What are the macro events that will take place in the Solar
world in 2012? In this article I look at
the supply and demand of solar equipment and installations and also the price
of the grid electricity they aim to supplant.
Put these topics together and you get the goal of producing electricity
for a return that makes economic as well as environmental sense.
Picture from Wikipedia
What is good for solar manufacturers is generally bad for
solar installers; and vice versa. The
common thread is the cost of installed capacity ($/W), which goes up to make
manufacturers happy and goes down to make installers happy.
To make them both happy, the local price of retail
electricity needs to rise, and that typically depends on the price of fossil
fuels.
Put them together and you can see that the cost of renewable
generation ($/kWhr), which is dependent on its capital cost since there is no
fuel cost, must be as close to, if not below, the combined capital and fuel costs
of fossil fuel generated electricity, per kWhr.
TOPIC #1: SOLAR
MANUFACTURING SUPPLY AND DEMAND
2011 was a bad year for solar panel manufacturers. Solyndra went bust and BP Solar has decided to dump manufacturing in favour of EPC and ownership of solar plants. Why? Well, to state the obvious, Germany pulled the rug out from beneath demand with their tariff rate cuts and China has continued on its 2006 central plan to become supplier to the world. In its 2011 five year plan, China has stated its renewed intention to take the lead in all renewable energy sectors.
In 2012 look for a continued reduction in supply as solar
manufacturers retrench, reduce inventory and consolidate generally. China will continue its march toward solar
supply dominance but will face headwinds in the form of low demand outside of
its home market.
Demand in 2012 will moderate its plummet, having absorbed the impact of reduced German and Italian Feed in Tariff offerings. The world’s largest economies will continue to struggle under the weight of financial debt and subsequent turmoil and politicians will not generally find the courage to raise the price of electricity to include all costs of production, let alone by incenting renewable energy sources to join the Grid.
RESULT #1
Solar Manufacturing will consolidate and increase
efficiency. Manufacturers will spend
2012 reducing inventories, aiming for profitability and foregoing the previous
ambition of increased marketshare. Solar
EPC will struggle with opposing forces that will play out differently in
different locations. Their product costs
will continue to be low and perhaps even fall further. On the other hand the government incentives
that have been necessary to encourage the building and integration of solar
plants into the grid will falter. To
mitigate this particular problem EPC firms will need to meet grid pricing
without significant incentives. Which
brings us to the prices of fossil fuels…..
TOPIC # 2: FOSSIL FUEL PRICING
This one is pretty easy.
It will go up. Whether ‘it’ is
natural gas, oil or coal. The argument
that the world economy is only running on three cylinders is valid but misses the
point that the world economy is more and more becoming a world economy, and not
simply a western economy. China and
India alone, even with faltering growth rates, will display a growing demand
for fossil fuel energy that will easily outstrip the reduced demand from Europe
and America.
To further pressurize the prices paid for fossil fuel, both
Australia and the EU are moving ahead with policies that place a significant
price on carbon. Read: higher fossil
price. In the case of the EU a reduction
in the number of carbon credits made available to industry will prop up the
price of carbon and thereby increase the cost of fossil fuels. Australia sells a lot of coal to China. Their tax on carbon will increase the cost to
China of all their energy, including electricity.
RESULT #2
If you live in British Columbia then your price of electricity can follow the cost of falling water: i.e. not going up. But if, on the other hand, you live somewhere where the electricity generators use fossil fuels to create electricity, all I can say is – somebody is going to pay more. And the likely result is going to be a closing of the gap between the price of renewable generation and fossil fuel generation of electricity.
ONE LAST THING – R&D
Venture Capitalists have been spoiled by the kind of returns generated by the likes of Google or social media sites. By and large they are losing their appetite for the more mundane, if more certain, returns afforded by investments in renewable energy.
I predict that you will see a pull back in VC activity in our sector and an increase in CV activity.
CV? Corporate Venturing. Corporate balance sheets are reported to be strong on the whole and companies are looking harder at both the possibilities of reduced energy use and that of strategic investment. Strategic investment in nimble, freer thinking entrepreneurial firms that can become takeover targets if/when their particular idea becomes marketable.
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