The pending administration decision on whether to impose a tariff or other fee on US imports of solar equipment from China raises serious concerns. The right choice in this case is less obvious than suggested by the jobs and free-trade arguments from the main US solar trade association (SEIA) or the Wall St. Journal's editorial page. Solar power generates less than 2% of US electricity today. However, if it is to grow as experts forecast and advocates claim is essential, then considerations such as long-term energy security can't be ignored, while near-term job losses from a new tariff would be more than offset by subsequent growth.
Last October the US International Trade Commission issued its recommendations in favor of the complaint by two US manufacturers of solar panel components. I usually favor low tariffs and open access, especially when the markets in question are functioning smoothly and the principal impacts from trade are the result of "comparative advantage" in production or extraction between countries. However, there is little about the market for solar equipment, including the photovoltaic (PV) cells and modules at issue here, that qualifies as free.
The production and deployment of solar energy hardware has depended since its inception, and from one end of its value chain to the other, on significant government interventions. In the case of China-based PV manufacturing, these have included low-interest government loans, preferential access to land, and minimal environmental regulations. China-based PV manufacturers were also able to take advantage of extravagantly generous European solar subsidies in the 2000s to scale up their output, drive down their costs, and ultimately send much of the EU's solar manufacturing industry into bankruptcy.
On the US end, both solar manufacturing and deployment (installation) have benefited greatly from federal tax credits, cash grants from the US Treasury, and a web of state quotas for aggressively increasing utilization of renewable energy sources. Justified on grounds of energy security, "green jobs", and climate change mitigation, these measures have strongly promoted solar power and delivered an extraordinary 68% compound annual growth rate in US solar installations since 2006. On a per-unit-of-energy basis, these supports are also at least an order of magnitude more valuable to the solar industry than the federal tax benefits received by the oil and gas industry.
One of the factors that makes this decision so difficult and politically sensitive is that a whole industry has apparently grown up around cheap solar imports, to the point that the main solar benefit to the US economy today is from installation, not manufacturing. US companies and their employees build solar panel racks and other "balance of system" gear, finance rooftop and other solar projects, and construct these installations.
These companies could be at risk of losing business and shedding jobs, if a large tariff were imposed on imported solar cells, modules and panels. Those impacts might be less than feared, though, because the cost of the actual sunlight-converting PV hardware now makes up less than a third of total solar project costs. In other words, a tariff that doubled effective PV cost would drive up total solar costs to a much smaller degree, and least of all for residential solar, which has the highest total costs per kilowatt.
There's another important aspect of this debate that hasn't received much attention. If solar power is as important to our future energy diet as many think, then it should be no more desirable to become heavily reliant on China for our supplies of PV components than it did to depend on growing imports of Middle East oil. That was the main energy security issue for the US for the last 30 years, until the shale revolution unexpectedly reversed that trend. Relying on solar imports from China in the long run will be nothing like depending on Canada for the largest share of the petroleum the US still imports.
It also makes sense to address this situation now, before solar power has grown to 20% or 30% of the US electricity mix, and with the US economy near full employment, when those workers that did lose their jobs would have the best chance to replace them quickly.
From the start, the complaint of unfair competition lodged by Suniva Inc. and Solar World Americas--Chinese- and German-owned, respectively--has been derided as an effort to prop up a couple of marginal players at the expense of the much larger US solar-installation sector. That ignores the position of First Solar (NASDAQ:FSLR), a US-based PV manufacturer with $3 billion in global sales. The company is on record supporting the trade complaint. Of course they aren't a disinterested party; they stand to benefit from a tariff that would raise the cost of competing PV gear from China and elsewhere.
That's precisely the point of the complaint: strengthening US solar manufacturers, so that the growth of solar energy in this country doesn't end up like TV sets and other consumer electronics. There's more at stake, because PV isn't TV. If solar power becomes a major part of US energy supplies by mid-century, it will actually matter if we have a robust manufacturing base to drive its deployment, rather than relying on any one country or region for its key building block.
Showing posts with label pv. Show all posts
Showing posts with label pv. Show all posts
Friday, January 19, 2018
Tuesday, June 06, 2017
Withdrawal Exposes Weakness of the Paris Climate Agreement
When President Trump announced last week that the US would withdraw from the Paris Climate Agreement, he unleashed a flood of condemnation. Foreign leaders, US politicians, corporate executives, and environmental groups all roundly criticized the move. It also hasn't polled well.
As the initial reaction dies down, it's worth considering how this happened, what it means, and what might come next. The invaluable Axios news site has some noteworthy insights on the latter problem that I will get to shortly.
I am convinced it was a mistake to withdraw. In this I share the view of many current and former business leaders, including the Secretary of State, that the US was better off as a party to the deal and all the future negotiations it entails. Even if the goal was truly to renegotiate the agreement on more favorable terms, signaling withdrawal first seems counterproductive. However, I also see the consequences of our withdrawal in less catastrophic terms than most critics of the move.
As I noted not long after it was concluded, the Paris Agreement is by design much weaker than its predecessor, the Kyoto Protocol. Although the 2015 Paris deal was probably the strongest one that could have been negotiated at the time, it still represented a big compromise between developed and developing countries on who should reduce the bulk of future emissions and who should bear the responsibility for the consequences of past emissions. Its text is full of verbs like recognize, acknowledge, encourage, etc., and the commitments it collected were essentially voluntary.
The agreement was also explicitly negotiated so as to maximize its chances of being enacted under the executive powers of the US president, without his having to refer the agreement to the US Senate for its concurrence. That implied it could be undone in the same way.
In other words, President Obama took a calculated risk that his successor(s) would choose to be bound by his Executive Order endorsing Paris. That was tantamount to a bet on his party winning the 2016 election, since most of the Republicans who had announced at the time were opposed to it, or the Clean Power Plan that was the linchpin of future US compliance with it.
Seeking Senate approval as a treaty would have been a much bigger lift--or required an even weaker agreement--but success would have provided significant political protection for the follow-on to the unratified Kyoto Protocol. Perhaps that explains why President Trump has chosen the much slower exit path--up to three years--provided within the Paris Agreement, rather than the quicker route of pulling out of the umbrella UN Framework Convention on Climate Change. The Convention was signed by President George H.W. Bush with the bipartisan advise and consent of the Senate in 1992.
Setting politics aside, it's also not obvious that US withdrawal from Paris will put our greenhouse gas emissions on a significantly different track than if we stayed in. Even the EPA's review and likely withdrawal of its previous Clean Power Plan, which underpinned the Obama administration's strategy for meeting the voluntary goal it submitted at Paris, may have only a minor impact on global emissions.
Federal climate policy has not been the main driver of recent emissions reductions in the US power sector. Cheap, abundant natural gas from shale and the rapid adoption of renewable energy under state "renewable portfolio standards", supported by federal tax credits that were extended again in 2015, have been the primary factors in overall US emissions falling by 11% since 2005. These trends look set to continue.
The bigger question is what happens globally with the US out of the Paris Agreement--assuming the administration does not reverse course again before it can issue the required formal notice to withdraw roughly 2 1/2 years from now.
At least in the short term, I doubt much else will change. For the most part, the Nationally Determined Commitments delivered at Paris reflected what the signatories intended to do anyway. China's NDC is a perfect example. That country's ongoing air pollution crisis provides ample incentive to scale back on energy intensity and coal-fired power plants, which are the main source of its emissions.
Increasing the role of renewable energy in its national energy mix perfectly suits China's ambitions in renewable energy technology. Exhibit A for that is a solar manufacturing sector that went from insignificance to more than 50% of the global supply of photovoltaic (PV) cells in under a decade, while China's domestic market accounted for 21% of global PV installations through 2015.
The reactions to last week's announcement surely raised the stakes for other countries that might consider leaving. However, this action has also provided China and other high-emitting developing countries with an ironic mirror image of one of the main arguments on which the US government based its unwillingness to implement the Kyoto Protocol.
What ought to matter more than any of the domestic and geopolitical maneuvering around the US exit is the actual impact on the global climate. Reporting on Axios, Amy Harder (formerly of the Wall St. Journal) portrayed this as a sort of emperor's clothes moment with a column entitled, "Climate change is here to stay, so deal with it." Monday's main Axios "stream" characterized her piece as a "truth bomb."
As Harder put it, "The chances of reversing climate change are slim regardless of US involvement in the Paris agreement." That's consistent with recent assessments from the International Energy Agency and others. Citing the Bipartisan Policy Center and the UN, her column suggested a pivot to greater focus on adaptation, the hard and deeply unglamorous work of bolstering infrastructure and systems to withstand changes in the climate, including those that are already baked in. Attributing the source of changes in rainfall and sea level matters less than plugging the resulting physical gaps. That makes adaptation politically less toxic than cutting emissions, though still plenty challenging, fiscally.
