3 WAYS TO USE MORE SUN

Emerging trends in the U.S. solar market
November 2009 (Environment Florida and GTM Research via Greentech Media)

SUMMARY
While wind power is a nearly mature New Energy and one of the least costly sources of power a utility can build or buy, solar energy is right at wind’s heels. Solar is price competitive with all other forms of grid electricity supply in some places and is on its way to becoming price competitive everywhere else. But as solar power grows into its maturity, it is becoming a whole lot more than just panels on the roof.

A white paper from Florida, a state at the forefront of U.S. New Energy and New Energy policy innovation, highlights 3 trends expected to be important factors in the growth of the U.S. solar energy industry. According to Emerging trends in the U.S. solar market, from Environment Florida and GTM Research, the remarkable (1) growth in demand for solar photovoltaic (PV) systems, (2) the even faster growth in the supply of PV, and (3) the steady falling of the installed cost of solar PV systems have joined to drive a host of new technologies, market strategies and regulatory concepts – but 3 stand out.

The 3 trends – (1) The European-style feed-in tariff (FiT), (2) utility-scale PV installations and (3) solar PV-biomass cogeneration as a baseload power supply – share 2 key characteristics. According to the white paper, these uses of solar PV (1) have yet to fully impact the U.S. solar energy market and (2) have the power to transform segments of the solar energy industry.

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COMMENTARY
The installed cost of photovoltaic (PV) systems has steadily fallen 3.6% per year for a decade. At the same time, the price of electricity has gone up just as steadily. With its increasingly competitive economics as a major factor, global PV demand has gone up 51% per year and the U.S. market has grown 71% per year since 2000.

U.S. PV demand in 2008 was the 3rd biggest in the world, behind Spain and Germany, and appears to be just beginning to realize its potential. Much of the U.S. is rich with insolation (direct solar radiation per unit of horizontal surface), electricity demand is enormous and expected to grow, and there are lots of rooftops and plenty of land on which to place systems. Long-term growth appears a sure thing.

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The first trend described in the Environment Florida white paper is the Feed-in Tariff (FiT). Although there are many elements in an effective FiT, the basic idea is to reward builders of New Energy with a guaranteed, above-retail price for all the power their systems feed into the transmission system over an extended period, usually 15-to-25 years to approximate the life of the New Energy system.

Although there are a number of arcane formulas by which the rate of return can be set, the 2 most popular kinds of FiTs are (1) a fixed rate of return, or (2) a set amount of return above the market rate for electricity. Either way, a guaranteed profit over a predictable period of time has almost invariably attracted investment in New Energy.

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The amount of profit offered to attract investment is usually determined either (1) by the value of New Energy to the utility, or (2) by the estimated levelized cost of electricity from New Energy generation. Determining the “value” of New Energy is theoretical and complex. Determining the levelized cost is more statistical, straightforward and generally more successful at attracting investment.

The FiT was originated in California in the late 1970s but proved unwieldy in its incipient form. As the concept grew more sophisticated, other nations that wanted New Energy incentives adopted it. There are more than 40 FiTs now in place around the world. The stable, long-term, levelized cost-based German and Spanish FiTs have spurred those nations to world leadership of installed PV capacity.

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Germany went from 44 megawatts in 2000 to 1,260 megawatts in 2007. Its FiT was so successful it had to institute a sharp digression rate, lowering the guaranteed rate of return on new systems entering the program over a scheduled time period as installed capacity grew. Spain’s 2007 adjustment to its FiT was too ambitious and caused a temporary bubble in the solar industry worldwide.

Setting the ideal FiT rate and schedule is a challenge to economists and planners. Both Germany and Spain will need to adjust their FiT rates of return downward going forward, as volume grows, to avoid re-inflating the solar PV market or unnecessarily burdening their utility ratepayers. The world is watching how they manage the delicate balance of sustaining investment without overheating the solar industry.

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Gainesville Regional Utility (GRU) of Gainesville, Florida, instituted one of the first levelized cost-based U.S. FiT’s in February 2009. It offered a 32 cents per kilowatt-hour rate of return in 2009 and 2010 that drops to 30 cents per kilowatt-hour in 2011 and continues dropping going forward. The FiT is "capped" at (i.e., only allowed for) the first 4 megawatts of ground based PV systems that apply. It "digresses" (i.e., provides a lower guaranteed price) on a fixed schedule over the 20-year life of the program. By March 2009, GRU had booked its allotment of systems through 2014.

California has the biggest U.S. program, capping its FiT-eligible systems at 750 megawatts. It has been so far less urgently subscribed because its rate of return is determined in a complex and somewhat arcane manner. The California legislature is pushing to streamline the FiT and the effort looks like it may once again break new ground in solar initiatives.

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The white paper’s second designated trend is the development of utility-scale PV. The trend is driven by the widespread adoption of Renewable Electricity Standards (RESs) at the state level requiring regulated utilities to obtain a portion of their power from New Energy sources by a date certain.

Utilities quickly realized customer-owned distributed generation was not going to get them to the RES in the designated time. They have, therefore, been obtaining power purchase agreements (PPAs) with wind developers and biomass plant builders as fast as projects can be built. In states where there is a very high insolation or inadequate readily exploitable wind and biomass resources, many utilities have turned to solar. Also, many sun-rich states included solar carve-outs in their RESs, requiring that a specific portion of the New Energy requirement be solar energy.

