Navigant Research Blog

Beyond Headlines, Cleantech Successes Multiply

— June 10, 2013

The recent failure of Better Place has added to the cleantech industry’s bad reputation among investors.  Highly publicized failures of companies such as Solyndra, A123 Systems, Better Place, and CODA have led to headlines that suggest success may be nearly impossible.  But the negative press ignores a range of companies that are well on their way to long-term prosperity.

The most obvious example is Tesla Motors.  After reporting record sales figures and achieving profitability for the first time, Tesla’s Model S luxury sedan received top marks from Consumer Reports.  In the midst of these accomplishments, the company paid the remaining balance on a $465 million Department of Energy loan 9 years ahead of schedule.  Stock prices skyrocketed from $55 to a high of almost $115 in just 3 weeks, giving the company a market cap of more than $12 billon.  Investors who were shorting the stock could now lose big for betting against Tesla’s success.

Likewise, SolarCity’s share price has increased over 200% since the company went public last December, and Enphase Energy and SunPower shares have risen steadily in the last 6 months.  Many privately held companies have grown successfully as well, with backing from big name investors and venture capital firms.

Ample Opportunity

With many new technologies, there is often an expensive adjustment period before affordable prices are achieved and sales become widespread.  That’s not to say that electric vehicles and solar panels will be adopted as easily as DVD players, but the curve will look the same over time.  Prices of solar panels, wind turbines, and electric vehicles have already dropped and are inching closer to matching their traditional counterparts.

Clean technologies and the companies that produce them are here to stay, and the industry is growing.  For plug-in electric vehicle sales, Navigant Research forecasts a compound annual growth rate of 39% between 2012 and 2020.  There will continue to be headline-grabbing failures along the way, but the successes will start to outnumber the flops as the cleantech industry matures.


Distributed Solar Has Arrived

— June 6, 2013

Five years ago, most people thought the only way solar power would be affordable in the United States was if it was installed in massive solar farms out in the desert.  A gold rush of plans for concentrated solar power (CSP) and solar photovoltaic (PV) plants ensued, amounting to, at one point, applications for 24 GW of proposed utility-scale projects in California alone.  Several of those projects have been completed, but the majority will never be, as the market has changed dramatically since then.  The rapid decline in solar PV module prices, the emergence of residential financing models, and the prospect of eliminating new construction of costly transmission lines mean that, in a growing number of cases, distributed solar offers the most economical path for scaling cost-effective solar PV worldwide.

According to the Institute for Local Self-Reliance, solar PV systems installed at $5 per watt can only compete with grid electricity prices in the 16 largest U.S. metropolitan areas, including subsidies and assuming the availability of time-of-use pricing.  The majority of U.S. residential systems are leased, meaning that buyers pay a fixed rate for electricity to companies such as SolarCity, which own the system and essentially become the customer’s “solar utility.”  In most cases, the rate solar leasing customers pay is equal to or less than retail electricity prices they currently pay.  Over the 20-year lease period, solar customers will pay significantly less for solar power than they would pay for grid-electricity dominated by fossil fuels.

In Germany, residential solar PV systems are being installed for less than $3 per watt, and in some cases closer to $2 per watt.  The financial services firm UBS has forecast that 43 GW of unsubsidized solar PV systems by 2020 could be installed in Germany, Spain, and Italy due to high cost of electricity and advances in battery storage technology.  If the United States can get installation costs down to near the German rate, solar PV systems in the residential and commercial segments in high-cost retail electricity markets such as parts of Southern California and New England, could reach grid parity in that timeframe as well.

Half a Trillion Dollars

This is a possible future we forecast in the recent Navigant Research report, Distributed Solar Energy Generation.  “Distributed solar” is defined in that report as systems typically less than 1 MW in capacity, although there is no official definition.

Our research shows that in 2012, annual distributed solar PV systems accounted for an estimated 69% of all solar PV installations, representing an estimated 19.2 GW and $65.7 billion in revenue.  Europe has long been the leader in distributed solar, but feed-in tariff (FIT) reductions and rule changes to key incentive programs in Germany and Italy resulted in a reduction in distributed solar installations compared to 2011.  On the other hand, annual distributed solar PV installations in Asia Pacific (led by China) and North America (led by the United States) grew 53% and 42%, respectively.  During the forecast period of the report (2013-2018), 220 GW of distributed solar PV will be installed worldwide, representing $540.3 billion in revenue.

The long-term impact of natural gas on U.S. retail electricity rates, however, has yet to be seen.  But if prices remain low, cheap gas could slow the growth of solar PV.  Fixed utility fees such as system demand charges and transmission fees dilute the impact of the actual generation cost as a portion of the utility customer’s total bill, making the choice to go solar less clear-cut.  In some cases, utilities are even considering adding fees for customers that go solar, claiming that solar users are avoiding “network fees” that are then borne by other ratepayers.