As I have been watching the fallout from last week's news, I keep coming back to comparisons to the Cold War that I made when the idea of pursuing climate policy through executive action was emerging in 2010. Like the Cold War, dealing with climate change requires a similarly enduring bipartisan coalition. Major policy swings every 4 or 8 years are just too costly and ineffective, due to the planning horizons involved.
NATO may be going through a difficult moment, but it is approaching its 70th year. After seeing its key weakness exposed, can anyone honestly look at the framework of the Paris Agreement and conclude that it is likely to last as long? Yet if climate change is as serious as many suggest, those are exactly the terms in which we should be thinking.
As the initial reaction dies down, it's worth considering how this happened, what it means, and what might come next. The invaluable Axios news site has some noteworthy insights on the latter problem that I will get to shortly.
I am convinced it was a mistake to withdraw. In this I share the view of many current and former business leaders, including the Secretary of State, that the US was better off as a party to the deal and all the future negotiations it entails. Even if the goal was truly to renegotiate the agreement on more favorable terms, signaling withdrawal first seems counterproductive. However, I also see the consequences of our withdrawal in less catastrophic terms than most critics of the move.
As I noted not long after it was concluded, the Paris Agreement is by design much weaker than its predecessor, the Kyoto Protocol. Although the 2015 Paris deal was probably the strongest one that could have been negotiated at the time, it still represented a big compromise between developed and developing countries on who should reduce the bulk of future emissions and who should bear the responsibility for the consequences of past emissions. Its text is full of verbs like recognize, acknowledge, encourage, etc., and the commitments it collected were essentially voluntary.
The agreement was also explicitly negotiated so as to maximize its chances of being enacted under the executive powers of the US president, without his having to refer the agreement to the US Senate for its concurrence. That implied it could be undone in the same way.
In other words, President Obama took a calculated risk that his successor(s) would choose to be bound by his Executive Order endorsing Paris. That was tantamount to a bet on his party winning the 2016 election, since most of the Republicans who had announced at the time were opposed to it, or the Clean Power Plan that was the linchpin of future US compliance with it.
Seeking Senate approval as a treaty would have been a much bigger lift--or required an even weaker agreement--but success would have provided significant political protection for the follow-on to the unratified Kyoto Protocol. Perhaps that explains why President Trump has chosen the much slower exit path--up to three years--provided within the Paris Agreement, rather than the quicker route of pulling out of the umbrella UN Framework Convention on Climate Change. The Convention was signed by President George H.W. Bush with the bipartisan advise and consent of the Senate in 1992.
Setting politics aside, it's also not obvious that US withdrawal from Paris will put our greenhouse gas emissions on a significantly different track than if we stayed in. Even the EPA's review and likely withdrawal of its previous Clean Power Plan, which underpinned the Obama administration's strategy for meeting the voluntary goal it submitted at Paris, may have only a minor impact on global emissions.
Federal climate policy has not been the main driver of recent emissions reductions in the US power sector. Cheap, abundant natural gas from shale and the rapid adoption of renewable energy under state "renewable portfolio standards", supported by federal tax credits that were extended again in 2015, have been the primary factors in overall US emissions falling by 11% since 2005. These trends look set to continue.
The bigger question is what happens globally with the US out of the Paris Agreement--assuming the administration does not reverse course again before it can issue the required formal notice to withdraw roughly 2 1/2 years from now.
At least in the short term, I doubt much else will change. For the most part, the Nationally Determined Commitments delivered at Paris reflected what the signatories intended to do anyway. China's NDC is a perfect example. That country's ongoing air pollution crisis provides ample incentive to scale back on energy intensity and coal-fired power plants, which are the main source of its emissions.
Increasing the role of renewable energy in its national energy mix perfectly suits China's ambitions in renewable energy technology. Exhibit A for that is a solar manufacturing sector that went from insignificance to more than 50% of the global supply of photovoltaic (PV) cells in under a decade, while China's domestic market accounted for 21% of global PV installations through 2015.
The reactions to last week's announcement surely raised the stakes for other countries that might consider leaving. However, this action has also provided China and other high-emitting developing countries with an ironic mirror image of one of the main arguments on which the US government based its unwillingness to implement the Kyoto Protocol.
What ought to matter more than any of the domestic and geopolitical maneuvering around the US exit is the actual impact on the global climate. Reporting on Axios, Amy Harder (formerly of the Wall St. Journal) portrayed this as a sort of emperor's clothes moment with a column entitled, "Climate change is here to stay, so deal with it." Monday's main Axios "stream" characterized her piece as a "truth bomb."
As Harder put it, "The chances of reversing climate change are slim regardless of US involvement in the Paris agreement." That's consistent with recent assessments from the International Energy Agency and others. Citing the Bipartisan Policy Center and the UN, her column suggested a pivot to greater focus on adaptation, the hard and deeply unglamorous work of bolstering infrastructure and systems to withstand changes in the climate, including those that are already baked in. Attributing the source of changes in rainfall and sea level matters less than plugging the resulting physical gaps. That makes adaptation politically less toxic than cutting emissions, though still plenty challenging, fiscally.
As I have been watching the fallout from last week's news, I keep coming back to comparisons to the Cold War that I made when the idea of pursuing climate policy through executive action was emerging in 2010. Like the Cold War, dealing with climate change requires a similarly enduring bipartisan coalition. Major policy swings every 4 or 8 years are just too costly and ineffective, due to the planning horizons involved.
NATO may be going through a difficult moment, but it is approaching its 70th year. After seeing its key weakness exposed, can anyone honestly look at the framework of the Paris Agreement and conclude that it is likely to last as long? Yet if climate change is as serious as many suggest, those are exactly the terms in which we should be thinking.
Thursday, April 14, 2016
Lessons from the Coal Bust
Yesterday's Chapter 11 filing by the largest US coal mining company is the latest in a series of coal bankruptcies. While factors such as regulations and poorly timed acquisitions have played a role, this trend reflects the parallel technology revolutions playing out across the energy sector. Here are a few key lessons from the ongoing coal bust:
Displacing coal completely from US electricity would require doubling the 2015 output of US gas-fired power generation and a roughly 36% increase in US natural gas production. By comparison, the US nuclear power fleet would have to more than double. If coal were to be replaced entirely by renewables, which in practice probably means gas pushing coal out of baseload power and renewables reducing gas-fired peak generation, the hill looks steep.
Last year the US added 7.3 GW of new solar installations and 8.6 GW of new wind turbines. Assuming they were mostly sited in locations with reasonable solar or wind resources, their combined annual output should be around 35 TWh. At that pace it would take another 36 years to make up what coal now generates. It's true that net annual wind and solar additions continue to grow at double-digit rates, but keeping that up may get harder as the best sites become saturated and earlier wind turbines and PV arrays reach the end of their useful lives in the meantime.
In other words, driving coal from here to zero seems possible but very difficult, even with an all-of-the-above strategy in a market without demand growth. And if electricity demand continues to grow, as it is globally, or resumed growing in the US and other developed countries to enable a big shift to electric vehicles, the prospect of retiring coal entirely recedes into the future.
- There are many other ways to make electricity, and coal brings nothing unique to the party. In a growing number of markets it is no longer the cheapest form of generation, and it is certainly the one with the most environmental baggage, from source to combustion.
- Coal-fired power generation is in competition with alternatives that are already producing at scale, like nuclear and natural gas generation, or growing rapidly from a smaller base, like renewables. It may not compete with all of these in every market, but few markets lack at least one of these challengers.
- The costs of renewables and gas have fallen significantly in recent years, due to major technology gains. Coal has also benefited from some improvements in scale and end-use technology. Today's ultra supercritical coal plants are more efficient than coal plants of a generation ago, but they are more expensive to build, even without carbon capture (CCS). However, wind and solar power continue to grow cheaper and more efficient, while gas has benefited from resource-multiplying production technologies and advanced gas turbines that can exceed 60% efficiency and ramp up and down rapidly to accommodate the swings of intermittent renewables.
- Despite all of these threats, coal is not on the verge of being forced out of power generation, even in developed countries where all the above factors are at work. Replacing its enormous contribution to primary energy supply and electricity generation will be a very heavy lift, particularly where another major energy source like nuclear power is being phased out. Germany is the prime example of that.
Displacing coal completely from US electricity would require doubling the 2015 output of US gas-fired power generation and a roughly 36% increase in US natural gas production. By comparison, the US nuclear power fleet would have to more than double. If coal were to be replaced entirely by renewables, which in practice probably means gas pushing coal out of baseload power and renewables reducing gas-fired peak generation, the hill looks steep.
