Armistice Day 2011: Our Pearl Harbor Moment for Solar is Coming

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.

5 replies
  1. SomeoneElse
    SomeoneElse says:

    All this talk about clean energy needing subsidies ignores the fact that the current energy infrastructure operates with the ignored subsidy that is implicit in the untaxed destruction of the ecosystem. Without having to pay for the remediation of that destruction they are being subsidised to a far greater extent than any green energy subsidies.

  2. Ed Beardsworth
    Ed Beardsworth says:

    I had a bit of trouble sorting out the analogy at first. Maybe others did too, so it might be worth clarifying. A is to B as C is to D. C is old energy. D is new energy. But what in Pearl Harbor are A and B ?

    I was focused on the combatants, i.e. US and Japan, but that didn't work at all. Finally sorted it out. C is battleships, and D is naval airpower. Now I get it.

    Neal, maybe you could elaborate? Or am I the only one who didn't get it.

    Old Energy Battleships
    ———– :: —————–
    Solar Naval Airpower

  3. Ski Milburn
    Ski Milburn says:

    I'm sure this isn't what Neal meant, but here's my take on the historical analogy.

    Today, the solar industry is Japan in the 1930's. Always discounted and out of sight, but with more capability than most gave them credit for, and going to be great "sometime in the future". A few smart folks decided to slow them down a bit but cutting off their oil supplies, roughly akin to the current move in the media to build support for slashing the renewable energy tax incentives.

    Our Pearl Harbor Moment is 2-3 years away, and will come when the Asian low-cost producers reach unsubsidized grid parity in meaningfully large markets in the US and start to disrupt the traditional utility industry. The markets for PV outside of the US are large enough that will happen whether we extend the subsidies or not, the only difference will be whether we have viable "Pacific Fleet" of domestic producers to battle for market share, or if we will be defenseless.

    The way things are going, I would bet that we'll sink half our ships all by ourselves, and the rest of our fleet will be on the bottom by December, 2014.

  4. Andy
    Andy says:

    don't want to spoil the analogy… but the attack on Pearl Harbour actually did very little collateral damage in real terms and whilst I agree it did start (a few) people thinking about a change in strategy it certainly did not "force" a change in thinking. 48 hours and a lick of paint later and the majority of the US Pacific fleet could have gone out with its battleships all guns blazing as it had always done.

    In the UK with the FIT being slashed so dramatically, solar projects are being shelved left right and centre. Two projects near me with a total foot print of 60+ acres have been scrapped and as one of the project managers said to me, without the FIT (at the old rate) they wouldn't even consider the project because it was not economically viable. These guys are not working on 2 year old data, they're working on what the market is doing today and forecasting forward 25 years.

    As much as I'd like it to be true and I do agree that solar may have moved on since my fathers day, I think solar still has a long, long way to go and I'm not sure I can agree that it's "Pearl Harbour" moment is on the horizon. I certainly can't see the solar energy companies going toe to toe with the largest energy companies on the planet in the next 20 years.

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