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The Secret Solar $auce

Bill Roth | Monday November 30th, 2009 | 0 Comments

The Secret Green Sauce“The idea of building a business selling sustainability without having a clearly articulated price competitiveness strategy is a recipe for failure.” That sentence from The Secret Green Sauce is “best practices #1” being used by companies that are making money going green. And it is issue number one for the solar industry.

The good news is that today solar panels for rooftop systems cost half as much than a couple of years ago and are now averaging $2.50 per watt. These costs are projected to decline as the industry continues to reduce manufacturing costs. First Solar claims below $1 per watt manufacturing costs and several manufacturers claim near-term paths toward 60 cents per watt. A California roof top solar system costing $1 per watt panels with 20% panel efficiency and a $2 per watt balance of plant costs according to my estimates will generate approximately 13 cents per kWh electricity in California or about 1/3 the price charged by utilities through their newly installed smart meters during the pricey summer hours of the year. In addition the utility scale solar thermal developers claim the potential to be at grid price parity plus the ability to dispatch their energy to track demand. So solar appears to have a path toward price competitiveness without subsidies.

However, the people who finance solar that I talked with at the recently held 2nd Annual Solar Energy Investment & Finance Summit see an industry where global demand is underpinned by Germany’s highly subsidized feed-in tariff and the subsidy programs in Spain, about five states in the US, and China.

This is not the basis for building a business and the solar industry’s experience is that without subsidies demand collapses. In addition, a chart displayed by Nathaniel Bullard of New Energy Finance showed an industry basically earning low or no margins. The industry’s risks identified by conference speakers include:

  1. Global public policy resistance to a tax on carbon emissions that will significantly raise utility rates.
  2. Utility power purchase agreements that are very difficult or impossible to finance.
  3. Environmental constraints on transmission lines and central power plant locations impacting the utility scale solar thermal companies.

Interestingly, the industry’s two print spots were First Solar with its competitive pricing focused upon building systems in-grid and the integrators who were harvesting the low panel prices to increase their margins and/or sales.

So where is solar’s future? I come back to The Secret Green Sauce’s “best practices #1”. The solar industry is at a price-competitiveness cross roads.

One example of the industry’s recognition and action on this issue is Akeena’s CEO Barry Cinnamon. Akeena can proudly point to considerable success in removing cost from the process of installing a residential roof top system. Historically, installation costs used to be around $3 per watt based upon approximately 20 hours of work. Now Akeena can do a job in a day or less at an average cost of $1 per watt. But what now concerns Cinnamon is that while he was reducing his costs the utility and regulatory PAPERWORK for installing a roof top solar system has escalated to $1.50 per watt including up to 150 pages of “documentation!” His question is why does installing roof top solar require such a high level of documentation compared to installing a hot water heater or air conditioning system?

One traditional utility answer is the safety issue of back-feed. This is no small issue. I had the honor of managing an operating headquarters at one time in my career and I will testify that lineman are brave, hardworking, dedicated craft-persons deserving our fullest protection. But Cinnamon points out the technology now used in a solar system cannot back-feed into a utility’s system. The solar industry has technologically solved this safety issue.

He also appreciates the need to document the subsidies tied to today’s solar systems. At the same time, is there a reason this type of rebate is more complex and costly than the rebates we all receive when we buy a consumer electronic like a TV or computer? They connect to the grid too.

The most interesting question he raises is why can’t buying solar be as easy as buying any other consumer product merchandised by our hugely efficient retailers like Walmart or The Home Depot or Best Buy that is enabled with offers of no money down and reasonable monthly payments? Does the fact this electronic product is producing electricity vs. using electricity make its sale that much more complex and expensive?

So where is solar’s future? You can’t build an industry if its price competitiveness requires government subsidies, if it takes 150 pages of documentation per installation or if power purchase agreements are so complex and risky that they cannot be financed. Solar’s price competitiveness also will look especially challenging if the costs of solar’s fossil fuel competitors’ emissions are not reflected at the pump, meter and cash register. But the solar industry “gets it.” They are focused upon taking costs out of its business. They see a huge opportunity based upon market research documenting that among all green choices including conservation, energy efficiency and other green fuels the American consumers wants to buy solar. The Secret Green Sauce for the solar industry’s success is its continued focus upon squeezing costs down to the point that not even $1.50 per watt paperwork or utility connection rules or a public policy failures in pricing emissions will stop the American consumer from buying solar.


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