Last year the US added 7.3 GW of new solar installations and 8.6 GW of new wind turbines. Assuming they were mostly sited in locations with reasonable solar or wind resources, their combined annual output should be around 35 TWh. At that pace it would take another 36 years to make up what coal now generates. It's true that net annual wind and solar additions continue to grow at double-digit rates, but keeping that up may get harder as the best sites become saturated and earlier wind turbines and PV arrays reach the end of their useful lives in the meantime.
In other words, driving coal from here to zero seems possible but very difficult, even with an all-of-the-above strategy in a market without demand growth. And if electricity demand continues to grow, as it is globally, or resumed growing in the US and other developed countries to enable a big shift to electric vehicles, the prospect of retiring coal entirely recedes into the future.
Tuesday, July 07, 2015
Energy Storage and the Cost of Going Off-Grid
- New energy storage offerings from Tesla and other manufacturers are widely expected to enhance the attractiveness of rooftop solar power and other renewables.
- However, recent analysis from the Brattle Group shows that even with rapid cost reductions, grid-independence will remain beyond the reach of most consumers.
Storage has been in the news lately, particularly since the launch of Tesla's new home and commercial energy storage products. In fact, Tesla's Chief Technology Officer spoke on the first morning of the conference. Much of his talk (very large file) focused on Tesla's expectations for the cost of storage to decline sharply as electric vehicles (EVs) and non-vehicle battery applications grow. Whether battery costs can drop as quickly as those for solar photovoltaic (PV) cells or not, storage is likely to become a more important factor in energy markets in the years ahead.
One of the most interesting presentations I saw examined a provocative aspect of this question. Michael Kline of The Brattle Group, which consults extensively on electricity, took a detailed look at whether rooftop PV and home energy storage might become sufficiently attractive that a large number of consumers would employ the combination to enable them to disconnect from the power grid entirely. That would be an extremely appealing idea for a lot of people. The author of a book I received from the publisher a few years ago referred to it as a movement.
Most people by now appear to understand that solar panels alone can't make a household independent of the grid. The daily and seasonal incidence of sunlight aligns imperfectly with the peaks and troughs of typical home electricity demand. This is why "net metering", under which PV owners sell excess power to their local utility--effectively using the grid as a free battery--has become contentious in some electricity markets.
In a true off-grid scenario, net metering would be unavailable. Onsite storage would thus be necessary to shift in time the kilowatt-hours of energy produced from a home PV array. However, a standalone PV + storage system must be sized to deliver enough instantaneous peak power to handle periodic high-load events like the startup of air conditioners and other devices. Another presenter on the same panel had a nifty chart demonstrating how wide those variations can be, with multiple spikes each day averaging above 12 kilowatts (kW)--several times the output of a typical rooftop PV array.
Brattle's off-grid model included PV and storage optimized to "meet load in every hour given a battery with 3 days of storage (at average load levels.)" Although that is still probably less than the peak load such a system would encounter, it is the equivalent of multiple Tesla "Powerwall" units and would only be practical with the kind of drastic cost reductions Mr. Kline assumed by 2025: PV at $1.50/W and storage at $100/kWh, installed. That equates to around a third of last year's average US residential PV installation and 1/7th the estimated installed cost of Tesla's offering on a retail basis.
Mr. Kline framed this exercise as a "stress test", not just of the off-grid proposition but of the future of the electric power grid. If many millions of customers were to "cut the cord" for electricity as others have for wireline telephone service, even a "smart" power grid would become much less important and might shrink over time. That same logic should extend to the power generators supplying the grid. If most consumers went off-grid, the value of even the most flexible generation on the grid, which today is often provided by natural gas turbines, would fall, as would demand for the fuel on which they run.
In Brattle's assessment, despite the assumption of very cheap PV and storage, that prospect seems remote. For the three markets analyzed (California, Texas and Westchester County, NY) the levelized cost of energy (LCOE) for the off-grid configuration modeled was significantly more expensive than the EIA's projected cost of electricity in those markets in 2025. In fact, for consumers in California and Texas, as well as in all cases of the parallel commercial customer analysis Brattle performed, PV + storage would be expected to cost a multiple of retail electricity prices.
As Mr. Kline explained, under more realistic assumptions the comparison was likely to be even worse for off-grid options. However, his conclusion that , "going off-grid...is unlikely to be the least expensive option for most consumers" does not mean that some consumers would not choose to do so, anyway. To them, a premium of 10-20 cents per kWh might seem like a small price to pay for personal energy independence. Yet at that price, it is hard to envision it would become a mass-market choice.
Mr. Kline made a point of reminding his audience that Brattle's analysis did not mean that distributed energy would not be competitive in the future, or that it could not provide valuable services to customers and to the grid. Importantly, the figures he presented underlined the continued value of the power grid to customers, even in a future in which large quantities of PV and storage are deployed. As he put it, "Distributed energy is a complement to the grid, not a substitute for it."
By extension, flexible generating assets like fast-reacting gas turbines should also continue to provide significant value, especially during those seasons when daily solar input is low, and in locations where average sun exposure is generally much weaker than in the US Southwest and other prime solar resource regions. As appealing as the idea might be to some, storage seems unlikely to make either the grid or any class of generating technologies obsolete for the foreseeable future. As Bill Gates recently observed, that has implications for the cost of a wholesale shift to current renewables and away from fossil fuels.
A different version of this posting was previously published on the website of Pacific Energy Development Corporation.
Friday, January 16, 2015
How the Oil Price Slump Helps Renewable Energy
Intuition suggests that the current sharp correction in oil prices must be bad for the deployment of renewable and other alternative energy technologies. As the Wall Street Journal's Heard on the Street column noted Wednesday, EV makers like Tesla face a wall of cheap gasoline. Meanwhile, ethanol producers are squeezed between falling oil and rising corn prices. Yet although individual projects and companies may struggle in a low-oil-price environment, the sector as a whole should benefit from the economic stimulus cheap oil provides.
The biggest threat to the kind of large-scale investment in low-carbon energy foreseen by the International Energy Agency (IEA) and others is not cheaper oil, but a global recession and/or financial crisis that would also threaten the emerging consensus on a new UN climate deal. We have already seen renewable energy subsidies cut or revoked in Europe as the EU has sought to address unsustainable deficits and shaky member countries on its periphery.
Earlier this week the World Bank reduced its forecast of economic growth in 2015 by 0.4% as the so-called BRICs slow and the Eurozone flirts with recession and deflation. The Bank's view apparently factors in the stimulus from global oil prices, without which things would look worse. The US Energy Information Administration's latest short-term forecast cut the expected average price of Brent crude oil for this year to $58 per barrel. That's a drop of $41 compared to the average for 2014, which was already $10/bbl below 2013. Across the 93 million bbl/day of global demand the IEA expects this year, that works out to a $1.4 trillion savings for the countries that are net importers of oil--including the US. This equates to just under 2% of global GDP.
Although the strengthening US dollar mitigates part of those savings for some importers, it's still a massive stimulus--on the order of what was delivered by governments during the financial crisis of 2008-9. Even after taking account of the reduced recycling of "petrodollars" from oil producing nations, which have historically invested billions of dollars a year outside their borders, the pressure on governments to reduce expenditures on programs including renewable energy should be lower than it would be without this unexpected bonus.
Just as the arrival of $100 oil in the last decade didn't produce an overnight transformation to renewable energy, $50 oil seems unlikely to harm the sector much, particularly in light of the cost reductions that wind, solar PV and other technologies have demonstrated in the last several years. If developers use this opportunity to shrink their costs further and become economically competitive with low or no subsidies, they will be well-positioned when oil prices inevitably recover, whether a few months or a few years in the future.
The biggest threat to the kind of large-scale investment in low-carbon energy foreseen by the International Energy Agency (IEA) and others is not cheaper oil, but a global recession and/or financial crisis that would also threaten the emerging consensus on a new UN climate deal. We have already seen renewable energy subsidies cut or revoked in Europe as the EU has sought to address unsustainable deficits and shaky member countries on its periphery.
Earlier this week the World Bank reduced its forecast of economic growth in 2015 by 0.4% as the so-called BRICs slow and the Eurozone flirts with recession and deflation. The Bank's view apparently factors in the stimulus from global oil prices, without which things would look worse. The US Energy Information Administration's latest short-term forecast cut the expected average price of Brent crude oil for this year to $58 per barrel. That's a drop of $41 compared to the average for 2014, which was already $10/bbl below 2013. Across the 93 million bbl/day of global demand the IEA expects this year, that works out to a $1.4 trillion savings for the countries that are net importers of oil--including the US. This equates to just under 2% of global GDP.
Although the strengthening US dollar mitigates part of those savings for some importers, it's still a massive stimulus--on the order of what was delivered by governments during the financial crisis of 2008-9. Even after taking account of the reduced recycling of "petrodollars" from oil producing nations, which have historically invested billions of dollars a year outside their borders, the pressure on governments to reduce expenditures on programs including renewable energy should be lower than it would be without this unexpected bonus.
