The 3 Things the Solar Industry Needs to Accelerate Worldwide Industry Growth
Solar Stocks and Market Commentary with J Peter Lynch
Point Roberts, South Salem, New York - June 29, 2011 www.Investorideas.com, a leader in cleantech stock research, releases new solar stocks commentary from contributor, J. Peter Lynch.
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The 3 Things the Solar Industry Needs to Accelerate Worldwide Industry Growth
J Peter Lynch
The Photovoltaic (PV) Industry needs 3 things to move the industry forward to enable it to play a significant role in worldwide electricity production (significant meaning > 20% of worldwide electricity generation from PV):
- New innovative cost effective PV technology
- More advanced electricity storage technology
- Rational Common Sense Legislation that is investor friendly as opposed to the current legislation that is investor "unfriendly". This is clearly demonstrated, by the recent last minute paltry one year extension of the extremely successful U.S. Treasury Grant in lieu of tax credit legislation.
Innovative Cost Effective PV Technology
In order for the industry to produce a technology that is truly "cost effective" and that can compete with fossil fuels on an even playing field the technology must have ALL of the 3 attributes listed below. Having only one or two of them will not allow us to get to the necessary low cost levels:
- Low CapEx - A low cost per watt manufacturing facility (CapEx)
- High Efficiency - A high conversion efficiency, without concentration
- Low Cost Per Watt - A low cost per watt of manufactured product
To date there are serious problems with each of these three necessary attributes:
Low CapEx – since expensive semiconductor technology is the current standard in PV manufacturing it is difficult to get the CapEx down to the level necessary. The solar business is a low margin business and capital expenditures for the production facilities (CapEx) will have to drop dramatically (currently in the $1.00 to $1.25 level for thin film) in order for the industry to have the possibility of competitive prices to fossil fuels and also healthy margins.
With a much lower initial CapEx (less than .50 cents per watt), much less upfront capital will be needed (lower financial risk) resulting in a greater potential for rapidly accelerating worldwide PV industry expansion. In addition, if the CapEx were low enough it would eliminate the financial need for government incentives and allow private industry to move much faster in expanding the industry worldwide.
High Efficiency - the highest efficiency, without concentration, is below 20% for a module and below 23% of an individual cell, this is not nearly high enough to sufficiently offset the Balance of System (BOS) costs i.e. the other half of the cost for a completely installed PV system - roof racking, electrical work, installation labor etc. Without a significant decrease in BOS costs, there is no way for a disruptive cost reduction to be possible. In addition the theoretical maximum for silicon is around 27% to 28% so the industry is starting to bump up against the theoretical limits of the material.
In order to compete with other electricity generation (gas turbines and coal-fired plants) efficiencies in excess of 50% (without concentration) are needed. Without this we will not be able to generate a high enough number of watt's per square foot in relatively small areas to greatly expand the number of localized sources (e.g., residential and industrial applications).
Low Cost per Watt – over the past decade the industry has decreased the cost of manufacturing, however, unfortunately the most significant decreases have occurred in the lower efficiency thin film areas. When you produce a low efficiency (10% - 12%) product at a very low cost it actually increases the balance of systems (BOS) costs (labor, panel racking, wiring etc.). Consequently, while you drop the cost of the panel you increase the other side (BOS) side of the installed cost per watt equation. Certainly not the disruptive cost reduction needed. Manufacturing costs in the higher efficiency panel area needs to be below .25 to .50 cents per watt with the potential to go lower – current costs at the low end are around $1.00.
Advanced Electricity Storage Technology
Adequate, cost effective storage technology is necessary for the efficient storage of electricity generated from photovoltaic devices. Without a breakthrough in storage PV can never really make a significant contribution to worldwide electricity generation.
The one great weakness of solar energy is the fact that it is intermittent during the day and is not available at night. As a result, the electrical grid becomes the "backup" system for the PV system, therefore to be financially accurate we will need to include the cost of the grid as part of the system. Unfortunately the majority of our electricity is generated from coal. Coal fired plants do not make good backup systems because they are very slow to ramp up and down, in additional to being the dirtiest of fossil fuels. Instead we must look to gas turbines as a transitional step, they are much are more flexible and work much better in conjunction with PV.
We need to develop a way to effectively store this energy when the sun is shining for use at times when there is no sunlight or at night. In the solar thermal sector of the industry some progress has been made in storing heat in specially designed salts to 6 to 8 hours. However, in the solar PV sector traditional batteries have been the primary technology that has been utilized to address storage.
The problem is that battery technology has really not advanced much past the traditional lead acid battery we all have in our cars today in terms of lower cost, adequate long life and power density. What is needed a robust and highly efficient technology that does not exist today. We will also need to dramatically scale this storage capacity so that it can be integrated into a new nationwide "advanced grid infrastructure".
Another possibility, if a cost effective PV next generation technology were developed, may to make the production of hydrogen from water via electrolysis on a distributed basis. But much more work needs to also be done in this area.
Rational Common Sense Legislation
The solar industry needs the federal government to stop its current inane and anti-investment practice of passing solar subsidies legislation that is uncertain and time-limited. Both of which are red warning flags for investors to stay away.
For the past decade or more federal solar legislation has been non-existent or has been passed at the last possible minute for a limited time period, creating investor uncertainty and making an accurate assessment of risk very difficult.
On the other hand, most of the largest subsidies to fossil fuels have been written into the U.S. Tax Code as permanent provisions. There is no uncertainty as a result and investors are much more inclined to invest. This is a HUGE difference and distorts the risk assessment ability of investors dramatically limiting investment in solar due to this increased uncertainty.
The key to any investment for a rational business is to be able to determine, to the greatest degree possible, all the elements of risk involved in an investment.
A simple example: imagine that you were considering an investment in a commercial building and one of the key financial elements in your investment decision was the fact that you could depreciate the building over 5 years instead of 20 years, significantly improving the buildings cash flow and return on investment. At the closing you mention this positive aspect of the investment and you hear a government official say – "yes five years is fine, we think". He then continues with – "we are thinking about changing it next year, maybe or maybe not". Obviously he is NOT an investor and he has only created uncertainty, which destabilizes the investment environment.
How would you, as an investor handle this uncertainly? Would you invest and take a blind leap of faith hoping that everything worked out? Or would you pass? I think the answer is obvious – most of us, assuming a rational business decision, would pass. The risk would be too great and the availability of other investments far too compelling to warrant such an uncertain investment.
The technical advances of cost effective PV and advanced storage along with the legislative changes must occur if the industry is to grow rapidly enough to become a significant component of the world's future energy portfolio in the next 15 to 20 years (i.e. PV supplying more than 20% of the world's electricity).
Advances in any of the three areas will certainly help and will benefit the industry as a whole, but ALL three are necessary if PV is to take its place as the most flexible, cost effective and distributed form of energy and all three are necessary to accelerate the transition to a post fossil fuel economy.
Mr. Lynch has worked, for 34 years as a Wall Street security analyst, an independent security analyst an investment banker and private investor 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 field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and advisor to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy - www.sunseries.net
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