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Utilities initial high interest in the many concentrating solar power plant (CSPP) technologies has been tempered by the falling cost of PV solar. While CSPP technologies offer the enticing possibility of storage capability and 24/7 dispatch, that is still – like the CSPP technologies themselves – less than fully proven and in some cases essentially experimental.

The predictable and mature PV technology’s price, on the other hand, is expected to reach parity with other forms of grid electricity generation as early as 2010.

Two factors more than offset the variability of PV supply: (1) Its value as a peak load smoothing energy supply, because the sun is most intense in the afternoon when demand is often the greatest; and (2) the increasing knowledge by power plant managers and grid operators of how to predict and integrate solar PV-generated electricity into transmission systems.

The 14-megawatt system at Nellis Air Force Base in Nevada was the first utility-scale PV solar system. The second, a 25-megawatt Florida system, came online in November. 100-to-550 megawatt systems are planned at several sites in California.

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Standard silicon-based PV panels and newer thin film PV panels are presently competing for dominance in the utility-scale PV market. Standard panels turn more of the sun that hits them into electricity but in the past have been more expensive than thin film. Until this year, thin film looked to be dominant.

When the bubble caused by Spain’s FiT burst just as enormous increases in supplies from new manufacturing capacity in Asia caused an oversupply of silicon and silicon-based panels, the price of standard panels dropped so low that they became the better bargain. Now thin film suppliers are offering rebates and streamlining manufacturing in a fight to retain market share.

The third trend described by the white paper is the most dubious: CSPP technologies, which the white paper calls solar thermal, combined with biomass-to-natural gas in a cogeneration facility.

First, a clarification of the terminology: Concentrating Solar Power Plant (CSPP) technologies are solar thermal technologies because they use the heat (“thermal”) part of the sun’s energy to generate electricity, whereas PV technologies transform the sun’s light (“photo”) to electricity (“voltaic”).

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NewEnergyNews prefers to use the CSPP designation for technologies that concentrate the sun’s heat, primarily with mirrors, so as to distinguish them from the solar thermal used by hot water systems that gather but do not really concentrate the sun’s heat.

CSPP's greatest promise is its potential capability to include 24/7-generation by transforming the sun’s heat into captured and stored steam that can be released after the sun sets to drive a turbine. This concept remains largely experimental at utility scales. In the absence of a capacity to use solar energy when the sun is not shining, it cannot be used as baseload power – except in conjunction with a non-variable energy source.

Experiments are under way to use natural gas and biomass-derived gas as the non-variable energy sources. CSPP plants would then be built with and integrated into such a base-load system.

Of the fossil fuels, natural gas is the lesser of the evils because it spews the least greenhouse gas emissions (GhGs) when burned and because there are large domestic supplies that (1) might (theoretically) be obtained with less destruction of the local environment than coal and (2) transported with less spewing of GhGs than coal.

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Between natural gas and biomass, biomass is the lesser of the evils because it puts to use waste that would otherwise release GhGs as they decay with no derived benefit and because it is a somewhat renewable energy source.

In CSPP-biomass hybrid cogeneration plants, turbines can be driven by the concentrating solar technologies that convert the sun’s heat to steam during the day and they can be driven by steam created from the burning of the gases derived from biomass when there is no sun.

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Pilot projects are being built in California farming regions. In 2010, massive amounts of cattle waste and agricultural waste will be put to work as biomass-to-gas under California’s plentiful sun. The following year, a smaller, community-sized pilot facility in Florida will go online and combine the South Florida sun with forest and non-crop waste biomass supplies.

Doubts remain about the economics of hybrid biomass-CSPP plants that will not be clarified until there are more working systems and the costs of the experimental technologies are established.

Environmentalists remain dubious of any energy system that involves burning anything and they emphasize the importance of learning to rely entirely on sun and wind and flowing waters. At the rate human ingenuity is harnessing this good earth's gifts to produce power that is cost-competitive with burning's spew, environmentalists are very likely taking, as usual, the wisest point of view.

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QUOTES
- From the report’s introduction: “…while demand is beginning to stabilize in the historical demand centers [like Germany and Spain], the U.S. market is only beginning to ramp up. With high insolation, the largest electricity demand in the world, and ample available land for solar development, the U.S. presents an attractive long-term growth opportunity for developers, installers, financiers, and other solar service providers.”

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- From the report’s introduction: “The solar market is evolving as rapidly as it is growing. Local and state governments throughout the U.S. are increasingly considering new policies and incentives to support solar deployment, utilities are beginning to consider solar a valuable component of their portfolios, and technological innovations are increasing the effectiveness and value of solar power. The trends that emerge today will determine the nature, and fate, of the solar market in the U.S.”

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- From the report: “…By providing a stable, known rate, feed-in tariffs attract capital investment in solar projects with little revenue risk…As has been proven in Germany, effective feed-in tariff policies can provide the backbone for rapid, sustained solar market growth. Thus, the more the U.S. implements cost-based FiTs, the stronger the demand market for solar will become.”
- From the report: Utility-scale PV is a relatively new phenomenon in the U.S. However, it is widely acknowledged to have the potential to disrupt the market, as announcements for larger and larger projects seem to arrive weekly…”