The real issue is that the utility business model is under threat, as each new distributed solar system results in lost revenue to the incumbent utility.  Utilities will continue to resist distributed solar, but we have passed a tipping point, and it will be up to utilities to adapt in order to survive.


On Every Dream Home a Solar Panel

— May 15, 2013

Traditionally, when someone buys a house, they receive a card from their realtor that says, “Thanks for your business,” and a gift basket with some thoughtful housewarming gifts.  Now, thanks to new zoning codes in Lancaster, California, new homebuyers will also receive a brand-new solar photovoltaic (PV) system (though “receive” is probably a misnomer, as the cost of the system is presumably built into the home price).

Lancaster changed its zoning code in March 2013 to require a 1.0 to 1.5 kW PV system for every new home built on lots larger than 7,000 square feet or 1.5 kW systems for rural homes up to 100,000 square feet.  Builders will also have the option of building distributed systems for new developments.  For example, a builder could install a single 20 kW system for a 20-home development.  (Note that Sebastopol became the second California city to enact a solar requirement for new homes in May.)

Lancaster is the first city in the United States to require PV systems for new residential construction.  This regulation marks a significant win for solar companies, the renewable energy industry, and the state of California.  The advantages for the PV industry are obvious: the regulation will drive the market as new homes are built, creating revenue and jobs.  Widespread installations will also improve installation techniques and develop a base of skilled installers.  For California, this change will help relieve an already stressed electric grid that funnels power from the northwest to southern California (Lancaster is about 65 miles north of Los Angeles).

National Impact

Extrapolating numbers across the United States paints an even more ambitious picture.  The National Association of Home Builders forecasts that 647,000 new homes will be built (or at least started) nationwide in 2013.  Imagine that each of these homes comes with a 1.0 kW PV system installed; by the end of 2013, we would have a new 647 MW power plant distributed across the country.  It’s not quite that simple, but the point is this: a seemingly innocuous zoning change like Lancaster’s could have a tremendous impact once it scales across the country.

Furthermore, this would mean more good news for a growing North American PV market.  Navigant Research’s report, Distributed Solar Energy Generation, forecasts that 220 GW of distributed solar PV will be installed worldwide from 2013 to 2018, representing $540.3 billion in revenue, but the majority of that growth will come from Europe.  Extrapolating again, adding 647 MW of PV capacity each year in the United States would increase distributed PV capacity by approximately 15% to 20%.

Builders Object

Of course, there are numerous hurdles standing in the way of widespread adoption of anything similar to Lancaster’s zoning laws, and not everyone is applauding this move.  While there has been relatively little opposition from Lancaster residents, the homebuilders clearly object to the new codes.  Specifically, they feel that this change puts their product at a disadvantage when compared to the resale market.  Regardless, it will be interesting to see if other cities follow suit, making the new regulation a boon for the PV industry, or if Lancaster and Sebastopol prove exceptions in an already growing market.


Brutal Solar Market Benefits Consumers

— March 28, 2013

The imminent bankruptcy of Suntech, based in Wuxi, China and formerly the No. 1 manufacturer of solar PV modules in the world, may please many Western manufacturers that suffered from the company’s below-cost selling strategy.  But schadenfreude offers scant comfort for the dozens of solar PV manufacturers, Chinese and Western, that have been driven into failure in the past few years by China’s 5-year strategic plan to dominate solar PV manufacturing.  Suntech was one of the largest of the army of unprofitable Chinese manufacturers that have topped rankings of annual production for the past 3 years.

Despite ambitious domestic installation targets for solar PV, more failures are yet to come in China as the country becomes a victim of its own success and the Chinese market continues to consolidate.  As with European and American companies, Chinese manufacturers will likely enter into a number of “strategic partnerships” that result in more vertically integrated providers, including some with project development operations.  This is a strategy that has enabled FirstSolar and SunPower to ensure markets for their own modules.

The brutal fact is that no individual solar (or battery, or any other) manufacturer can compete with Chinese state capitalism.   Many policy makers and analysts would love to see an expansion of solar manufacturing in this country.  Yet, we are in this situation today because consumers, as always, have spoken with their dollars.  There is a reason that DVD players, digital cameras, and cell phones are not manufactured in the United States.  Solar PV cells and modules are now also rapidly commoditizing.

Still, even though the below-cost Chinese market flood has contributed to manufacturing job losses in the United States and Europe, the number of solar PV installation jobs has increased considerably.  Ultimately, the result is better value for consumers and a growing overall market.  The Chinese government is effectively subsidizing the cost of solar PV for consumers in the United States and around the world – and that’s not a bad deal, unless you’re a failing solar PV maker.


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