Just as the arrival of $100 oil in the last decade didn't produce an overnight transformation to renewable energy, $50 oil seems unlikely to harm the sector much, particularly in light of the cost reductions that wind, solar PV and other technologies have demonstrated in the last several years. If developers use this opportunity to shrink their costs further and become economically competitive with low or no subsidies, they will be well-positioned when oil prices inevitably recover, whether a few months or a few years in the future.
Thursday, October 02, 2014
Calibrating Solar's Growth Potential
- A new report from the International Energy Agency suggests the possibility of solar power becoming the world's largest electricity source by 2050.
- It is noteworthy that IEA thinks this could happen, but the growth rates required, let alone the policies necessary to support them, will be challenging to sustain.
For me it always comes down to the numbers, without which it's impossible to grasp systems on the scale and complexity of global energy. IEA's high-solar roadmap--it's not a forecast--includes significant contributions from both solar photovoltaic power (PV) and solar thermal electricity (STE)--often referred to as concentrating solar power, or CSP--with the former making up 16% of global electricity at mid-century and the latter around 10%. As the detailed report from IEA indicates, achieving the headline result would require global installed PV capacity to grow 35-fold between 2013 and 2050, equivalent to an average of 124 Gigawatts (GW) per year of additions, peaking at "200 GW/yr between 2025 and 2040." That's a 6x increase in installations over last year.
To put that in a US electricity generation perspective, IEA projects that the US would have to hit one million GW-hours per year from PV--roughly what we currently get from natural gas power plants--by around 2035 to meet its share of the anticipated global solar buildup. US solar installations are on a record-setting pace of nearly 7 GW this year, but matching natural gas would require 120x growth in solar generation, or a sustained compound average growth rate over 25% for the next 20-plus years. That's not impossible, as recent PV growth has been even higher, but it won't be easy to continue indefinitely, especially without further improvements in the technology, and in energy storage.
The solar thermal portion of IEA's technology roadmap looks like a much tougher challenge. STE has been losing ground to PV lately, as the costs of the latter have fallen much faster than the former, for reasons that aren't hard to understand. Making PV modules cheaper and more efficient is analogous to improving computer chip manufacturing, while making STE cheaper and more efficient is more similar to manufacturing cheaper, more efficient cars or appliances.
One of the main reasons IEA appears to have concluded that STE could suddenly start competing with PV again is its inherent thermal energy storage capability, which enables STE to supply electricity after the sun has set. While I wouldn't discount that, it looked like a bigger benefit a few years ago, before electricity storage technology started to improve. Storage of all types is still expensive, which helps explain why fast-reacting natural gas power plants offer important synergies for integrating intermittent renewables like wind and solar power. However, it looks like a reasonable bet today that batteries and other non-mechanical energy storage technologies will improve faster than thermal storage in the decades ahead.
The upshot of all this is that getting to 16% of global electricity from PV by 2050 is a stretch, and the 10% contribution from STE looks like even more than a stretch. So how does that square with recent reports that Germany--hardly a sun-worshipper's paradise--got "half its energy from solar" for a few weeks this summer? A recent post on The Energy Collective does a better job of clarifying the significance of that than I could, providing links to German government data indicating that solar's average contribution in 2013 was just 4.5% of electricity--hence less than half that in terms of total energy consumption. The author extrapolates that at current rates of annual installations, it would take Germany nearly a century to get to 50% of its electricity from the sun.
Much can happen in 35 years that we wouldn't anticipate today. For now, solar PV looks like the energy technology to beat, in terms of low lifecycle greenhouse gas emissions and long-run cost trends. But whether it reaches the levels of market penetration the IEA's report suggests are possible, or tops out at less than 5% of global electricity supply, as their baseline scenario assumes, it must function within an energy mix that includes other technologies, such as fossil fuels, nuclear power and non-solar renewables. And that's true whether or not electric vehicles take off in a big way, which would significantly increase electricity demand and make the IEA's high-end solar targets even more difficult to reach.
Wednesday, August 27, 2014
Threats and Opportunities of Distributed Power Generation
- Rooftop solar panels aren't the only distributed generation technology that could challenge existing utility business models as it grows.
- Some power companies see DG as an opportunity and are entering this segment in ways that could prove challenging to their start-up competitors.
APS is seeking regulatory approval for a program that might be characterized as free rooftop solar. In effect, they would lease approved homeowners' rooftops for $30 per month, in order to host a total of 20 MW of solar panels that would be owned and controlled by APS. The idea has generated some controversy, partly due to the utility's rocky relationship with the solar industry over issues like "net metering".
The plan would enable homeowners who might not otherwise qualify for solar leasing from third parties to have solar installed on their homes, although they would apparently still receive their electricity through the meter from the grid, rather than mainly from the rooftop installation. That's a very different model from most DG approaches, though under current market conditions the net benefit to consumers reportedly would match or exceed that from solar leasing.
Exelon's announcement seems aimed at a different segment of the market, and based on a very different technology. The company would finance the installation of 21 MW of Bloom Energy's fuel cell generators at businesses in several states, including California. Bloom made quite a splash when it introduced its "energy servers", including a popular segment on "60 Minutes" in 2010.
Bloom's devices, which come in models producing either 100 kW or 200 kW, are built around solid oxide fuel cells. At that scale they are too large for individual homes but suitable for many businesses. And because they are modular, they can be combined to meet the energy needs of larger offices or commercial facilities such as data centers. Unlike the fuel cells being deployed in limited numbers of automobiles, they do not require a source of hydrogen gas. Instead they run directly on natural gas from which hydrogen is extracted ("auto-reformed") inside the box.
In that respect, despite their novel technology, Bloom's servers are much closer than rooftop solar to traditional distributed energy, in which a customer owns or leases a small generator to which it supplies fuel. The advantages of Bloom's model are that its servers are designed for highly efficient 24x7 operation, without the expensive energy storage necessary to turn solar into 24x7 power, and with much lower greenhouse gas emissions and local pollution than a diesel generator.
In order to qualify as true zero-emission energy, these installations would need to be connected to a source of biogas, e.g., landfill gas, which effectively creates a closed emissions loop or recycles emissions that would have occurred elsewhere. Even running on ordinary natural gas, the stated emissions of Bloom's energy servers are roughly a third less than the average emissions for US grid electricity, or 20% lower than the average for other natural gas generation. However, their emissions are over 10% higher than the 2012 average for California's grid.
I find it interesting that Exelon, the largest nuclear power operator in the US and owner of a full array of utility-scale gas, coal, hydro, wind and solar power, would make a high-profile investment in a technology that could ultimately slash the demand for its large central power plants. The company has invested in utility-scale solar and wind power, and as the press release indicated, is already involved in "onsite solar, emergency generation and cogeneration" via its Constellation subsidiary. In fact, it has apparently already achieved its goal of eliminating the equivalent of its 2001 carbon footprint. However, the press release hints that something else might have attracted them to this deal.
Consider all the changes in store for the power grid. Baseload coal power is declining due to the combination of economic forces and strong emissions regulations such as the EPA's Clean Power Plan. Even some nuclear power plants, which have been the workhorses of the fleet for the last several decades, are facing premature retirement for non-operational reasons. At the same time, grid operators must integrate steadily growing proportions of intermittent renewable energy (wind and solar), along with increasingly sophisticated tools like demand response and energy storage. If any of this goes wrong, electric reliability will likely suffer.
From that perspective, Exelon's small--for them--step into DG also looks like a bet on the future value of reliability--"non-intermittent...reliable, resilient and distributed power." That's a bet even an old oil trader can understand: Uncertainty creates volatility, and volatility creates opportunities. I will be very interested to see how this turns out.
A different version of this posting was previously published on the website of Pacific Energy Development Corporation.
Thursday, February 27, 2014
Can Solar Fill the Hydropower Gap During California’s Drought?
- Although the scale of California's conventional hydropower remains much larger than that of solar power, solar's rapid growth provides a meaningful contribution to the grid.
- Solar power can work nearly anywhere, but installing it where it's actually sunny much of the time pays big dividends.
After reading a San Jose Mercury article with the unwieldy title, “Drought threatens California’s hydroelectricity supply, but solar makes up the gap” I was intrigued enough to do a little fact-checking on state-level electricity statistics. The article quoted the head of the California Energy Commission, who implied that solar power additions were sufficient to make up for any shortfall in hydro, historically one of the state’s biggest energy sources. My initial skepticism about that claim turned out to be largely unfounded.
