There’s a joke in the solar industry about when “grid parity” – thetime when solar becomes as cheap as fossil sources – will happen. RonKenedi, the former VP in Sharp Solar’s U.S. business liked to throw outrandom dates, telling me once “November 21, 2012” in jest.
The truth is, it will happen in phases – one market and one technology at a time.
But according to two top solar executives – Tom Dinwoodie, CTO andfounder of SunPower and Dan Shugar, former president of SunPower andcurrent CEO of Solaria – “ferocious cost reductions,” are acceleratingthat crossover in a variety of markets today.
Dinwoodie and Shugar are responsible for developing over $3 billionin PV projects around the world. They were making the rounds inWashington this week, giving presentations to journalists andpolicymakers about the changing economics of Solar PV.
Their goal: To explain that solar PV is no longer a fringe,cost-prohibitive technology – but, rather, a near-commodity that isquickly becoming competitive with new nuclear, new natural gas, and,soon, new coal.
These slides are a must-see for anyone interested in solar, or in the business of energy generally. While I think some of the predictions and comparisons between technologies aren’t telling the full picture, theunderlying data is very compelling: We are starting to realize gridparity in solar – all with technologies available today.
Let’s take a look.
Notice in the first chart how steadilymanufacturing costs have come down, from $60 a watt in the mid-1970’s to $1.50 today. People often point to a “Moore’s Law” in solar – meaning that for every cumulative doubling of manufacturingcapacity, costs fall 20%. In solar PV manufacturing, costs have fallenabout 18% for every doubling of production. “It holds up very closely,”says Solaria’s Shugar.
The “Moore’s Law” analogy doesn’t necessarily work on theinstallation side, as you have all kinds of variables in permitting,financing and hardware costs. But with incredible advances in web-basedtools to make sales and permitting easier; new sophisticated racking,wiring and inverter technologies to make installation faster andcheaper; and all kinds of innovative businesses providing point-of-salefinancing (think auto sales), costs on the installation side have fallen steadily as well. The Rocky Mountain Institute projects that these costs will fall by 50% in the next five years. (Note: This chart is from RMI, not from the Dinwoodie/Shugar presentation.)
What has driven these cost reductions? A staggering ramp-up ininstallations around the world that have driven an even greater increase in solar manufacturing. (By the end of this year, GTM Research predicts we’ll have 50 GW of module global production capacity.)
As SunPower’s Dinwoodie puts it:
That 17 GW installed in 2010 is the equivalent of 17nuclear power plants – manufactured, shipped and installed in one year.It can take decades just to install a nuclear plant. Think about that. I heard Bill Gates recently call solar “cute.” Well, that’s 17 GW of“cute” adding up at an astonishing pace.
He has an excellent rhetorical point, which highlights the brilliance of solar: This modular technology can be produced and installed at apace far faster than most energy technologies. And businesses aregetting amazingly efficient at doing so.
However, this comparison neglects the “value” of energy. Nuclear is a baseload resource; solar PV is more of a “peaking” resource. To compare 17 GW of global solar PV development to 17 GW of nuclear power plantsignores the fact that nuclear produces far more electricity than anequivalent solar PV plant.
With that said, solar brings a different kind of value to the grid.Not only can it be quickly deployed on existing infrastructure(warehouses, commercial buildings, residences) at rates that are ordersof magnitude faster than nuclear, it offsets the most expensive peakingpower plants – providing immediate economic value.
Here’s an amazing statistic told by Shugar: If only 500 MW of solarPV had been deployed in the northeast U.S. to help alleviate demand forelectricity, the August 2003 U.S.-Canadian blackout wouldn’t have happened. That blackout was the second largest in theworld, causing between $7 and $10 billion in economic damage.
Notice in this chart how beautifully solar PV fits in to the highest demand periods in the middle of the day.
“We are considerably lower than natural gas peaker plants,” saysDinwoodie. We’re also coming in lower than new nuclear and becominglower than new coal. Gigawatts of these plants are being developed inmonths – not years or decades.”
Here’s their comparison between solar PV, natural gas peakers,nuclear and coal. The figures come from Lazzard, an internationalfinancial services firm that tracks energy data, and the Department ofEnergy.
You can see that natural gas peaker plants, which sit idling most of the day, are an expensive option for utilities.
In sunny markets like California, solar is becoming competitive withlarge combined-cycle natural gas plants as well. According to Dinwoodie, there have been 4 GW of contracts for solar PV plants in Californiasigned below the Market Price Referent – the projected price of a 500-MW combined cycle natural gas plant.
While that is a major milestone for the solar industry, we need to be careful about jumping to conclusions based on these figures. Some inthe solar business fear that many developers are signing contracts toolow – which means they get the contract, but investors may be hesitantto provide financing because they’re concerned the projects won’t pencil out. But the trend is clear: continued declines in the cost of building solar plants is allowing developers to compete with fossil energies incertain markets.
Here’s another important statistic: When SunPower built the 14-MWNellis Air Force Base system in 2007, it cost $7 per watt. Today,commercial and utility systems are getting installed at around $3 perwatt. In 2010 alone, the average installed cost of installing solar PVdropped 20%.
It would appear that solar PV is also cheaper than new nuclear.
This year, the U.S. industry may install 2 GW of solar. The lastnuclear power plant to come online in the U.S., Watts Bar 1, has acapacity of 1.1 GW – but that took 23 years to complete, not two years.
When looking at the time and cost of construction of new nuclear – as well as insurability issues – solar PV (in sunny areas) is alreadycompetitive with those plants. Again, I believe there is a bigdifference in the “value” of electricity from nuclear and solar VP given that they play such opposite roles; but these figures do tell aninteresting story. (These figures were put together before the Fukashima accident.)
And what about coal – supposedly our cheapest form of energy?Dinwoodie and Shugar argue that solar PV is becoming competitive against that technology too.
Over the last few years, 153 coal plants have been abandoned, inlarge part due to uncertainty over environmental regulations. Dinwoodieand Shugar believe that by the time a new coal American facility isbuilt in the next 6 years, solar PV in the sunniest regions can becompetitive with those plants.
Again, we have to recognize the differences in energy value.Resources like biomass combined-heat-and-power, geothermal and hydro may be better equipped to make up for the loss of coal. But if theseprojections are accurate – and experience suggests they are on target –getting solar PV competitive with coal would be a huge boost to theindustry.
So what does all this mean? It means that the notion that “solar istoo expensive” doesn’t hold up anymore. When financing providers canoffer a home or business owner solar electricity for less than the costof their current services; when utilities start investing in solarthemselves to reduce operating costs; and when the technology startsmoving into the range of new nuclear and new coal, it’s impossible toignore.
According to SunPower’s Tom Dinwoodie: “The cross-over has occurred.”
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