The Sun Also Rises

Finance Add comments

One of the most significant macro-economic issues facing the world economies today are linked to the availability and cost on electrical energy. Many skeptics believe that this industry exists only due to government magnanimity and without those subsidies, could not survive on its own merits.

This view, in my opinion, greatly underestimates the power of exponential growth in technology, which will cause such a dramatic drop in the price of photo-voltaics, power transmission, power storage and energy distribution, that it is almost impossible to fathom it.

As this article by Amory Lovins, in a recent debate on The Economist, clearly demonstrates, we are already at the stage when solar power is coming into its own. Investors who ignore the solar sector may rue the day they did not take note of these trends:

Amory Lovins
Featured guest
Amory Lovins

Solar photovoltaic cells (PVs) produced about 0.7% of global electricity in 2012 from 100 gigawatts (billion watts) of capacity, wind power 3% from 283GW and other renewables (excluding big hydro dams) about 1.5% from 97GW. Yet many utilities consider these modest sources’ plummeting costs, increasingly competitive prices and swift scaling to pose a mortal threat, or a transformational opportunity, or both.

Solar-cell prices fall 30% with each doubling of cumulative production. They fell at least 30% in 2012 alone. Once $100 per watt, then $10, they are now around $0.60, soon will be $0.40. Already halved “balance-of-system” costs—customer acquisition, approvals, interconnections, installation, wiring, inverter—keep falling too. By adding 30GW, Germany cut installed system costs to half the American average for the same equipment. Yet even at twice the German cost, utility-scale solar power in sunnier American regions has fallen below $70 per megawatt hour (mWh) net of a 30% federal tax credit (smaller than many non-renewables’ subsidies). That’s three times the lowest Mid-Western wind-power price, half the Hinkley Point nuclear price and cheaper than efficient new gas-fired power plants.

Gas prices are rising, and the market value of their volatility adds at least $10-20/mWh. Yet solar power, like wind power, typically sells on 30-year fixed nominal-price (declining real-price) contracts, hedging the gas-price risk. Moreover, solar power on your roof, like most in Germany, avoids a $30-50/mWh delivery cost.

Bloomberg New Energy Finance recently forecast solar power would reach grid parity in three-quarters of world markets in 18 months. Today in 20 American states, private firms install rooftop solar power with no down payment and beat utility prices. As solar costs fall and utility tariffs rise, “no-money-down” could turn to “cash-back”, further speeding adoption. The San Diego utility expects solar output to idle its fossil-fueled power stations on sunny afternoons by 2015-16. And by 2015, China aims to boost its solar power to 35GW—about what the world installs each year.

Solar power increased by 60% a year during 2007-12 because it is a mass-produced manufactured product. In the decade needed to build a multibillion-dollar electricity-generating cathedral, you can build each year a PV factory, making solar cells each year that can produce each year as much electricity as your central station. Thus solar cells are proliferating faster than mobile phones. In poor countries, 1.4 billion people without electricity can sidestep power lines. In all countries, solar power and other equally unregulated products can add up to a “virtual utility”, bypassing electricity companies just as mobile phones bypassed wire-based phone companies. This gives utility executives nightmares and venture capitalists sweet dreams.

In liberalized power markets, wind and solar power are destroying utilities’ traditional business model: competition makes central stations run less and get lower prices. Germany’s wholesale power price has fallen by three-fifths since 2008, and on hot afternoons when electricity is often most valuable and profitable, solar output is greatest. Some wrong-footed utilities and fuel vendors spread disinformation about their renewable rivals—especially about Germany’s impressive successes.

A persistent fiction holds that because PV and wind power are variable, they are unreliable, needing back-up by “24/7″ or “base-load” fossil-fuel and nuclear stations. Actually, those giant stations’ intermittence (unforecastable failures) requires costly reserves so the grid can back up failed plants with working ones. But well-designed renewable portfolios often need less back-up. The grid can offset varying solar and wind output (both more accurately forecastable than demand) by diversifying their type and location, then integrating other renewables (dispatchable whenever needed), flexible demand, and distributed storage in smart electric vehicles and ice-storage air conditioning. Such a portfolio can reliably power the isolated Texas grid with 100% renewables, with no bulk electricity storage and only 5% leftover renewable energy.

As flexible demand and distributed intelligence make the grid more agile, such choreography made Europe’s most reliable electricity (in Germany and Denmark) respectively 23% and 41% renewable in 2012, and in the first half of 2013, Spain’s electricity 48% and Portugal’s 70% renewable. Ignoring such data, flat-earthers still proclaim minuscule renewable potential.

The renewable revolution is accelerating. Half of American and 69% of European capacity added in 2012 was renewable. China, Japan, Germany and India now produce less electricity from nuclear power than from non-hydro renewables, which in 2012 added more Chinese electricity than all nuclear and fossil sources combined. Globally each year, non-hydro renewables win $250 billion of private investment and add more than 80 billion watts, with solar expected to pass wind power this year.

Modern renewables are taking over the market because they have lower costs and risks than fossil or nuclear energy. Together with rapidly evolving energy efficiency, they more than suffice to power the world profitably and resiliently.

Rocky Mountain Institute’s 2011 synthesis “Reinventing Fire” showed how a 2.6-fold bigger 2050 American economy could eliminate coal, oil and nuclear energy and cut natural gas use by one-third, treble energy efficiency, shift from one-tenth to three-quarters renewable supply, emit 82-86% less carbon, make the grid resilient and save $5 trillion—all without internalization, new invention, or acts of Congress, the transition led by business for profit. So far, solar costs have fallen much faster than we assumed. Efficiency and renewables could well save the world, not at a cost but at a handsome profit. We just need to notice what’s happening.

Leave a Reply

You must be logged in to post a comment.

2018 Great Investment Strategies. .