Solar has been growing rapidly, especially in California, but even with nearly 3,000 MW of photovoltaic (PV) and solar thermal generation in place, it’s still well short of the scale of California’s 10,000 MW of hydropower dams, especially when you consider that the latter aren’t constrained to operate only in daylight hours. However, I also know better than to respond to a claim like this without checking the data on how much energy these installations actually deliver.
My first look at the Energy Information Administration’s annual generation data seemed to confirm my suspicions. In 2012 California’s hydropower facilities produced 26.8 million megawatt-hours (MWh), while grid-connected solar generated just 1.4 million MWh. However, when I looked at more recent monthly data, the mismatch was much smaller, due to solar’s strong growth in the Golden State. For example, in September 2013 California solar power generated 435 MWh, or nearly 24% of hydro’s 1.8 million MWh.
The potential drought benefits of solar stand out even more sharply when we compare the growth in solar generation to the change in output from hydro. Last year solar electricity in the state increased by 2.4 million MWh, compared to 2012, while hydropower fell by 2.3 million MWh. That added solar power won’t provide grid operators the same flexibility as the lost hydropower, because of its cyclical nature, but it is clearly now growing at a rate and scale that makes it a serious contributor.
I’d be remiss if I didn’t point out that solar in California is still nowhere near the scale of the state’s biggest electricity source, natural gas generation, which in 2013 produced over 100 million MWh, or 57% of the state’s non-imported electricity supply. Gas is also filling much of the roughly 18 million MWh shortfall left by the early retirement of Southern California Edison’s San Onofre Nuclear Generating Station last summer, and if the state’s drought worsens, gas will be the main backup for further declines in hydropower.
Yet solar’s growing contribution to the state’s energy mix provides a clear demonstration that while generous state and federal policies can make installing PV economically attractive nearly anywhere, it’s abundant sunshine like California’s that makes it a useful energy source, especially when drought conditions reduce the output of other, water-dependent energy supplies.
A different version of this posting was previously published on Energy Trends Insider.
Tuesday, February 18, 2014
A Solar Car for the Masses?
Ford is currently showing a concept car that addresses the shortcomings of solar-powered transportation in a clever way.
If they can make it a cost-effective option, it would provide consumers a new kind of convenience, in contrast to the compromises inherent in most EVs.
This isn’t the first time a carmaker has put solar panels on the roof of a car, even if we exclude competitions like the Solar Car Challenge and other efforts to test how far or fast one-off solar vehicles designed by engineering students or enthusiasts could travel. However, I believe this is the first time an “OEM” has added solar panels to a production car for the purpose of providing a significant fraction of its motive power.
The biggest hurdles that any attempt to power a car with onboard solar panels must overcome are the low energy density of sunlight at the earth’s surface and the relatively low rate at which current solar panels can convert it into power. A typical EV requires 0.25-0.33 kilowatt-hours (kWh) of energy to travel one mile. 1.5 square meters of solar panel on the roof of a vehicle would receive on average only about 1.6 kWH per day in much of the US, assuming it was stationary and never parked under a roof or tree, and much less in winter. That’s only enough energy to travel 5 or 6 miles, or the equivalent of around 12 ounces of gasoline in a typical hybrid car. It's hard to fight physics.
The clever part of Ford’s solar design is its recognition that the rate of self-charging from the car’s rooftop wouldn’t be sufficient to liberate its owner from the gas pump without help in the form of an “off-vehicle solar concentrator.” This is essentially a glass carport that focuses the sun’s rays on the car’s PV roof and, according to the write-up in MIT’s Technology Review, works with the car’s software to move the car during the course of the day to keep the roof in the brightest area. That maximizes the amount of energy stored in the car’s battery, yielding enough for the daily needs of a fair percentage of drivers.
It’s not immediately obvious that combining two of the most expensive energy technologies of today — EV and PV — represents a good strategy for making them more competitive with the status quo, particularly given the likelihood of relatively stable gasoline prices for the next few years and the significant improvements being made in the fuel economy of conventional cars. 40 mpg highway is no longer considered remarkable. The ordinary hybrid version of the C-MAX is rated at 43 mpg combined city/highway, and the plug-in version on which the solar prototype is based is rated at 100 mpg-equivalent on electricity alone.
I have no idea what Ford would charge for the solar option should it eventually build the car, but it’s a good bet that it would be a significant multiple of the roughly $300 cost of the solar panels. Even without the Fresnel-lens carport, integrating PV into the car’s roof in a durable manner, together with the necessary changes to the car’s power management hardware and software, are unlikely to come cheap. Nor is it obvious that putting solar panels on a car’s roof is the best way to provide renewable electricity for vehicles. As Technology Review notes, Tesla is pursuing high-voltage (i.e., rapid) recharging facilities powered by stationary solar arrays, thus removing the constraint on effective PV area. It would be even simpler for many EV owners who want to avoid “exporting” their automobile emissions to fossil-fuel power plants to sign up for 100% renewable power from their local utility.
It’s no secret that EV sales have been disappointing, initially, for various reasons. 2013 sales figures for the US indicate that EVs, including plug-in hybrids like the non-solar C-MAX Energi, accounted for just under 100,000 new vehicles in 2013, or 0.6% of the US car market, compared to nearly 500,000 hybrids, or just over 3% of total sales of 15.5 million. If the US Congress eventually pursues tax reform along the lines suggested by recently retired Senate Finance Committee chair Max Baucus (D-MT), then the federal EV tax credit of up to $7,500 per car, which has helped push EV sales to current levels, would be in jeopardy. Carmakers should be thinking seriously about the long-term value proposition for EVs on their own merits.
The C-MAX Solar looks like a step in that direction. Once technology-hungry early adopters and the greenest consumers have been satisfied, the mass market will be seeking cars that compete on mainstream measures of convenience, cost and performance. In that light, even a Tesla that can be recharged to half its battery capacity in around 20 minutes via the company’s network of Superchargers falls short, compared to a gasoline car that can be refueled in under 3 minutes. No recharger on earth can deliver energy to a car at the effective rate of a gas pump, without dramatic changes in battery technology.
Yet the C-MAX Solar can do something that no other type of car can: make its own fuel, in a car that can also be refueled conventionally at any gas station, anywhere. That could provide a unique selling point, enhancing the convenience of cars in a totally new way, rather than requiring compromises on convenience as other plug-in EVs do.
I’ve long believed that the transition from fossil fuels to low-emission energy technologies has been hobbled by its dependence on government subsidies and would accelerate when those technologies can outperform on measures of “better, faster, cheaper.” Ford’s solar prototype must still demonstrate that it can become a real production car, rather just than a car show concept. If it does, it could help make EVs attractive to average consumers without requiring thousands of tax dollars in incentives. That could help create the basis for a truly sustainable transition to a new energy economy.
A different version of this posting was previously published on Energy Trends Insider.
Monday, June 03, 2013
...and Two Steps Back for Cleantech
- The Better Place bankruptcy ends an interesting effort to circumvent some big impediments to the wider adoption of electric vehicles.
- DESERTEC's original concept would have matched European solar investment with superior North African solar resources, but was no match for European politics.
Better Place was aimed squarely at two of the largest perceived barriers to wider acceptance of electric vehicles (EVs): the limited range of today's EV batteries and the relatively long times required to recharge them, compared to a typical three-minute fill-up at the gas pump. Better Place's big idea involved the standardization of EV battery packs on a design that could be quickly removed from the vehicle and robotically replaced with a fully charged battery. This required large up-front investments in facilities and hardware, but the firm didn't fail for lack of capitalization.
Despite having raised around $800 million since its founding in 2008, and convincing French carmaker Renault to produce vehicles designed to work with their technology, Better Place failed to standardize the emerging EV battery market. Tesla used a different battery configuration from the start and has focused on its own fast-charging technology, while even Renault's global alliance partner Nissan didn't make compatibility with Better Place a standard feature of its Leaf EV in markets like the US or Australia. That led Better Place to invest in building more-conventional EV recharging networks to accommodate other EVs, diluting both its capital and its concept.
I see two lessons here. First, EVs and related services are still a niche market, and in spite of its aspirations Better Place became a niche within this niche, largely dependent on the success of EV manufacturers at growing their potential market. That's a poor place from which to launch a business that ultimately depends on achieving high volumes. The other lesson is that when you can't make sense of a company's revenue and working-capital model, there's probably a good reason. At this stage in their development, EV battery packs are apparently still too expensive to sit idle in large numbers, waiting for a swap, when the hardware to exchange them requires the same retail footprint as a car-repair bay--all this to support a service arguably only worth a few hundred dollars per year to an EV owner, compared to the normal cost of recharging.
