The rapidly developing solar energy evolution

Look back just 20 years in time. The year is 1991. There is no Google, no lap-tops or indeed many other things that now look like they’ve been here forever. Cell phones are only for the happy few and the World Wide Web, or what we now call 'the internet’, has only just been launched in August of this year. Then, in the twenty years from 1990 to 2010, worldwide mobile phone subscriptions grew from 12.4 million to over 4.6 billion. And between 2005 and 2010 alone, the number of internet users doubled, and was expected to surpass two billion in 2010. Looking back it looks like a complete revolution has taken place. But if you are old enough to have fully experienced this period, you’ll remember that it just felt that developments were progressing fast but also very smoothly.

So what can this ICT revolution teach us for the application of solar energy? Everybody loves solar energy, but the cost is still an obstacle. It’s not surprising so few people in the world are using photovoltaic solar energy. Will this cost-issue be solved soon? Will there be a revolution?

Looking into the future, ten years from now, the answer is a resounding yes. Let’s assume a conservative 5% cost and price reduction year on year from now on for Pv Systems or solar electricity. This calculation is based on technology improvements, economies of scale and other optimizations such as reduced transportation cost etc. And this is a conservative estimate, since in the past 10 years the yearly cost reductions have been higher. The astonishing and convincing result is that within ten years solar energy, even in the less sunny northern European countries, will be available at around €0.15/kWh. Compare this to today’s current cost of electricity from the grid! And would any sane person predict that the cost of fossil fuel-derived grid electricity will decrease over the coming decade? In the sunnier Southern European countries the cost will be even less than €0,10/kWh within this period. So, who then will still want to buy grid-electricity when solar energy is half the cost?

In 10 years, solar energy will be competitive in all residential PV markets in at least Europe and America. And in 20 years solar energy will be so cheap it will be competitive in any application; residential, commercial and utility scale power plants. Solar cells and modules will be so cheap they will become available in any size, form and color. How will this impact our lives?

Since it will be attractive to generate solar energy from any roof, facade or even any indoor and outdoor surface absorbing (day)light, all industries and consumers will be thinking electric. Solar electricity will become available everywhere at low cost. Small and large scale convenient energy-storage solutions will make the availability of cheap (solar) electricity possible anytime and anywhere in and outside buildings.

Excess solar energy which you don't use immediately can be saved for later, or for charging your electric vehicle - with this cheap solar energy, within 20 years the EV will be much cheaper to drive than an 'old timer' running on gasoline. And the car industry, already investing millions, will have kept up with this power revolution. Mass production will bring down the price of EVs to a level lower than the antiquated fossil fuel cars.

So, we’re looking forward to cheap sustainable energy for everybody around the world, an energy revolution, but has this revolution already started? The solar industry is growing like crazy. And this is not just due to its novelty or to a green commitment. Prices for solar systems are decreasing rapidly. Because of the scale of current investment (much of it Chinese), industrial companies and banks can predict that solar panels and systems will soon be produced competitively, and without depending on subsidies or government support. The investors are not all opportunists either, or crazy. With hundreds of millions being invested today in building new manufacturing plant, the global industry already includes hundreds of manufacturers. They all want to have a share of a market which will take a substantial percentage of the world energy mix within 10-20 years.

And then suddenly, in twenty years, solar energy will be there as if it had existed forever. It will be competitive and it will seem completely normal to everyone to rely on solar systems. Today, we may not see a solar revolution. But, we are already part of a solar evolution - and it’s developing fast.

Solar module prices come down another 20% in just five months

Growing industry and government budget cuts force prices to drop

Solar modules prices have dropped by another 20% during the first five months of 2011. Top-brand modules are now available at $1,40 per watt and sometimes even less. Half-way through 2008, the sales price still stood at around $4 per watt. Why are prices plummeting and where will this end?

A decade of continuous growth
Last year, the global solar PV market grew an astonishing 100%. For any industry in the midst of a global economic crisis, this is not a bad result. And it was not the first time this spectacular growth had occurred - it first happened back in 2008. Only in 2009 did the global crisis hit the PV market, slowing growth down to around 15%.
Since 2001, the global PV market showed an average growth rate of 50% of new installations per year. No wonder the solar industrial players invested heavily in capacity expansion. After a decade of continuous growth, it does not look as if there is any turbulence ahead for the solar PV market. After all, governments will continue to seek sustainable energy solutions and fossil fuel independence. And as for the end user, the majority would definitely prefer clean solar energy if available at competitive prices.

