Solarplaza: What is the status of solar PV energy at the moment?
The reality at the moment is that we have already done the work required to get PV to grid-parity. Of course, this may be different for various places: it is beyond parity in some places, while it is approaching parity in others. The momentum that has been built in terms of driving down the costs of PV has already lead us to the conclusion that we live in a world in which parity and post-parity are economic inevitabilities!
Solarplaza: A world in which PV is post-parity sounds very promising. Does this mean that the sky is the limit?
Over the years, many forecasts were made for the solar PV industry by industry watchers and researchers, and a lot of people always considered these predictions to be wildly optimistic. The stunning reality is that the PV industry has beat these estimates every year for the last decade. The solar industry has shown stunning growth; only 1 Gigawatt was installed in all of 2004, we have reached approximately 35 Gigawatts of solar energy in 2013, with recent estimates forecasting north of 50 GW in 2015. That means we will be installing EACH WEEK what we installed in an entire year less than a decade ago. Stunning, indeed.
Demand has recently rotated, though, from the traditional European PV countries (Italy, Spain, Germany) to China, Japan, and the US. Whereas 80% of the current capacity is installed in these first three countries, 80% will not be installed in these countries in the coming year. That’s a big rotation. The global diversification of demand is a sign that the markets are maturing and becoming more stable in their growth characteristics.
However, it does not mean that all the challenges have disappeared. In fact, problems have multiplied and gotten even more complicated. Now that we have reached a state of post-parity, it is time to transform the demand from the policy-driven world towards being a full market participant based on real value. This resulted in garnering the attention to people we did not otherwise, utilities, regulators, and competing energy providers. Where the PV industry was kind of flying under the radar for the last decade, solar is now the target everybody’s gunning for. That’s the reality of the post-parity world.
Solarplaza: Why is not everyone enthusiastic about these new trillion-dollar opportunities?
People are now starting to wake up. It’s no longer okay for the industry to act like outsiders. The utilities have woken up and they’ve decided that losing market share to customer-sited generation “might not be a great thing.” The solar revolution is, in effect, a disruptive change, a revolution as opposed to an evolution; it’s something that disrupts the current utility ‘order’. The stunning growth rates and falling component costs of the past years have scared them. With a bellwether report in March 2013 (“Disruptive Challenges”), the utility industry finally woke up and publicly announced: “We’re in trouble.”
Solarplaza: How should we approach this new hostility from the utility order?
If the solar industry can engage the utility order and involve them in the solar PV system, a lot of profit could be made here in a mutually beneficial way. This means convincing them that engagement is a better strategy. This can be facilitated with by scaring them a little more, pointing out that the economies of scale of PV are not fun for their financial numbers at all. Then, get them to participate by pointing out the combination of costs and benefits using fair and complete valuation mechanisms.
Changing peoples’ worldviews proceeds in predictable stages. As long as incumbents can, they will ignore the challenger, then they fight, and finally they proclaim why it was obvious all along. Now that utilities have finally signalled that what the industry is doing is dangerous and disruptive, it is imperative to quickly move them to declaring why it was obvious all along. This will require utilities to feel like there is a way to benefit from the transformation – a “win” strategy, if you will.
Solarplaza: What needs to be done in order to reach this point?
There are many monetary advantages to be gained by involving utilities in deploying solar PV systems, but there are a bunch of problems that have to be solved before this step can be taken. We have to deal with line losses and congestion, transmission and distribution in off-sets, fuel price in hedges. One issue we really started thinking about recently (particularly in the Northeast of the United States) is grid hardening—how do you make the grid more stable in the event of attacks, either man-made or natural? In order to stabilize the grid we still need more technological development in order to reach a sufficient level.
Finally there is also a financing problem. The costs of implementing a solar PV system are too high at this moment, none more than the financing cost. As in any long-lived asset, the vast majority of LCOE is in the cost of carrying of the capital. By simplifying structures and wrapping risks, capital providers could just drive tens or hundreds of basis points down on the cost of money resulting in a lower LCOE.
Furthermore, uncertainty about financing and transactions should be taken away by focusing on asset management. Integrating the finance with mortgages, utility bills, and insurance products would result in the safest long-term asset class, and therefore borrowing cost, out there.
Solarplaza: What are the risks that are most critical to address?
There are several risks one would need to consider; there are the physical risks of the system and there are the financial risks. Of these risks I think that revenue certainty is the most important one. The secret to why feed-in tariffs played the biggest part in the beginning is that people were willing to pay a really high price, and lots of value on levelised cost basis is really important—but in the end what really mattered was the revenue certainty. Just the simple fact that you know that the revenue is going to be there, even without exactly knowing how much If I’m going to get paid for 20 years on something, can actually drive down my cost of financing dramatically. That matters for creating value for customers and suppliers.
Solarplaza: What remains to be done?
The remaining issues are optimal financing, utility engagement with real projects and real bankers, and firming up the power to allow ever-increasing penetration levels. If solar is going to get 100 Gigawatts of annual installed power or more, that is what’s required. Fix the value mechanism and rate designs will prop up proper price signals and then allow utilities to participate in that growth. When the solar industry follows this playbook, it will cease being the industry on the outside, and finally be the calling the shots on our global energy future.
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