The Solar Energy Breakthrough Will Change the Energy Business Landscape

22 May 2009 by

The cost of solar modules has fallen substantially over the past six months and is expected to fall still further. Photovoltaic solar energy is nearing its breakthrough point. This will happen once the cost of solar electricity equals the cost of electricity from the grid.

That point is referred to as "grid parity" and will vary from country to country depending on the market segment. In sunny California, the grid parity point for private households is near, as solar irradiation is high and consumers pay a high price for their electricity. In France– a little less sunny and with low electricity costs due to its cheaply available nuclear power– grid parity is a little further away.

Nevertheless, grid parity for solar PV will come to all countries eventually, because the cost of solar electricity will continue to fall, while the cost of electricity generated through fossil fuels will only increase. Solar modules and systems will become cheaper as a result of improvements in technology and the scaling up of manufacturing processes. The cost of electricity from the grid will become more expensive as a result of growing demand and the scarcity of fossil fuels. Increasing environmental concerns translating themselves into eco-taxes may raise the price as well. Grid parity could be reached in California and southern Italy in less than two years, while it may take a little longer in other countries, such as Spain, Portugal, and Greece. Other countries will soon follow suit. What can we then expect?

Once grid parity has been reached, consumers will be presented with a choice: (1) to buy all their electricity from traditional energy utilities or (2) to pay the same price and (partly) generate green renewable solar energy from their own roofs. Not only will the growing focus on green and sustainable development make solar power a preferential alternative, but even more important will be price stability. Following its installation, a solar energy power system will generate solar electricity at fixed cost for at least 25 years. Operation and maintenance costs are negligible. The cost of solar electricity will be determined by the depreciation schedule and the interest rate. Both of these can be forecast over a long period of time. Compare this to the annually changing cost of grid electricity. Is it likely that fossil fuel-based electricity prices will be stable over the next 25 years? This would seem to be an unlikely scenario when looking at growing concerns about climate change, Asia’s rapidly increasing energy demands, international political instability, and anticipated uncertainties about the easy exploration of oil reserves.

The grid parity situation will open up opportunities for new business models, such as the leasing of solar energy systems. This could remove the hurdle facing private households of making an initial solar system investment. A new type of energy company could emerge from this: one that owns the PV system on the customer’s roof and sells the solar electricity generated per kWh to the homeowner. Many new entrepreneurs could launch into this market and start competing with existing energy utilities. The scenario envisaged is one of unprecedented growth potential and industry growth. Such a situation involving the distribution of generated energy is completely at odds with what is currently happening in the energy sector. In that sector, the trend is to grow ever larger based on a firm belief in centralized power generation and short-term profitability. The big utilities are trying to increase their profits by reducing costs at a time when fossil fuels are set to become only more expensive. In order to fight these price increases, they will attempt to cut costs, reduce their workforce, and merge with other big utilities. This is sure to be a never-ending battle, as fossil fuels will only become more expensive, while concern about climate change will only grow. The utilities may grow bigger and bigger, but it will make them less focused on the radical changes needed for long-term innovation, entrepreneurship, and profitability.

In only a few years from then, these existing utilities will have to compete with new entrepreneurs able to sell solar electricity more cheaply than the polluting electricity. This will change the business landscape drastically. It will not be the solar entrepreneurs having to compete with the existing utilities but rather the reverse situation. All of this will happen at the very time when these super-utilities are busy merging and cutting costs and jobs.

History has a way of repeating itself, as the example of what occurred in the IT business world not so long ago makes clear. Traditional telecom companies had a hard time changing the way they did business and adapting to the new cell phone era. Indeed, IBM almost crashed, as it did not believe in 'distributed' computing with laptops and PCs.

Successful new solar energy utilities will grow quickly, because their global market potential will be unlimited. Ultimately, some of them will be taken over by the large, established energy utilities. Solar entrepreneurs will cash in their success, and these utilities will buy up the entrepreneurial power and green image that they were unable to create for themselves. However, vice versa, one of these new entrepreneurs may also be capable of taking over an existing energy utility.

Nowadays, the business landscape is changing fast. One has only to look at how internet businesses appeared ten years ago. Google had just been set up, and nobody would have believed that its two founders were about to become the world's most successful entrepreneurs. If you had claimed during the same period that industry giant Chrysler would be bankrupt in ten years, you would have been met with incredulity. The fact is that in only a few years’ time, the solar industry will be producing cheap solar modules that can generate electricity costing less than its fossil-based counterpart. And this will be without any need for financial support from government. The energy industry is perhaps the world’s most important business segment, and its landscape is on the verge of change. Solar energy will be a key player in this refashioned energy landscape. And, sooner or later, anyone failing to recognize this will be in for a rude awakening. If you aren’t careful you might miss out on the new solar equivalent of Google!

Your chance of meeting the new global business leaders in solar energy will be much greater if you attend the Solar Future conference on May 26th in Munich ( Experts and CEOs from the world's most successful solar cell and module manufacturers will be speaking at this unique event to be held at the Kempinsky Four Seasons Hotel.