Still more industry entrants
Even more stimulated by the glorious market demand figures we saw in 2010, the solar industry invested heavily in capacity expansion. This will bring down cost and sales prices, helping it to reach the holy grail of grid parity even sooner.
But, besides the rapid growth of the existing industry leaders, many new players have been attracted too by the growth figures and market forecasts. New small companies and very large (Asian) corporations have started to produce silicon, cells and solar modules. And why not? Market saturation is nowhere to be seen. It does not look as if the solar energy market will stop growing some day - apart from the odd temporary slow-down.

Government budget cuts
At the same time, governments of leading markets saw budget claims for Feed-in-Tariffs in 2010 go through the roof. In the light of general budget cuts and economic problems, Germany, France, the Czech Republic and Italy therefore decided to cut back the FiTs and other grants for 2011. The purpose of this move is to cool down the explosive market growth and excessive budget claims. Not only did they lower the tariffs (subsidies); the revised schemes mean that smaller and roof systems are favoured over big ground-mounted power plants.
The subsidy reductions are forcing the solar industry to reduce cost and system prices in order to remain attractive to its customers, ensuring it still provides an attractive return on investment. Besides, the shift from fewer large-scale power plants to more smaller-scale systems will be a more costly job in terms of sales efforts.

Governments cutting budgets to cool market growth
The result of a rapidly expanding industry on the one hand, coupled with budget cuts on the other have led to a rapid fall in prices. The industry is growing at full speed, and facing more competition in the major leading markets. Germany, France, the Czech Republic, Italy, etc. are being cooled down with seriously lower incentives. This parallel development produces a cocktail which will bring about a rapid price decline for solar modules, inverters and total solar PV systems....
In order to control further budget cuts, these countries will calculate their FiT levels for 2012 in accordance with market growth in 2011 or on solar module price development. It is even possible that these leading markets will (slightly) shrink in 2011 (Germany, the Czech Republic, Italy) compared to the record year of 2010. Although the dynamics are hard to forecast, the promising emerging markets (India, China, etc) are yet not big enough to make up for any slower growth in these leading markets. Nevertheless, with system prices going down rapidly, it might very well be that we can expect another year of global growth.

Spiral of declining prices
Of course, new markets are popping up. But governments closely follow the leading markets, introducing FiTs and incentives according to the latest market prices. In the UK, the incentives for large-scale power plants were drastically cut, even less then a year after their introduction.
Inevitably, this spiral of developments leads to (rapidly) falling system and component prices. And the dynamics are hard to control. The existing leading industry players will fight hard (i.e. lower their prices) to capture and increase their share of the market. New players will fight hard to enter the market. And if the market continues to grow substantially, governments will lower the FiTs even more in order to control the overall budgets.

Where and when will this spiral end? Well, not until solar system prices have reached a point where subsidies, grants or FiTs are no longer necessary to make solar energy competitive with other energy sources. And in some markets, this is already a close call for certain market segments. Germany and Italy, with high electricity prices, are serious candidates to reach grid parity for residential customers next year.

New era of strong growth on the horizon
Industry leaders and experts forecast that solar modules will be sold for under $1 per watt three years from now. An average decline of module prices of around 7-10% per year. Large solar PV systems and power plants could then become feasible at $2 per watt. This will lead to competitive prices for solar electricity, without any government support.
Inevitably, this development will change the business models. In the near future, solar PV systems will be sold as energy and cost saving devices - whereas currently they are sold as profit generators based on government subsidies. With regular electricity prices likely to increase, and as solar system prices continue to decline in the near future, an infinite market is appearing on the horizon. The solar industry can prepare itself for an era of continuous tremendous market growth. But first it needs to fight to get itself through the coming years. 

Does it make sense to subsidize large scale power plants?

