Solar
A few months ago, I wrote of my own plan to go (nearly) off grid by August. Well, the bureaucrats got in the way, but, two months later, I am 85% off grid with a 5 kw solar PV system. Thanks to the combination of Federal and State subsidies, plus the ‘certificate’ value of my green electricity, I have a 14% IRR project. And the modules look better than the underlying roof! Wind may be cheaper, but who wants to climb that 50 foot pole to oil the gears? Photos available on request.
Changes in the US natural gas market over the last five years are nothing short of stunning (aren’t we talking renewables here?). From a point where the price required for the marginal output exceeded $7/mcfe, shales now produce 15% of domestic gas supply, mostly with acceptable returns, under $5/mcfe. The high end of the cost curve has come down to roughly $6 gas, and could continue to fall over time, as more ‘shales.’ come into production. This week, the International Energy Agency (IEA) forecast that US nat gas prices could remain in this lower price range over the next decade. If oil price only stabilize at today’s levels, this 20-1 ratio is reminiscent of the last gas bubble, from the early 1980s into the mid 1990s – a wonderful opportunity for natural gas to take share from coal fired electricity, as a substitute for ‘return to base’ transportation, and a dampening factor for solar and wind.
On the other hand, while renewable energy fans wring their hands at the weakening competitive position of solar and wind, versus natural gas, it is worth considering that, in many applications, Natural Gas Can be Your Friend. On the assumption that many solar/wind projects will require nat gas (peaker) backup, the integration of renewable capacity with ever cheaper nat gas fired backup is cheaper than ever! Some developers are considering the economics of combination projects. The glass may be half full.
While some green projects in the Middle East are lagging – UAE and Qatar have downsized aggressive carbon capture plans — others are moving ahead. Morocco has an ambitious solar program, partly designed as a pilot project for the multi year, multi-hundred billion dollar Desertec project, which would provide massive power generation for transmission into the European grid. Skeptics have noted the effect of dust and sandstorms, but pilot projects show that. even discounted efficiency factors are nicely economic. Thin film solar PV, with better relative performance in low light, has a wider advantage over silicon based PV in the Sahara.
Solar is ‘smokin,’ but can it continue? Combination of low interest rates, strengthening Euro, and the usual January cut in feed-in-tariff (primarily 13% in Germany) has accelerated European demand for solar PV modules/installations. Polysilicon supply is now short and spot prices are up roughly 50%, with leading edge tabs another 20% higher for Q1 2011. The net is firmer pricing over next six to nine months. German installations, around half of global demand, are bound to (finally) slip next year, providing YoY headwinds by 2H 2011. However, US installations could double next year, and many believe Chinese consumption will more than quadruple from a low level. So, after a strong ‘completion’ process, overall growth, at ‘only 15-20% next year, could lead to weaker pricing amidst oversupply,’ as new silicon capacity frees up the main bottleneck. Meanwhile, other markets are steadily contributing to overall growth, but more from 2012 onward..
The takeaway is that investors are ALWAYS worried about next year and lower subsidies. What many miss is that (a) all-in costs, including financing, are falling faster, (b) power prices remain high, especially in Europe, and (c) the next opportunities for solar, while growing from a small base, offer significant growth prospects :
a) Italy, with great sun and high electricity prices, with or without subsidies
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c) Northern Africa, with great insolation (solar radiation) and potentially favorable transmission economics to Europe
d) China, with plenty of module capacity, lofty goals
e) Oil subsidized economies in the Middle East, who are using $80 oil to produce electricity for sale at $3-$10/oil-based prices. The comparative advantage of solar (and wind) may be better in these markets than anywhere in the world.
That said, most module producers are little different from the disk drive manufacturers of the 1980s. Solar will be, by and large, a ‘growth commodity,’ with conflicting fundamentals until installed projects meet/beat competitive power economics on an unsubsidized basis. It’s happening, and $100+ oil prices are going to change investor sentiment over the next 18 months, in my view.