehicles they’d need.
Solar City has been expanding at 80% per year.
So their business plan works. Good. More solar installed is a good thing, and if you are from the USA, you must want free enterprise to solve the problem right? 🙂
Its partly, that the big installers bank on the customer wanting extra handholding and assurances, so they offer production guarantees and they will monitor the system for you. I looked up the extra meter Sungevity installed with my upgrade, and it claims it costs $760. That’s some pretty pricey handholding. Buy from a local Mom and Pop, and they may not be around in a few years, which drives many towards the big (but expensive) providers. The guys who installed my first system six years ago, are out of business, so if I have a problem, I’ll have to pay someone to handle any manufacturers warranty issues should they come up.
None is forcing you or anyone else to buy, let alone lease, from those guys.
I actually got a quote from one of them, shook my head, and went with another (local) installer. Simple.
that’s why with preapproval from HERO, people should shop around! SolarCity is in a position to make a difference in the world, but greed has clouded their minds!
How did you find a local installer? Most people don’t even realize that’s an option, I’ll bet. A good reputation would be essential. It would be interesting for Cleantechnica to compare local installer costs against the Big Solar companies.
Same way you’d shop for a plumber, an insurance agent, etc.
Ask friends, neighbors and/or other professionals for referrals (e.g. roofer, real estate agent), internet search, yelp, yellow pages, BBB, request references from companies you consider, things like that.
With thousands$ at stake, a little due diligence really pays off.
These companies are not the problem, more a symptom. The problem is the red tape in the U.S. when it comes to installing PV. Just search CT for articles on soft costs.
Really only two points. Solar is much cheaper than the utilities in many markets and these markets are vast.
The framing of the post is US- centric not global. In the latter perspective, you should give much higher importance to the very strong policy support in China and India, leading a large pack of serious players including Japan, Chile, Mexico and Brazil. The world market is quite different from the Europe-dominated one of five years ago, and much better placed to ride out policy shocks in any one country.
I would also have liked to see more stress and more data on cost of capital and financial innovation. As always, some of this innovation is perverse, near-scams like solar leasing. Some of it like yieldcos for utility and PAYGO for offgrid in rural Africa opens doors. The overall picture is that solar has been finally recognised by the finance world for the low-risk, long-lived, highly reliable technogy that it is.
To be fair, the article stressed that it is a world market, and that that insulates the industry from local policy changes.
11. The batteries are coming which will allow people to install more of that solar and time shift it to when the sun goes down.
I truly believe we’ve hit the tipping point. If all that happens going forward is incremental increases in efficiencies and incremental decreases in cost then we are only a few years away from when unsubsidized solar is cheaper than subsidized fossil fuels globally. It will not matter if there is resistance from utilities and government policies, it will not matter if subsidies are pulled away. We’ve reached the event horizon… fossil fuels can not escape being sucked into oblivion.
Through the smog, glimmers of light are finally coming through.
I installed a solar energy system two years ago and now I pay $0.00 for my electricity. It works!
Of course it is good that solar is growing but here in western Canada it is still being stymied by local governments. They impose useless requirements, like a lot survey (City of North Vancouver) as well as other costly restrictions, like a development permit (City of Vancouver) on solar. I estimate the average cost of municipal restrictions to be over $3,000.00. Combined with zero assistance from the provincial or federal governments means that solar is virtually non-existent here.
Our provincial government is, however, proceeding with a $10 billion dam to make ‘clean’ energy in order to liquefy natural gas. As many of you know fracked LNG, especially when shipped across the Pacific is worse than coal. Ohhh Canada.
In the present early stages of this, effectively a second industrial revolution, the bubble seems to consist of the many competing protagonists, only a few of which will emerge to take development towards its potential.
Similarly, in the early stages of steam there was a chaotic rush to build railways, resulting in many failures before a few survivors continued into the twentieth century,