More and more markets in Europe are seriously reducing the feed-in tariffs for large scale power plants. It seems like a trend and the focus is to stimulate residential PV application.
That in itself makes sense. Solar electricity produced on your private roof competes well? with relatively expensive electricity from the grid. In many European countries the cost of electricity for a household is almost twice as high as for commercial customers. Hence, it makes sense to stimulate the application of PV by private home owners. And especially in countries like Italy and Germany with relatively high grid electricity prices. In these countries the residential market segment will be the first that achieves grid-parity.

Volume is what we need
Nevertheless, the success of European PV market growth is partly based on the many megawatts installed in large scale PV power plants. Think of the thousand-plus large scale power plants in Spain. Think of the many multi-megawatt ground-based projects in Germany, The Czech Republic, France and Italy, and the big roof projects in Germany and Belgium. These power plants helped to generate volume in system and module sales. And volume is what this industry needs. To get lower production costs we need economy of scale in module production. In order to make big steps quickly, we need large projects. After all, it could take one experienced EPC less than one year to design and build one 50 MW project. But 50 MW in the residential market equals more than approximately 17,000 PV projects of around 3 kWp. That takes slightly more effort and a few more small contractors to sell, design and install all these systems. These hundreds of small PV contractors are not created, educated and ready to install overnight. It needs a good strategy to create jobs, but it is still more difficult to create a voluminous market quickly.

Big investors exhaust the budgets; not the best message to your voters
So why are governments changing the rules during the game, cutting back earlier and more strongly on the FiT for big projects? The main reason is that the markets are growing too fast and available budgets are exhausted too soon. The total cost spread over the rate payers increases too much. And most big projects are investments by big (foreign) investors making an attractive return on investment. So, rate payers’ money flows into the pockets of big financial parties - these days not the best selling proposition towards your (potential) voters.

Financial institutions should learn to embrace and love PV
Nevertheless, we need these big projects - for the creation of market volume and thus rapidly growing industrial production volume, which will lead more quickly to lower production costs and system prices. For the future we also need banks, investors and the financial world to build up a broad experience with big PV projects. We need them to embrace, love and trust solar PV. Once they love big projects, they will start to streamline their processes to do smaller and smaller projects as well. And on the other hand, once they learnt to do a subsidized 50 MW power plant, they will sooner do an unsubsidized 100 MW plant. And so we will see much bigger projects coming up.

Need for cheap quickly installed PV power
And, we should not forget that the market for big projects will soon grow quickly. It’s not just in the USA that utility scale project development is taking off. China, India and, soon, (South) Africa and South America will embrace big PV power plants. It will be the major PV market segment. These countries are very hungry for new power to meet the rapid growth in electricity demand. They need more energy soon, quickly installed, green and cheap. Large PV plants are and will be the best solution.

Big money makes the PV world go round
If Europeans don’t build up the experience (engineering, financing, management, etc) and business infrastructure in their home markets, they might lose the opportunity to compete with the Americans when offering their services elsewhere in the world. Europe needs to have big financial investors, funds and banks all getting used to PV. We need them to educate and develop our domestic PV business infrastructure and our market. This way we can soon sell our experience and services in much bigger markets beyond Europe. Money makes the world go around. And big money makes the PV market grow quicker, makes cost and prices go down quicker and will sooner bring us bigger PV business.

The (R)evolution of PV Power Plant Sizes

All the way back in 1995, a revolutionary 3.3 megawatt ground-based solar PV power plant was connected to the grid in Serre, Italy. At that time the world’s largest PV system, it was built as a demonstration project and financed through various subsidies.

From Big Beers to the Biggest PV Plant
It took almost a decade before the market for bigger PV projects really took off. From 2004, when the German Feed-In Tariff started to flourish, tens of power plants of 1 MW or more were being built in Germany. A 5 MW plant, at that moment the world’s largest, was built near Espenhain for 22 million euro, or 4.4 euro per Wp.
And in 2005 the new record was a 10 MW power plant project in Bavaria, which cost 49.5 million euro. Bavarians think big - be it cars, beers or solar PV.

From that point on, development grew faster and faster. By the end of 2007, even more PV plants of over 10 MW had been built, with several in Spain, where the lucrative Feed-In Tariff had started two years earlier, with further 10 MW projects in Germany.

