Why the future of solar is not like the present of solar--Part 1

Nathaniel Bullard is Director of /images/default-source/content at Bloomberg New Energy Finance, the clean energy and carbon markets analysis group of Bloomberg LP. In his role he oversees analytical engagements across sectors in clean energy, as well as the group's executive engagements through its Leadership Forum Series and its yearly Summit. He is also a contributor to Bloomberg's cross-platform initiatives to analyse mergers and acquisitions, and environmental, social, and governance data. More BNEF opinion editorials here.

Solar energy technologies are nearly as old as technology itself. Archimedes used concentrated solar rays as a weapon during the siege of the Greek city of Syracuse in the third century BC. 2,100 years later, a US engineer in Egypt created the first solar thermal generating system, and 40 years after that, Bell Lab technicians invented the first photovoltaic system, the Bell 'solar battery'. Solar, as a meaningful energy sector, emerged only in the 1970s and since then has grown at a compound 40 percent per year. However, it grew from such a small base that it was not until the middle of the past decade that solar began to contribute meaningfully to major energy economies. The past of solar--as we will argue--is in many ways like the present of solar, but its future will be different.

The lessons of the last 40 years are still alive and very much relevant for the industry today. The experience curve for PV, or the amount by which the industry reduces costs for every doubling of cumulative output, is well-established at more than 20 percent. The PV architecture of a crystalline silicon cell wired into a module and encapsulated against the elements is essentially the same as that created by Bell Labs 57 years ago, and it is still the industry standard and a powerful incumbent.* Larger, newer, more efficient factories force older, smaller, less efficient factories out of business. Cost of capital matters for companies, and it also matters for project developers, individuals, and even governments involved in building solar products and projects. The past of solar is in many ways like the present of solar.

However, the future of solar is not like the present. We’ve never had solar modules so cheap, and we will never again have them so expensive. This statement--while simple--has profound implications for deployment and contribution to the world’s energy mix.

For decades, PV has been viable only in markets which paid rates high above wholesale prices for large projects, and retail prices for small projects. Today however, solar energy is cost-competitive with selected types of power generation, without incentives. PV is a cheaper option than diesel generators in most of the world’s sunny regions. It is also a cheaper option than oil-fired power generators of the sort commonly built in the Persian Gulf, as well as for many small island states in the Pacific and Caribbean.** It is also cheaper than grid electricity at the retail level in Turkey, southern Italy and the expensive markets of California. This is definitely not like the past of solar.

For years, the entire economy of solar energy has focused on getting to market, using whatever subsidies are offered in any given country or region. Soon, it will no longer need subsidies in many major markets--but that does not mean it will not need carefully thought out systems to ensure market penetration. In our next post, Jenny Chase, the manager of our global Solar Insight Service, will look at how the market systems of today are changing alongside the technology systems of today.

*At the moment, only one other semiconductor configuration has seriously challenged Bell’s structure--First Solar’s thin-film cadmium telluride, deposited onto glass--and it has its own powerful incumbency.

** Jenny Chase and Logan Goldie-Scot of Bloomberg New Energy Finance have written a white paper on the substitution of PV for oil-fired power generation in the Middle East. For the next few weeks till SIEW 2011, Knowledge Partner Bloomberg New Energy Finance will run a series of opinion editorials on SIEW, where its lead analysts will bring insights pertinent to clean energy in Singapore and Asia.