DESERTEC's big idea was even simpler than Better Place's. A well-sited solar array in North Africa would inherently generate at least twice as much electricity per year as the same array in Germany, the Netherlands, or Belgium. All else being equal, it would make more sense to invest in solar where the sun shines brightly for more than 6 hours a day, on average, and to send it by wire to the cloudy, northern countries that want more green power. Of course physics can't always trump politics, and I suspect that this has more to do with DESERTEC's withdrawal from its basic concept than the cited concerns about transmission capacity and grid congestion across Spain and France.
Politics enter the story in two main ways. Renewable energy in the EU is deeply entangled with industrial policy and green jobs. From that standpoint, it's even better if a PV panel in Germany produces half the output as one in Morocco, because you can sell twice as many, all installed by local firms and workers. Then there's the interaction between the EU's generous solar subsidies and the solar manufacturing incentives in Asia and elsewhere, resulting in enormous overcapacity, relative to demand, and a now-global wave of solar bankruptcies and defaults. This has pushed PV module prices down to a level at which the other costs of solar energy, including installation and transmission, begin to outweigh the module costs. That erodes North Africa's solar advantage relative to its northern neighbors. Throw in the lingering effects of the financial crisis, and a once-big idea looks like an unworkable dead end, at least for now.
Neither the failure of Better Place, which might yet find a bargain-hunting savior, nor the retreat of DESERTEC looks like a mortal blow to the long energy transition now underway. However, they do suggest that the timeline is a little less likely to be shortened by the kinds of big leaps they offered. EVs will have to gain market share the hard way, with better, cheaper batteries and ample recharging infrastructure--plus continued taxpayer subsidies--while inefficient solar subsidies continue to divert investment away from some of the world's best renewable energy resources, keeping the technology's global contribution smaller for longer.
Thursday, May 23, 2013
Can Energy Storage Make Wind and Solar Power As Reliable As Coal?
Wind and solar power generated 3.5% and about 0.1%, respectively, of US electricity last year. These figures represent large increases from much smaller levels in the last decade as the cost of these technologies declined significantly, particularly for solar photovoltaic (PV) modules. However, other barriers to wider deployment remain, including their intermittent output. Energy storage is often portrayed as the killer app for overcoming the intermittency of renewables, and a number of interesting developments have occurred on this front, including a new "hybrid" wind turbine with integrated storage from GE. To what extent could more and cheaper storage enable wind and solar to function as the equivalent of high-utilization, baseload generation?
Assessing that potential requires, among other things, recognizing that energy storage is neither new nor monolithic. Nor is the intermittency of renewable energy a single challenge. For example, the output of a wind turbine and the wind farm in which it operates varies on time scales of minutes, hours and days, as well as months and years. The output of a PV installation varies somewhat more predictably, but no less dramatically.
Generating companies and project developers have an array of new storage options, involving various battery technologies, flywheels, and compressed air. Pumped storage, in which water is pumped uphill and generates power later when it flows back downhill, is an old, though hardly obsolete option and already operates on a large scale. According to the National Hydropower Association the US has 22,000 MW of installed pumped storage. This, too, is expanding and remains one of the cheapest forms of power storage in terms of cost per megawatt-hour (MWh) delivered. Enough new projects have received preliminary permits to more than triple that figure, in 23 states.
All of these storage alternatives have limitations or drawbacks. Batteries and flywheels, while very responsive, are still expensive. Compressed air storage often relies on unique local geological features, and some versions essentially function as a supercharger for a gas-fired turbine, resulting in some emissions. Pumped storage works well at a variety of scales but is less responsive than batteries, has a larger physical footprint, and requires suitable terrain.
What makes GE's "brilliant turbine" with battery storage look clever is that, with the help of predictive models, it requires a very small amount of battery storage--perhaps as little as that in an electric car--to smooth the output of the turbine for 15 minutes to an hour. That provides significant benefits, including financial ones, in terms of integrating it predictably into the power grid. However, it doesn't transform the turbine into a fully dispatchable generator capable of sending power to the grid whenever demanded. That would require storing much more energy per turbine and delivering it at rates sufficient to replace the entire output of the installation for at least several hours, along the lines of concentrated solar power installations with thermal storage.
Even these techniques don't get us to the point at which a dedicated wind farm or solar installation could replace a baseload coal-fired power plant of similar capacity running 80% of the time. For starters, energy storage doesn't alter the total amount of energy collected from the wind or sun. In an area with good onshore wind resources, generating the same energy as 100 MW of coal capacity would take around 267 MW of wind turbines, because the wind doesn't blow at optimum speed all the time, and other times it doesn't blow at all. The wind farm would also need enough storage to absorb any output over 100 MW, and then make up any shortfalls below 100 MW for the longest duration that would be expected. The figures for a solar installation would be similar. It just doesn't sound very practical, unless storage became dirt cheap.
Fortunately for renewable energy developers, that isn't what grid operators expect of wind or solar. In most situations the local grid takes their output whenever it's available, though not necessarily at the price that a generator capable of committing its capacity in advance or responding on demand would receive. So there's a financial incentive for renewables to add a bit of storage to "firm up" some capacity, while bulk storage appears to be more desirable as a separate asset available to the grid, just like a "peaking" gas turbine, to support multiple renewable sources. Of course in that case there's no guarantee that the power stored would come from renewables. It's likelier to come from whatever is the cheapest off-peak generation in that market.
So while it's easy to see how improved energy storage can enhance the economics of renewable energy and enable it to be integrated into the grid to a greater extent than otherwise, it's less obvious that even cheap, large-scale energy storage is a panacea for intermittent renewables like wind and solar. It might even have greater benefits for low-emission but more reliable forms of generation, such as nuclear and geothermal, by allowing them routinely to shift a set portion of their output into more valuable segments of the regional power market.
Disclosure: My portfolio includes investment in GE, which makes products mentioned above.
Assessing that potential requires, among other things, recognizing that energy storage is neither new nor monolithic. Nor is the intermittency of renewable energy a single challenge. For example, the output of a wind turbine and the wind farm in which it operates varies on time scales of minutes, hours and days, as well as months and years. The output of a PV installation varies somewhat more predictably, but no less dramatically.
Generating companies and project developers have an array of new storage options, involving various battery technologies, flywheels, and compressed air. Pumped storage, in which water is pumped uphill and generates power later when it flows back downhill, is an old, though hardly obsolete option and already operates on a large scale. According to the National Hydropower Association the US has 22,000 MW of installed pumped storage. This, too, is expanding and remains one of the cheapest forms of power storage in terms of cost per megawatt-hour (MWh) delivered. Enough new projects have received preliminary permits to more than triple that figure, in 23 states.
All of these storage alternatives have limitations or drawbacks. Batteries and flywheels, while very responsive, are still expensive. Compressed air storage often relies on unique local geological features, and some versions essentially function as a supercharger for a gas-fired turbine, resulting in some emissions. Pumped storage works well at a variety of scales but is less responsive than batteries, has a larger physical footprint, and requires suitable terrain.
What makes GE's "brilliant turbine" with battery storage look clever is that, with the help of predictive models, it requires a very small amount of battery storage--perhaps as little as that in an electric car--to smooth the output of the turbine for 15 minutes to an hour. That provides significant benefits, including financial ones, in terms of integrating it predictably into the power grid. However, it doesn't transform the turbine into a fully dispatchable generator capable of sending power to the grid whenever demanded. That would require storing much more energy per turbine and delivering it at rates sufficient to replace the entire output of the installation for at least several hours, along the lines of concentrated solar power installations with thermal storage.
Even these techniques don't get us to the point at which a dedicated wind farm or solar installation could replace a baseload coal-fired power plant of similar capacity running 80% of the time. For starters, energy storage doesn't alter the total amount of energy collected from the wind or sun. In an area with good onshore wind resources, generating the same energy as 100 MW of coal capacity would take around 267 MW of wind turbines, because the wind doesn't blow at optimum speed all the time, and other times it doesn't blow at all. The wind farm would also need enough storage to absorb any output over 100 MW, and then make up any shortfalls below 100 MW for the longest duration that would be expected. The figures for a solar installation would be similar. It just doesn't sound very practical, unless storage became dirt cheap.
Fortunately for renewable energy developers, that isn't what grid operators expect of wind or solar. In most situations the local grid takes their output whenever it's available, though not necessarily at the price that a generator capable of committing its capacity in advance or responding on demand would receive. So there's a financial incentive for renewables to add a bit of storage to "firm up" some capacity, while bulk storage appears to be more desirable as a separate asset available to the grid, just like a "peaking" gas turbine, to support multiple renewable sources. Of course in that case there's no guarantee that the power stored would come from renewables. It's likelier to come from whatever is the cheapest off-peak generation in that market.
So while it's easy to see how improved energy storage can enhance the economics of renewable energy and enable it to be integrated into the grid to a greater extent than otherwise, it's less obvious that even cheap, large-scale energy storage is a panacea for intermittent renewables like wind and solar. It might even have greater benefits for low-emission but more reliable forms of generation, such as nuclear and geothermal, by allowing them routinely to shift a set portion of their output into more valuable segments of the regional power market.