Large-Scale Power Plants at Rocket Speed in Spain
Due to the Spanish FIT law, large-scale power plant developments gained rocket speed in 2008, with 4 power plants above 40 MW and one at a whopping 60 MW in Olmedilla, Spain. The latter was constructed in 16 months at a cost of 384 million euro, or 6,40 euro/Wp. Due to the lucrative Spanish Feed-In Tariff, the price could go up to provide a nice margin for everyone involved… Like a Pamplona bull run, the Government’s Feed-In law resulted in large-scale development of further such projects.  Even today, Spain still contains about 70% of the world’s large-scale PV power plants - in total over 1000 big projects. An impressive overview of the world’s largest PV power plants can be found on the great website www.pvresources.com.

Thin Film Enters the Ballgame
Although an outsider might think that the bigger the project the more interesting it will be to use high-efficiency modules, less efficient thin film technology entered the arena in 2009. In this year a few more +50 MW projects were completed, mainly in Germany, including one using Cadmium Telluride thin film modules. At the end of 2010, three projects of over 80 MW will be finished and connected to the grid, including the first one in North America: the Sarnia project in Canada, once again built using First Solar thin film, at around 3,75 Euro/Wp.

‘Small Step for the Industry…’  
From +50 to 250 MW is a relatively small step for the industry, but a giant leap for market development. Energy utilities are now starting to seriously consider solar PV. The next steps will likely take place on that side of the Ocean as well. Sunpower and NRG Solar plan to start construction of the 250 MW California Valley Solar Ranch project in 2011. And earlier this year, First Solar announced the development of a 550 MWp power plant project in the desert near Los Angeles. Energy utilities PG&E and SCE will buy the power.

Solar PV: Fast, Experienced and Cheap
What does this teach us? First of all, development of large-scale PV power plants is progressing rapidly. Secondly, the building process goes fast. In 2008 in Spain, over 2 Gigawatt was installed in the space of a year. Thirdly, there is a tremendous track record of experience. Finally, prices have come down, but there is room for improvement. If large-scale orders of top-tier module brands can be purchased for less than 1,30 euro/Wp and the other BOS-cost will be less than 1 euro/Wp, total system cost should be able close at 2,30 euro/Wp today. With module prices expected to decline the coming years, turnkey system costs must be achievable at under the 2 euro/Wp mark.

The Next Step: Better, Faster, Bigger and Cheaper
Anyone who says that solar PV is not yet a proven technology is invited to take a look at the overview of existing large-scale power plants throughout the world. And do not forget that behind each project are investors, installers, banks, engineers, consultants and many more experts involved who made this happen. Through sheer drive, these involved people and companies are keen to prove that they can do better, faster, bigger and cheaper next time around.

Not Available Around the Corner
And this will continue. We will see bigger projects, for cheaper. It will be nothing more than a natural development to see +100 MW plants being built over the next 3 to 5 years. Not one, but several. Because if one company can, others will want to prove they can do better and cheaper. For example in the case of First Solar taking the 500 MW mark, the market and industry are following suit, aiming at 1000 Megawatt projects. To my expectation, these projects will be announced within 3 years and built within 6 years.
These projects will require the involvement of strong, bankable, large companies. Even if the projects cost less than 2 euro/watt, the investment cost of a 100 MW project will be around 200 million euro. Not something a multinational energy utility will buy from the first PV installer around the corner....

A Different Ballgame
Today, production costs have been achieved at as low as 15 eurocents per kWh by a solar PV plant in France. The cost per produced kWh will soon get close to 0,10 euro/kWh, even without any support of feed-in tariffs. That is a different ballgame. The PV power plant proposition will become attractive for many utilities looking for quickly-installed, clean, reliable, cheap power, without future risks related to global political changes, possible CO2 taxes, fuel price and currency fluctuations.

Separating the Men from the Boys
The development of these large-scale projects will fuel industry consolidation and will distinguish the men from the boys in this industry. Only the real big bankable companies will be able to guarantee a continuous supply of these large amounts of modules. And these companies will compete heavily for these projects - they guarantee their base load manufacturing capacity, and take a hell of a lot less sales and acquisition time than selling 30,000 systems to households at the same volume…
And although the title “The biggest solar PV project in the world” is moving around faster and faster, it is not bad for your image and branding to have it bestowed on your company for a while....