Solar needs a new Metric

I just read a very interesting article from Motley Fool on the oversupply of solar in the marketplace that is predicted in 2011. The article went on to try to compare the competitive position of the thin-film mfg and the crystalline mfg based on $/Wdc. Of course for those of us in the industry we know that this has no meaning given the widening efficiency gaps, but like Moore’s law the $/Wdc is followed by investors like a hawk. The more important metrics are:

1) $/kWh delivered – this includes the installed cost of the system plus the energy production per rated W. First Solar thin-film often performs well here even though their BOS costs are higher because they produce about 7% more energy than normal crystalline panels. The BOS penalty for First Solar is about $0.20/Wdc, less than the price delta today
2) $/sqft of net profits – this is where First Solar has a bigger problem. Crystalline systems that are installed as a fixed tilt system could easily produce about 20-30% more electricity per unit area than CdTe. The reason this is important is that land is almost always a constraint. The developer tends to overestimate how much of their pipeline is ready to build and so taking the projects that are ready and putting more Watts on the ground can be very important.

In any case, solar is coming down in cost and the race is fun to watch. Today over 10% of global electricity sales can be more cost effectively served by solar PV — without subsidies. This is mainly in high cost electric utility areas or places that use diesel power. This number is expected to grow to over 20% within 2 years. These represent Trillions of dollars in cost effective markets. It looks like solar is on its way to continue its rapid growth rate to reach a gigaton of carbon savings by 2020 — 1,000 GWs of cumulative solar installed!

Jigar Shah
Carbon War Room

9 replies
  1. Tom
    Tom says:

    Go, Jigar! You have succinctly hit the most important issues driving the solar PV market. I tend to state the second metric as Total Installed Eq. $/total kWh per year. This is the way a spreadsheet boils down results relating to the equipment/design choices. I don't disagree with your "profit" metric – it just pulls in other costs & choices. My question for the $/Wdc simpletons: do you get paid at the flash tester or when you turn the electric meter?Tom Kacandes – Prism Solar Technologies, Inc.

  2. polysun
    polysun says:

    Hi Technology is improving rapidally. Now in each area we can make use of solar energy whether it belongs to commercial or residential purposes. these resources are eco-friendally also that is why government is supporting to those people who are making use of solar energy.A technology polysun software also available which is used to design the solar system.

  3. Brian Q
    Brian Q says:

    Jigar, I have been making similar arguments for some time. Equally meaningless yet widely followed is the capacity factor metric, especially when used to compare across the solar technology landscape from PV to CSP where recognised standards for output rating are not yet established."Annual energy production per million dollars of capital expenditure" and "Net revenue per acre (or hectare" provide unambiguous and effective metrics for solar projects of any scale.

  4. Ivan Urlaub
    Ivan Urlaub says:

    Jigar, as always, thank you for your powerful insights. The solar industry will have great near-term success in the U.S. if our society says it wants more access to solar power. Decision-makers are like investors, voting whether to improve the policy and regulated environment for solar. Since decision-makers understand $/kWh, it would be helpful for the industry, investors and decision-makers to be using the same metric.

  5. Brett
    Brett says:

    You're right, but I believe the 1st metric you mentioned is the most important. Assuming a 20/25 year lifetime, $/kwH takes into account capital costs, assumed maintenance expenses, and of course the lack of a fuel cost- so we can compare apples to apples for other technologies. It also cuts through the BS for competing solar firms when one panel costs more but has a higher efficiency, or another costs less but puts out less watts. I have been searching for updated research to find a table with $/kwH to compare the latest and greatest from solar firms on this. Thanks for the article!

  6. Anonymous
    Anonymous says:

    Not so fast…It seems we all agree that $/W is an antiquated metric for rating the true consumer value of a PV technology. However, the article on Motley Fool examines company strength in the marketplace. To do so, it uses $/W to describe manufacturing costs (COGS). Since panels are still sold on a $/W basis, this is an efficient means to determine gross margins. Obviously, GM is a key metric for assessing operational efficiency and company strength. So, use of $/W in the article is very appropriate for the intended purpose.

  7. David Dunnison
    David Dunnison says:

    Thanks Jigar. With nods to Tom and Brian G for their campaigns, tHe statement that "…$/Wdc … for those of us in the industry we know that this has no meaning given the widening efficiency gaps…" may not be as universally understood as we all might hope ir expect.Thus, on this particular point, I have also put together a piece that illustrates the geometric impact of efficiency at lower cost levels <a href="http://.” target=”_blank”>.

  8. Tom
    Tom says:

    @Anonymous #1: in '09 PV module sales were supposed to be flat, maybe 5%, but were actually up 40+%, again, as in the last 11 years! In 2010 with the world economy in doldrums, PV will grow by over 100% based on current installations YTD!What else can you buy into that is growing like this? Please tell me so I can diversify into it! IF First Solar doubles their capacity by 2012/2013 they MIGHT maintain market share as the market grows away from any possible domination by "sole source" technology firms. Improvements to c-Si COGS is dramatic, but FS tempers their own glass to shave a penny, so that sounds like maxed out COGS control, doesn't it? Other CdTe & CIGS mfgrs will make progress but don't have FS's 20-year head start. So why, given the above, is it a question of "who's on top?" instead of "who is going to fill the gap between current capacity and future demand for electricity" (and make a lot of money for investors in the process)? Who cares if FS is on top with a minor, marginal advantage – great! Let them sell 2 GW in the 15 GW market we'll have this year. Let them sell 4 GW in a 35 GW market – good! That means in 2010 other firms will sell 13 GW, right? Isn't there a lot of revenue and potential profit in 13 GW of sales? The fixation on FS and who's no. 1 truly puzzles me when No.s 2-25 will go make a boatload of money and have more value appreciation than #1. That's why I disagree that "the big question" is who comes out on top. I think it's who can I invest in at a better valuation who will also make money in this industry that's growing faster than almost all others?@ Anonymous #2: Thank you! I think your point about separating value to the integrator/ site owner from investment review of mfgr gross margins is well taken.Tom Kacandes – Prism Solar Technologies, Inc.

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