Ok. Deep breath. The first time I modeled solar costs and started reviewing the first PPA solar models, was nearly 8 years ago now. And they were ugly then. As in, fully loaded some $0.60-0.90 /kwh ugly, no matter how rosy the solar pollyannas were. That’s why it took a German Feed in Tariff of near that level to drive the industry, or US subsidies covering 40%-50% of the capital costs on a net present value basis. It could compete with battery powered lights and calculators, diesel gensets in the middle of nowhere, and that was about it. No clear path to a non subsidized market of any size. Fast forward 8 years, and dozens of major policy programs and $10s of Billions in investment later, the game has changed. We’ll be 7-10 years off those first rosy solar forecasts, but it is working.
To those of you saying the photovoltaic sector can’t compete without subsidies, today you’re right. But be very, very, very careful. In today’s world you’re working with 2 year old data. Your competitors are forecasting 2 year forward data. 4 years in solar time is about like 4 years in dog years. A lot can change.
At today’s lower end of installed cost $3-4/Wp, at utility scale, the direct amortized cost for PV is c. high single digits to mid double digits in cents/kwh. Fully loaded costs would be in the mid to high teens, with roughly a third of that covered by subsidies. But there’s a lag, we’re not really at $3-4/Wp anymore. Module prices are crashing towards $1/Wp, and overhead, installation, etc is trending down to match it, meaning very shortly we’ll be <$2-2.50/Wp in utility scale, with still plenty of room to drop. WITHOUT a major technology shift. Imagine a world where we’re building solar in utility scale, in the sunny southwest, using the coming generation of trackers, monitoring, <$1/Wp panels, and procurement, finance, engineering and installation done at scale. That world puts us in striking distance of new gas fired generation even at today’s low gas prices. That world is MAYBE 3 years off.
This is NOT a Moore’s law change. The disruptive technology improvement the venture world has been searching for has only gotten us part way there. Most of it is incremental basic manufacturing maturity and economies of scale. And it’s working.
We are about to reach our Pearl Harbor moment. You think solar PV will take longer to reach competitiveness because it always has, and the moment it disrupts the power business will be obvious. Just like the US military’s ”Orange Plan” in 1941 assumed the Japanese fleet would strike the Philippines and give us plenty of time to gather the battlefleet and steam across the Pacific and meet the Japanese fleet in a Mahan style decisive battle. So we took a baby step, and moved the fleet to Pearl Harbor which we believed was out of range of first strike. In fact, most of the Japanese thought the way we did. But they didn’t do it that way. They used aircraft carriers and dive bombers and torpedo planes which the rest of the world thought still weren’t yet competitive with battleships. They reached halfway across the Pacific and blasted the most powerful battlefleet in the world into oblivion. Forced the US to rethink it’s entire strategic, technological, and tactical approach to war. Forced us to shift like lightning to aircraft carriers and submarines. And they did it with a TOTAL of less than 400 planes and one visionary leader.
Yes the solar sector’s still getting shellacked from supply overhangs. And margin pressure everywhere. And falling subsidies. This is a good thing. We’re growing up. Stop whining about success and play ball. SolarBuzz has the US nonresidential PV pipeline of announced projects at 24 GW, with 2.4 GW under construction according to SEIA, up from only 400 MW in the US today. SolarBuzz has the Chinese development pipeline at 14 GW on the back of their recently announced Feed in Tariff. That FiT is c. $0.15/kwh, maybe a quarter of the original German one. This is not your father’s solar sector.
Bottom line, we’re not there yet. The skeptics are still right. But for the first time there is probably enough near term volume in the pipeline to drive enough additional economies of scale to reach our Pearl Harbor moment in solar.
That moment won’t be the end. It will be the start of the war. But a world war for control of the power sector it will be. The first such real war in electric power in 100 years. A war where after 20 years of building, some of the solar companies who survive this current cycle will be big enough, tough enough, and fast enough to go toe to toe with the largest energy and power companies on the planet.
It’s Armistice Day 2011. World War I is over. Pearl Harbor is now on the horizon. The path to a competitive, unsubsidized solar industry is finally clear.