Saturday, June 16, 2012

A Solar Energy Revolution - Don Wharton (Guest Post)

We know that fossil fuels will run out sometime in the future. Our use of them is depleting a finite source. We also know that the solar energy falling on our Earth every 88 minutes equals all energy sources humanity uses in a given year. That means earth gets 6,000 times the solar energy than all the energy we consume. However, these facts say little about how and when we will move to renewable sources for the energy needs of humanity.

In order to answer that question we need to look at the evidence. In March 16, 2011 the Scientific American hosted a blog article summarizing the evolution of prices and projections based on the historical evidence.1 The analysis gave a seven percent annual reduction in solar cell costs based on recent decades. At this rate, the projected Solar energy cost should fall below the current US average residential cost of $0.12 per KWH by 2020.

Since the Scientific American article's data from 2009 was printed, prices for solar cells have crashed by over half. The article, when written, had module prices modestly below $3 per peak watt. Prices for high quality modules at a European port in April 2012 are quoted between 74 and 98 cents per peak watt wholesale.2 The retail price is higher but Solarbuzz as of May 2012 has 34% of the retail prices for modules below $2 per peak watt.3 These rapidly lowering prices are due to many factors that have saturated the market such as over investment in plants to refine silicon and very low cost thin film technologies. Financially strapped European countries have reduced the feed in tariffs that paid for much of their installed base of solar energy. The result has been very fierce competition for all available contracts. “Bankability” is now a major term in the solar market.. This refers to higher quality product from manufacturers which banks view as financially strong enough to survive.

The current declines in installed costs have not kept up with prices for solar modules themselves. However, we already do have many situations where newly installed solar energy costs less than fossil fuel investments with no governmental subsidies. For example, in Hawaii the average cost for electricity was $0.33 per KWH in February 2012.4 The Department of Energy has a SunShot initiative designed to reduce installed costs by 75% to $1 to $1.50 per peak watt. A recent study by Solar Energy Industries Association (SEIA) and GTM Research has the average installed utility scale system costs (Q1 2012) at only $2.90 per peak watt.5 Power from these installations are typically sold under long term power purchase agreements. In an April 2012 news report, “The weighted average highest cost of solar and other renewable power contracts accepted by California utilities in the state’s Renewable Auction Market (RAM) auction was 8.9 cents per kilowatt-hour (kWh) for 20-year power purchase contracts...”6 This is higher than some other wholesale energy costs but it is well below the 15 cents that average California residential users are charged including distribution costs.4

Germany's different approach demonstrates that far lower installed costs are possible. They have been using very high feed-in tariffs to encourage large scale installation of systems. The Germans have worked on streamlining all permitting and delivery systems. The result is over four times as much solar energy installed in a much smaller country (7500 MW Germany vs. 1700 MW America in 2011).7 The German solar installation costs in the first months of 2012 have dropped below two Euros ($2.60) per peak watt.8 The following cost graph covers the six years from the second quarter of 2006 through the first quarter of 2012.    

This shows a rate of decline of over 14% per year during this period or double the expected rate in the Scientific American article. The costs are roughly half that of similar American residential systems. The downward impact on the retail costs of electricity during a sunny day in Germany is already dramatic. Given the average residential costs of electricity (about $0.33 per KWH)9 the household value of a solar installation in getting very near grid parity in Germany. This is true for a country that receives less than half the solar energy of much of the United States. The German market for electricity is immensely complex and a full treatment of it is well beyond the scope of this essay. However, the fact that they have engineered technology and polished procedures that are so successful suggests that much of the world might achieve grid parity very rapidly.

A report on average American permitting and inspection costs of $2,516 per installation explains some of our increased costs compared to the German experience.10 The Department of Energy cites this report to document a major goal of the SunShot Initiative. The report says Germany, France, and Japan have eliminated permitting for basic residential installations. If we retain residential permitting the report suggests uniform national standards, a $250 fee or cost of permit issuance, email submissions, three day decisions and single inspections executed within a two hour window. The general view is we need to look at solar energy system as a very simple and normal appliance installation. It would make a massive difference in almost all jurisdictions.

Another part of the SunShot Initiative is the Plug and Play concept. It presumes an installed cost of $1.50 per peak watt will be equivalent to 68¢/kwh. At that price it will be cost competitive nearly everywhere. The DOE wants systems that can be purchased at a hardware store and installed by a homeowner with no permitting whatsoever. This envisions something so simple it could be plugged into a wall socket. They want some way for the system to automatically communicate with the utility so that the system and grid are automatically configured to work optimally. In Germany there is a specification which slightly increases the cycles per minute of the AC as a signal to the solar system to ratchet down or cease dispatching energy to the grid. This gives the grid manager a needed management tool when large scale solar capacity is installed.

There are a small number of vendors with systems that are now designed to be easily installed by homeowners by plugging into a standard 120 or 240V AC circuit. The costs are typically $3.50 to $4.00 per peak KWH. An example would be the Spin Ray 240V AC system sold for $849 plus shipping.11 Westinghouse is marketing their Instant Connect system at a modestly higher price per peak watt. Roughly 35 to 40% the cost is for the electronics. The majority of that cost is for the conversion of DC to AC current. This cost should rapidly decline at greater scale as it has in Germany. These systems do not eliminate the additional permitting or inspection costs. They do not have the sophisticated integration with the utility system desired by the DOE and there may be additional costs for bracketing depending upon how and where they are installed. We need an agreed upon specification which can be defined and certified for the plug and play function with little or no permitting. These specifications must be national standards that apply across jurisdictions.

When and if there is a streamlined Federal set of standards it is likely that American costs will be equal to or lower than the German example. As it stands the first approximations of the plug and play technology is competing against the standard installers. When solar systems become a commodity item competing against other high volume manufacturing plants the needed electronics, framing and bracketing costs (balance of systems) will have the same ferociously declining price trajectories as the solar panels themselves. When that happens nearly all consumers will find solar to be a financially attractive option with no subsidies at all. The time frame for this will range from immediately to less than eight years from now.

An obvious implication of this trend is that nuclear energy with its current costs and 10+ year time frames for building will not be cost effective. The tens of billions in federal loan guarantees for new nuclear construction is nearly certain to result in universal economic default and a high net cost to taxpayers. The more reasonable investments would be large scale smart grid capacity that can share energy over wide regions and energy storage technology that will smooth energy availability.

This review of solar energy focuses on evolution of the technology and major policy factors limiting its near term implementation. Future essays will review policies in regard to smart grid operation, integration with other renewable energy sources, construction standards and financing issues.


11  [end Don Wharton's article]

A lot has  happened since this guest article was posted.  DC has been inflicted with Exelon and its 23 nuclear power plants.  Pepco, which they now own, has asked for an $85.5 million rate increase just as we who fought the takeover predicted.  On the other hand oil and gasoline prices have continued to be low.  We don't know yet whether Exelon will be less cooperative with DC solar than Pepco has been in the past.

Meanwhile, other renewable energy supplies are being tested.  For several years there have been reports about off shore wind farms near Spain and Denmark among other countries.  These have all been anchored on the sea floor.  Now, however, a floating wind farm idea is being proposed well off the California coast.  This article provides a number of interesting details and a chart of the growth of off shore wind production in a number of countries.


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