Disclosure: My portfolio includes investment in GE, which makes products mentioned above.
Thursday, July 05, 2012
A Sign of Sanity in Solar Manufacturing
I've been writing for some time about the chronic overcapacity in global solar manufacturing and the consolidation this is likely to produce. Now here's a sign that at least one company realizes how bad the situation is. GE is apparently delaying the construction of its previously announced Aurora, Colorado, thin-film solar panel factory, and "taking this opportunity to re-look at our solar strategy." I couldn't find a GE press release to back this up, but it's been reported by RECharge and confirmed by Forbes. It's easy to read too much into a single event, but I think this looks significant, particularly in the wake of Monday's Chapter 7 bankruptcy filing by Abound Solar, incidentally another recipient of a sizable federal renewable energy loan guarantee.
If this information is correct, GE is backing away--for at least 18 months--from building a 400 MW thin-film photovoltaic (PV) solar line in Colorado. That suggests that they have concluded that even a brand new facility using the latest technology and large enough to compete on scale with thin-film leader First Solar wouldn't be able to earn an attractive margin in this market. And as a global competitor, GE would presumably regard the new US tariffs on China-based PV manufacturers as insufficient to resolve global PV overcapacity that appears to be stuck at about the same magnitude as demand, despite the continued rapid growth of the latter.
In the last year I've seen numerous articles and blog posts attributing the recent PV price declines to the predicted scale-related effects that have long anchored the industry's central narrative: If we build and deploy enough PV, the cost will fall to the point at which it will be competitive with conventional electricity generation. That may still be true in the long run, but few of these advocates seem to have understood that the industry was getting ahead of its own narrative--that a big slice of the recent price declines was the result of intense competition among producers who over-expanded and whose margins have contracted sharply or turned negative in the process. That's a good reason for GE to hit the pause button and focus on improving its technology in the lab, rather than the fab, while other, less well-capitalized firms struggle to survive long enough to participate in the expected growth surge when solar reaches "grid parity" on a sustainable basis.
PV is an important energy technology with a bright future, but its present doesn't look so great. It's not unusual for manufacturing industries to experience boom-bust cycles, though in my experience those are more common in commodities like chemicals and fuels. However, it is distinctly unusual for governments to contribute so much to the inflation of the boom part of the cycle through a wide array of incentives, loan guarantees and loans to manufacturers and with subsidies--in some cases extravagantly generous ones--to the industry's customers. Such interference may have been necessary to jump-start PV supply and demand, but it will almost certainly make for a harder and messier landing for companies, investors and employees, and in cases like that of Abound Solar for taxpayers.
If this information is correct, GE is backing away--for at least 18 months--from building a 400 MW thin-film photovoltaic (PV) solar line in Colorado. That suggests that they have concluded that even a brand new facility using the latest technology and large enough to compete on scale with thin-film leader First Solar wouldn't be able to earn an attractive margin in this market. And as a global competitor, GE would presumably regard the new US tariffs on China-based PV manufacturers as insufficient to resolve global PV overcapacity that appears to be stuck at about the same magnitude as demand, despite the continued rapid growth of the latter.
In the last year I've seen numerous articles and blog posts attributing the recent PV price declines to the predicted scale-related effects that have long anchored the industry's central narrative: If we build and deploy enough PV, the cost will fall to the point at which it will be competitive with conventional electricity generation. That may still be true in the long run, but few of these advocates seem to have understood that the industry was getting ahead of its own narrative--that a big slice of the recent price declines was the result of intense competition among producers who over-expanded and whose margins have contracted sharply or turned negative in the process. That's a good reason for GE to hit the pause button and focus on improving its technology in the lab, rather than the fab, while other, less well-capitalized firms struggle to survive long enough to participate in the expected growth surge when solar reaches "grid parity" on a sustainable basis.
PV is an important energy technology with a bright future, but its present doesn't look so great. It's not unusual for manufacturing industries to experience boom-bust cycles, though in my experience those are more common in commodities like chemicals and fuels. However, it is distinctly unusual for governments to contribute so much to the inflation of the boom part of the cycle through a wide array of incentives, loan guarantees and loans to manufacturers and with subsidies--in some cases extravagantly generous ones--to the industry's customers. Such interference may have been necessary to jump-start PV supply and demand, but it will almost certainly make for a harder and messier landing for companies, investors and employees, and in cases like that of Abound Solar for taxpayers.
Tuesday, March 13, 2012
A Cleantech Trade War with China?
While we wait to see whether the next big move in oil prices--and hence gasoline prices--is up or down from today's level of around $125 per barrel, two stories in today's Wall St. Journal highlight some of the challenges facing manufacturers of equipment used to produce renewable energy. One concerns the intention of the US administration to seek the World Trade Organization's assistance in easing China's restrictions on its exports of rare earth materials used in a wide range of devices, including wind turbines, hybrid and electric vehicles, and some solar panels. The other is an op-ed offering a solution to the looming trade war over solar panel and wind turbine tower exports from China, modeled on the 1996 Information Technology Agreement that lowered trade barriers in that industry. The two stories are related, reflecting major unintended consequences of the ways we have approached our transition away from fossil fuels and toward lower-emission sources of energy.
Trade wars are risky things, because you never know where they will lead. The classic example of this is the Smoot-Hawley tariff of 1930. It and the responses to it by other countries helped deepen and extend the Great Depression, and I have never seen any analysis of them that concluded they were a good idea. A major trade dispute now over renewable energy hardware and the ingredients needed to produce it looks doubly unwelcome, because none of the parties comes to it with clean hands. Much of China's output of rare earths is being consumed by China-based manufacturers producing permanent magnet wind generators, electric vehicle motors, compact fluorescent lights, and solar equipment, much of which is exported to global markets that owe their very existence to government interference in the form of manufacturing, deployment and consumer tax credits; government loans and loan guarantees; feed-in tariffs; and fuel economy and lighting efficiency standards. There's hardly a single aspect of the global cleantech industry that is the result of unaided market forces.
The US complaint about solar imports is a good example. I wouldn't be surprised if the US government can make a strong case that the Chinese solar firms in question benefited from government assistance in ways that constitute unfair competition under established rules of international trade. Yet the same US government has provided substantial assistance to US solar manufacturers in the form of direct R&D support and federal loans and loan guarantees, as well as indirect help in the form of solar investment tax credits, cash grants, and project loans and loan guarantees that helped create and sustain a domestic market for them. All of these were necessary, because despite the significant cost reductions these incentives facilitated, the output of solar panels is still substantially more expensive than electricity from conventional generation. If we win this round with China, do we open the door to a whole series of WTO complaints against us by others who could claim harm from our own renewable energy policies?
From my perspective, these trade issues are a symptom of the larger problem of global overcapacity in wind and solar equipment manufacturing that has been created by the complex interaction of a mare's nest of national and local incentives and support for the production and deployment of these technologies, amplified by the disruption caused by the global financial crisis and recession of a couple of years ago and the ongoing financial crisis in Europe. A vast industry was created out of nothing and handed a market through a set of policies that could not sufficiently fine-tune development to prevent the emergence of a boom-bust cycle, and that now appears to be unsustainable itself in light of developed-country deficits and debts.
Trade disputes are one possible mechanism for attempting to rationalize this overcapacity, but in my view they constitute a much less productive approach than the one suggested by Professor Slaughter, who if I understand his proposal correctly is urging the rationalization of the government subsidies that have caused this situation in the first place. My biggest concern about his advice is his choice of the UN climate negotiating process as the best body to pursue such an initiative. That might be an appropriate venue, but its recent history doesn't inspire much confidence that it is up to the task.
Trade wars are risky things, because you never know where they will lead. The classic example of this is the Smoot-Hawley tariff of 1930. It and the responses to it by other countries helped deepen and extend the Great Depression, and I have never seen any analysis of them that concluded they were a good idea. A major trade dispute now over renewable energy hardware and the ingredients needed to produce it looks doubly unwelcome, because none of the parties comes to it with clean hands. Much of China's output of rare earths is being consumed by China-based manufacturers producing permanent magnet wind generators, electric vehicle motors, compact fluorescent lights, and solar equipment, much of which is exported to global markets that owe their very existence to government interference in the form of manufacturing, deployment and consumer tax credits; government loans and loan guarantees; feed-in tariffs; and fuel economy and lighting efficiency standards. There's hardly a single aspect of the global cleantech industry that is the result of unaided market forces.
