RMI Weighs in on Forces Affecting the Solar Market

Jesse Morris, Ned Harvey and Dan Seif of  Rocky Mountain Institute (RMI) held an online chat session on the forces affecting the solar market last week that was chock full of useful information. The session was held in a Q&A format. The answers are summarized below.

Regarding recent solar bankruptcies and the influx of low-cost modules from China:

Given the global integration of the renewable technology markets, certain countries may capture significant portions of individual pieces of the solar and other renewables’ value chains. RMI hopes that such competition is done according to fair international trade rules. Nevertheless, RMI is working with the DOE and others to determine US whole system costs, and in 2011, the DOE’s Sunshot Initiative indicated that nearly two-thirds (~63 percent) of the cost of residential solar PV installation comes from items outside of solar modules (“balance of system costs”), such as inverters, permitting, taxes, wiring, etc.

What’s more, the ~37 percent of solar PV costs from solar modules includes roughly half non-Chinese modules (CA market in Q1-Q3 ‘11, Bloomberg NEF) as well as distribution and sales revenues which often go to US employees working directly for or under contract with foreign, including Chinese, module manufactures. Therefore less than 19 percent of the cost of solar PV installation goes to revenues captured by Chinese companies for module sales. Furthermore, in the higher technology solar cell/module areas, including thin film PV, US cell manufacturing and R&D remain strong, particularly First Solar, which has maintained nearly the best reported EBIT margin of any large module manufacturer whether crystalline or thin film.

RMI is working on reducing hardware balance of systems (BOS) costs (i.e. everything but the module) like racking, wiring, and inverter costs. They are partnering with academia and the solar industry to “share best practices and create new designs that integrate racks with modules, reduce installation costs and the number of tools required per install, and provide auxiliary benefits to buildings like shade to increase roof life or insulation to boost R-values.”

RMI recently conducted a BOS Charette.

Utility scale solar vs. residential

Utility scale solar is ideally suited to replace or add generation capacity given the current centralized electrical system design, however it carries a lot of financial and risk burdens associated with financing and system size. If, however, one is willing to rethink the design of the system and prefers more distributed generation that is largely co-located with energy usage, commercial and residential solar become more important. We are working directly in this area and are trying to design efficient and standardized design, performance and financing mechanisms for distributed solar PV.

For more on this issue, see Democratizing the Electricity System: A Vision for the 21^st Century Grid.

What else is RMI currently doing in this area?

The projects we're currently involved with meet our programmatic objectives in a number of ways. Solar 3.0 will reduce the soft balance of system costs by streamlining permitting and inspection processes. SIMPLE BoS is intended to produce new designs that reduce hardware balance of system costs by integrating racking systems with modules. The solar friendly communities project will work with utilities to help identify best practices on a community level. Regarding our goal to attract new forms of finance, we're currently scoping future work focused on two things: 1) expanding the current tax equity pool and 2) attracting public forms of finance like pension funds to PV projects.

Time will tell but the collaborative efforts between the DOE, RMI and industry related to BOS has fundamentally changed the conversation and shifted real and material attention to the issue. Currently, something 22 different regional initiatives are underway to work on locally as well and others at a national effort. We are seeing new and innovative best practices that can have a material impact on both costs and design/installation cycle times being identified and adopted around the country. We estimate a 25-50 percent reduction in local PII (Permitting, Inspecting and Interconnecting) costs in forward-thinking jurisdictions by the end of 2014.

Solar life-cycle analysis

Most of the LCA analyses on GHG emissions that RMI has reviewed for solar show that the CO2 payback is rather rapid (less than two years), but of course there are lot of project-level specifics that can alter these analyses. Panels are not toxic (not usually presenting a landfill leaching concern), but there are certainly toxic chemicals used in their manufacturing (discharges of which have made headlines in China and elsewhere). RMI is concerned about the environmental sustainability of these manufacturing processes and this is an area we will continue to look at in the future. But all research to date points toward solar PV being amongst the best GHG LCA and other environmental LCAs out there. We believe most panels will have a useful "reuse" life after their contracted term (10-20 years) again as (likely lower performance but cheaper) solar panels.

What percentage of a utility system's load can be provided by distributed solar power?

We know that the traditional assumptions are that things break down as the penetration of intermittent renewables approaches 15 percent are wrong. There are systems and circuits around the worlds that are operating with penetrations that well exceed 50 percent and its as high as 75 percent in places like Denmark. No doubt there are real challenges, but they are totally dependent on the local (circuit level) system dynamics and we, along with others, are just now trying to get our arms around this and paint a national picture of both the opportunity and the challenge.

Note: In Kona, Hawaii, a 700 kilowatt (kW) solar array provides 35 percent of the capacity of the local distribution feeder. In Las Vegas, 10 MW of commercial solar PV on a distribution line provides 50 percent of capacity (and up to 100 percent during periods of low load). In each case, the utility has reported no significant issues managing the integration of local distributed solar power.

If we realize the future laid out in our latest book, Reinventing Fire, we're talking about a huge amount of solar: something around 700 GW of panels deployed in the US by 2050.

What's more, the total capacity of solar installations in the US was significantly higher in 2011 than 2010 (nearly 100 percent growth comparing Q1-Q3 year-over-year - SEIA/GTM Research), with solar developers and installers enjoying healthy business. US solar project financing surpassed US wind financing for the first time in Q2-11, and then in Q3-11 solar project financing dwarfed wind (~$12.3 B vs. ~$1.1B). And the explosion in solar project financing has not been at the expense of total non-large hydro renewable financing, as the $15.1B in Q3-11 of total non-large hydro renewable project financing was the greatest quarter in US history, surpassing the previous record occurring in Q2-11 by over $5B. Prior to Q4-2010, no quarter experienced over $8B in total renewables project financing.

Additional information including RMI’s  full report on cost reductions for solar balance of systems is available at http://rmi.org/rmi/SolarPVBOS

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RP Siegel, PE, is the President of Rain Mountain LLC. He is also the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water. Now available on Kindle.

Follow RP Siegel on Twitter.

Image credit: h080 via Flickr Creative Commons