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Photovoltaics (PV) – Simply A Question of Scale

PV is already the fastest growing industry in the world. However, if the Photovoltaics industry is going to play a significant role in worldwide electricity production in the future it all comes down to one word – scalability.

Note: Scalability is the ability of a technology to expand its production to very large capacities, thereby enabling significant cost reductions. Technologies that are not scalable cannot expand (mass produce) their manufacturing process and cannot dramatically reduce their costs past a certain point.

What are Photovoltaics?

Photovoltaics (PV), also referred to as, solar cells is a technology that converts sunlight directly into the most valuable form of energy – electricity.

photo = light and voltaic = electricity


How Photovoltaics Work:

  • Sunlight hits the surface of the solar cell in the form of light particles - photons
  • This impact of photons initiates electron movement across the cell
  • These electrons then flow as electricity
  • This power can then be stored for later use at the site of generation, or
  • Converted to AC power and sold to the local utility.

The Photovoltaics industry also happens to be the fastest growing industry in the world, with a promising chance to remain the fastest growing industry for the next 25 to 50 years. The PV industry worldwide grew at a compound annual rate of 37.5% during 2000-2003, with the growth rate, exceeding 60% for 2003-2004.

What is the cause of this enormous growth and why is it expected to continue? The reason is really quite simple. The market demand is enormous and Photovoltaics have a number of unique characteristics that give it clear and significant advantages over any other source of electrical energy.

Unique Advantages of PV:

  1. No moving parts, minimal maintenance
  2. Safe and simple operation
  3. High dependability, durable and long life (30+ years)
  4. Scaleable in output, from micro-watts to millions of watts (megawatts)
  5. Silent operation
  6. Maximum output coincident with peak utility power loads (summer time)
  7. No emissions, no pollution
  8. Portable, easy and fast to install anywhere
  9. Available everywhere there is sunlight.
  10. Ability to integrate attractively into existing and new buildings
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What the Photovoltaics Industry Needs

What could an industry with all these unique advantages, plus being the fastest growing industry in the world, possibly need?

The answer is quite simple. It needs to reduce its cost of production. Bottom line, it currently costs too much to produce Photovoltaic cells. In order to dramatically reduce the cost, the industry must deploy next generation technologies that are scalable to larger volumes that will enable the needed cost reductions.

By now, I may have truly confused you. How could there be an industry with a product that is TOO EXPENSIVE be the fastest growing industry in the world?

This contradiction is a result of the fact that the market is so vast, and that despite the current tremendous industry growth, it is only the beginning of the industries long-term growth curve. Incredible as it may sound the industry actually has the potential to grow at 30% per annum rates for decades.

Regardless of this dichotomy world demand currently exceeds supply (even at current “high” costs) and when the necessary decreases in cost are accomplished the demand will literally soar far beyond the capabilities of current technology.

To address this coming demand surge, new next generation technologies, capable of far greater production volumes, hence process scalability will be needed.

Worldwide Electricity Market

The current world electricity demand is 4 Trillion Watts (4 Terawatts) and it is growing at approximately 2.5% per year. Current projections place demand somewhere between 11 Terawatts and 18 Terawatts by 2050.

To illustrate the tremendous potential of the Photovoltaics industry and also the current and future demand-supply imbalance facing the industry let’s look at a few macro numbers.

Current worldwide annual production capacity of Photovoltaics at the end of 2005 was approximately 1.5 Billion Watts (Gigawatts)

For Photovoltaics to supply ONLY 1% of this demand in 2010, the worldwide production capacity would have to be 44 Billion watts, which is roughly 25 TIMES larger than current worldwide capacity. It is obvious that expanding the total industry capacity 25 fold in 5 years is impossible.

Note:
Megawatt = a million watts of electricity
Gigawatt = a thousand megawatts (a billion) of electricity
Terawatt = a thousand Gigawatts (a trillion) of electricity

Worldwide Electricity Demand 2010 vs. Current PV Industry Capacity

Percentage of Demand In 2010 Billions of Watts of # Capacity Need Times larger than Current Worldwide Industry Capacity
1% - One Percent 44 Billion Watts 25 Times Larger
5% - Five Percent 220 Billion Watts 125 Times Larger
10% - Ten Percent 440 Billion Watts 250 Times Larger

The above table shows the enormous potential of Photovoltaics and how large worldwide PV capacity would have to be compared to current industry capacity, to achieve 1%, 5% and 10% of the worldwide electricity market.

At least three points become very clear from the table above:

  1. The potential market for Photovoltaics worldwide is absolutely enormous;
  2. Supply will not catch up to demand anytime in the near future; and
  3. New production technologies will be needed to produce FAR greater volumes if the industry is ever going to make a significant penetration of this huge market.

Currently 90%+ of the world’s solar cells are manufactured using silicon technology. This technology is over 50 years old and the good news is that it has done an amazing job at dramatically reducing the price of solar cells over the years. The bad news is that the price needs to decrease even more and it cannot do this without technologies that can be scaled up to produce GIGAWATTS (Billions of watts) and not the current industry MEGAWATTS (Millions of watts).

Unless the industry develops a manufacturing technology that is capable of producing at the GIGAWATT level it can never make a significant contribution to future electricity generation.

Importance of Development of the Next Generation of Manufacturing

In addition to the obvious HUGE business opportunity, there may be other factors that will necessitate the rapid development of the Photovoltaics industry and a host of new “next generation” clean technologies.

This future increase in demand may NOT be able to be addressed by fossil fuel sources for a number of reasons that, for the most part may be beyond our control:

Limitations to addressing this growth via fossil fuels

  • Peak Oil: Peak Oil is approaching, when worldwide demand will shortly exceed supply permanently. This may cause a rapid and permanent rise in the price of oil and natural gas that will make them uneconomical at best and unavailable at worst.
  • Global Warming: Global warming may drastically limit our use of fossil fuels to generate electricity. This will be especially true of generation of electricity with Coal, which currently supplies over 55% of the electricity generated in the U.S. and is a very significant contributor to carbon to our atmosphere.

Bottom Line

The future of the Photovoltaics industry and how significant a role it will play is a question of scale.

The answer is clear: the development of next generation technologies, with far greater production capacity, that will result in far lower cost of production must be accelerated.

Simply stated: The world needs Gigawatts of PV production capacity NOT Megawatts.


J. Peter Lynch has worked, for 29 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.

Disclaimer
Peter Lynch is an independent columnist for this web site and may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not directly affiliated or compensated by the companies mentioned in this article. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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