The US complaint about solar imports is a good example. I wouldn't be surprised if the US government can make a strong case that the Chinese solar firms in question benefited from government assistance in ways that constitute unfair competition under established rules of international trade. Yet the same US government has provided substantial assistance to US solar manufacturers in the form of direct R&D support and federal loans and loan guarantees, as well as indirect help in the form of solar investment tax credits, cash grants, and project loans and loan guarantees that helped create and sustain a domestic market for them. All of these were necessary, because despite the significant cost reductions these incentives facilitated, the output of solar panels is still substantially more expensive than electricity from conventional generation. If we win this round with China, do we open the door to a whole series of WTO complaints against us by others who could claim harm from our own renewable energy policies?
From my perspective, these trade issues are a symptom of the larger problem of global overcapacity in wind and solar equipment manufacturing that has been created by the complex interaction of a mare's nest of national and local incentives and support for the production and deployment of these technologies, amplified by the disruption caused by the global financial crisis and recession of a couple of years ago and the ongoing financial crisis in Europe. A vast industry was created out of nothing and handed a market through a set of policies that could not sufficiently fine-tune development to prevent the emergence of a boom-bust cycle, and that now appears to be unsustainable itself in light of developed-country deficits and debts.
Trade disputes are one possible mechanism for attempting to rationalize this overcapacity, but in my view they constitute a much less productive approach than the one suggested by Professor Slaughter, who if I understand his proposal correctly is urging the rationalization of the government subsidies that have caused this situation in the first place. My biggest concern about his advice is his choice of the UN climate negotiating process as the best body to pursue such an initiative. That might be an appropriate venue, but its recent history doesn't inspire much confidence that it is up to the task.
Thursday, November 17, 2011
Is the Photovoltaic Price Trend Sustainable?
It has been widely assumed among pundits and policy makers that the continued expansion of solar photovoltaic (PV) installations will drive down PV costs until the electricity they produce is competitive with conventional power sources without the need for subsidies. This belief is grounded in both recent PV cost trends and the well-known "experience curve" effect in manufacturing, in which costs tend to fall in proportion to cumulative output. However, anyone following the fortunes of big PV manufacturers like First Solar, SunPower, and China-based Suntech and Trina Solar might have reason to question this conventional wisdom. Their latest earnings reflect an industry stressed by softening demand in its core market in Europe and facing global overcapacity along the supply chain. This has me wondering how much of the recent decline in PV prices was due to the inherent progression of the technology, and how much to unsustainable market and competitive pressures.
The solar industry has made tremendous progress in the last several years. One indication of that is the price trend for PV in the annual "Tracking the Sun" survey from Lawrence Berkeley Lab. Between 2007 and 2010 the average cost of PV installed in the US fell by around 22%, with the largest portion of that drop occurring last year, followed by a further 11% decline in the first half of this year. Most of the reduction is attributable to the falling price of solar modules, rather than from the non-module, or "balance of system" costs (inverters, structures, installation, etc.) The fact that these declines coincided with an explosion of global PV capacity and output seems entirely consistent with expectations about the likely path of PV costs. Cumulative global PV capacity doubled twice in that interval, based on figures in the newly released Renewables 2011 Global Status report from REN21, so we'd expect to see strong experience-curve cost reductions.
The problem is that the industry dynamic behind this trend didn't much resemble the pristine image that the term "experience curve" evokes, of diligent engineers relentlessly focused on continuous improvement. Without diminishing the contribution of a lot of smart people, a key driver was the tough competition for market share between silicon-based PV, which had to overcome a major bottleneck in the supply of its primary raw material, polysilicon--the price for which spiked and subsequently collapsed--and cheaper but less efficient thin-film PV technologies relying on entirely different chemistries such as cadmium telluride and copper, indium, gallium and selenium.
A further hint that this wasn't quite the standard picture of predictable cost declines promoted by the PV industry is that PV prices appear to have been falling faster than actual costs, which in the case of at least some manufacturers are no longer dropping much at all. This can be inferred from the compression of gross margins reported by the leading firms, and in results that show profits stalling or falling even as volume grows. SunPower, the largest US silicon-based PV maker, reported a net loss for the third quarter of 2011, following a loss in Q2, and issued guidance forecasting a loss in 4Q, as well. We'll get a better picture of the health of the big China-based producers when they report 3Q earnings next week, but in the second quarter Suntech, the world's largest solar panel maker, reported a substantial loss, even though sales were up by a third from a year earlier, similar to results at rival JA Solar. In response Suntech and other Asian producers have apparently slowed planned expansions and reduced throughput at existing facilities, while US PV leader First Solar postponed its new factory in Vietnam.
It's a testament to the ingenuity of the big, established PV producers that they haven't all shared the fate of Solyndra after investing so much in expanding capacity ahead of demand--a major accomplishment in itself when demand has been growing by roughly 80% per year--only to see the market weaken due to a prolonged economic slump and a financial crisis in Europe that has undermined the ability of governments to provide generous subsidies for PV installations. Assumptions about the future cost trend of PV won't mean much if the industry doesn't emerge from its current difficulties as a collection of healthy firms with solid balance sheets and financial performance that investors find attractive. That will require better margins achieved by some combination of improved pricing power--implying better matching of capacity to demand--and cost reductions that don't just rely on further scale-up, which will become less fruitful as experience-curve benefits stretch out.
In other words, even if PV manufacturing costs continue to fall quickly for the next few years, it's less clear that the PV prices paid by project developers, businesses and consumers will follow suit, particularly if the current low margins lead to a global shakeout or consolidation among producers. Time will tell whether the solar industry can sustain the cost path that it's been on, or if future cost reductions will be more modest, in which case a number of scenarios for future PV penetration and renewables-based emissions reductions would require revision.
The solar industry has made tremendous progress in the last several years. One indication of that is the price trend for PV in the annual "Tracking the Sun" survey from Lawrence Berkeley Lab. Between 2007 and 2010 the average cost of PV installed in the US fell by around 22%, with the largest portion of that drop occurring last year, followed by a further 11% decline in the first half of this year. Most of the reduction is attributable to the falling price of solar modules, rather than from the non-module, or "balance of system" costs (inverters, structures, installation, etc.) The fact that these declines coincided with an explosion of global PV capacity and output seems entirely consistent with expectations about the likely path of PV costs. Cumulative global PV capacity doubled twice in that interval, based on figures in the newly released Renewables 2011 Global Status report from REN21, so we'd expect to see strong experience-curve cost reductions.
The problem is that the industry dynamic behind this trend didn't much resemble the pristine image that the term "experience curve" evokes, of diligent engineers relentlessly focused on continuous improvement. Without diminishing the contribution of a lot of smart people, a key driver was the tough competition for market share between silicon-based PV, which had to overcome a major bottleneck in the supply of its primary raw material, polysilicon--the price for which spiked and subsequently collapsed--and cheaper but less efficient thin-film PV technologies relying on entirely different chemistries such as cadmium telluride and copper, indium, gallium and selenium.
A further hint that this wasn't quite the standard picture of predictable cost declines promoted by the PV industry is that PV prices appear to have been falling faster than actual costs, which in the case of at least some manufacturers are no longer dropping much at all. This can be inferred from the compression of gross margins reported by the leading firms, and in results that show profits stalling or falling even as volume grows. SunPower, the largest US silicon-based PV maker, reported a net loss for the third quarter of 2011, following a loss in Q2, and issued guidance forecasting a loss in 4Q, as well. We'll get a better picture of the health of the big China-based producers when they report 3Q earnings next week, but in the second quarter Suntech, the world's largest solar panel maker, reported a substantial loss, even though sales were up by a third from a year earlier, similar to results at rival JA Solar. In response Suntech and other Asian producers have apparently slowed planned expansions and reduced throughput at existing facilities, while US PV leader First Solar postponed its new factory in Vietnam.
It's a testament to the ingenuity of the big, established PV producers that they haven't all shared the fate of Solyndra after investing so much in expanding capacity ahead of demand--a major accomplishment in itself when demand has been growing by roughly 80% per year--only to see the market weaken due to a prolonged economic slump and a financial crisis in Europe that has undermined the ability of governments to provide generous subsidies for PV installations. Assumptions about the future cost trend of PV won't mean much if the industry doesn't emerge from its current difficulties as a collection of healthy firms with solid balance sheets and financial performance that investors find attractive. That will require better margins achieved by some combination of improved pricing power--implying better matching of capacity to demand--and cost reductions that don't just rely on further scale-up, which will become less fruitful as experience-curve benefits stretch out.
In other words, even if PV manufacturing costs continue to fall quickly for the next few years, it's less clear that the PV prices paid by project developers, businesses and consumers will follow suit, particularly if the current low margins lead to a global shakeout or consolidation among producers. Time will tell whether the solar industry can sustain the cost path that it's been on, or if future cost reductions will be more modest, in which case a number of scenarios for future PV penetration and renewables-based emissions reductions would require revision.
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