Solar Grid Parity Calculation

I came across a post from a while back - April, 2008. In it the author describes the year at which residential rooftop solar reaches grid parity.


The post is brilliant in its simplicity. By taking NREL data, the average price of a solar module can be seen to be dropping at 6%/year. Extrapolating forward, while making the assumption that the installed cost will continue to be twice the module cost (which may not be true as improvements to module cost have seemed to be happening faster than installation improvements - but we can hope), as well as making a couple of other reasonable assumptions on interest rates and cost of electricity, he demonstrates through a pretty simple NPV analysis that by 2015, solar will have reached grid parity in Minnesota.

That's pretty striking, and he didn't provide what the solar resource was like in Minnesota (although, it might be pretty good - there is a latitude issue, but I bet that there aren't many clouds).


















I like this analysis because it is so simple, and it's fairly easy to change any assumptions that you might disagree with and see what there effect is. This graph from Solarbuzz shows that module prices have started to work through the silicon shortage (it had to happen sometime!) and prices have resumed their downward trek. This might push out the grid parity time an additional five years - or, due to the billions of investment dollars that have gone into solar in the last few years (and given First Solar's announcement of <$1/W manufacturing cost) the price reduction curve could accelerate from 6%/yr to 10%/yr or beyond. At any rate, this is exciting as I believe that since electricity is a commodity, there will be a sharp tipping point once the economics work out, and this is all foreseeable in the next few years.

Solar - Part 1a, Ausra switches on new power plant

Ausra switches on new power plant

From the San Jose Business Journal:

[Ausra] switched on the first solar thermal power plant built in the country in nearly 20 years today at an event in Bakersfield.

This is the first plant Ausra has constructed in the U.S. and is crucial to Ausra’s ability to raise financing beyond the venture capital it already has, its executives said. The demonstration today was important for Ausra to showcase its technology, said CEO Bob Fishman.

“We do this to prove to PG&E and the rest of the world and to customers that we’re for real and that it works and that we’re not just talking about doing solar power, we’re doing it,” Fishman said. “And to get them to accept the technology and purchase it, I think requires a demonstration that can actually do what we say it will do.”

Ausra’s 5 megawatt system is a test facility and produces enough electricity to power about 3,500 average homes. It includes 720 mirrors that are 8 by 50 feet long that direct the sun’s rays to a solar thermal tower. The heat from the sun heats water inside the tower turning it to steam and that steam. The steam runs a turbine that produces electricity. And that electricity will be sold to Pacific Gas & Electric Co.

Ausra’s investors include Kleiner Perkins Caufield and Byers and Khosla Ventures as well as KERN Partners, Generation Investment Management and Starfish Ventures.

Speaking for me personally, I'm really proud of the progress that Ausra has made in commercializing their technology. Many technology founders underestimate the difficulty of scaling up a technology, and when it comes to bending metal and pouring concrete, meeting budget and schedule can be pretty harrowing, and numerous companies have stumbled trying.

I'll return with a detailed discussion of solar next time, but I thought this announcement fit well right here.

Solar Energy - Part I

Let's start this discussion with Solar Energy. Solar is the 800lb gorilla in terms of investments right now. The last six years' of VC investments are shown on the chart below. Solar clearly dominates. I thought it would be worthwhile to use this chart as a means of prioritizing these posts - so solar clearly is first.

I actually took this from PBS here, which credits the Cleantech Group.

There are a few reasons that solar energy has attracted so much funding, but the main ones include the fact that solar is such a broad field, solar has already proven successes, and that solar has a pretty clear path to a pretty big market.

Solar Energy technology pretty much is any technology that extracts energy from the sun. This includes solar PV, concentrating solar PV, solar thermal, and concentrating solar thermal. Within each of these are multiple subsets. Solar PV consists of monocrystalline, polycrystalline, thin film, triple-junction, and dye-based cells. Concentrating solar PV can be low (3x concentration), medium (10~100x concentration) and high (~1000x concentration). Solar thermal for heating can be simple 1x roof-top water heaters. Solar thermal for utility scale power generation can be tower configurations, trough design, linear Fresnel, or dish designs.

And, it doesn't stop there. Companies which lower the amount of silicon used and companies which allow for cheaper silicon to be used have been funded. Companies which improve the production yield, or better improve manufacturing processes have been funded. Companies which lower the cost of installation, or improve the tracking of solar modules have been funded. In short, anything that can lower the cost of electricity, anywhere along the solar value chain is of interest.

Why is this? Well, basically energy is a commodity. Barring any kind of "feel good" attributes of green-energy, most people don't have any clue what energy turns their lights on. In a hyper-rational, non-subsidized world that has no clue about external factors like global warming, the day that solar is 1 cent/kWh more expensive than the cheapest form of power, nobody wants it. The day that it is 1 cent/kWh less expensive than the cheapest form of power, everyone wants it. And by "everyone", we mean all 6 billion people on the planet. This is the ultimate tipping point.

So, VCs understand that there is a big market, and this market will crack open if solar power can be made cheaply enough. A lot of the cost of solar PV modules has been their silicon content, which has driven investment into anything that will use less silicon. Concentrating solar PV assumes that by replacing the expensive silicon part within a module with cheaper lenses and mirrors, the overall cost of solar energy will drop. Thin-film solar modules attempt to drastically reduce the silicon content (or eliminate it entirely) by using different materials. Solar thermal, in whatever form, expects that, for utility-scale electricity generation, the best approach is to generate steam and spin a turbine - benefiting from a lot of the work done in the past on thermal power plants.

It's an interesting situation, and one that is encouraging. Back in my Ballard days, when fuel cells were going to change the world, Ballard's mantra was that "we'll make the fuel cells, other suppliers will solve all the other problems". Those "other problems" included hydrogen storage, hydrogen infrastructure, and vehicle manufacturing. There was a huge chicken-and-egg problem which Ballard struggled to overcome. Yet, in the solar industry, there seems to be room for many of these innovations and business models, and the single-mindedness of "decrease cost per watt" has focussed the entrepreneurial community in an extremely positive way.

Next time - more specifics on the technology and path to market.

Australian Solar Potential

As I mentioned on Rob Day's blog, Australia has fantastic solar resources, and the political climate has changed dramatically to be more embracing of renewable and low-carbon technology. Australia is racing towards an emission trading scheme by 2010. However, the preponderance of coal-fired power plants provides an additional opportunity for solar thermal technology. By augmenting the power production of coal-fired power plants (of which Australia has many), solar thermal technology can lower the carbon footprint of these plants in an extremely economical way.

One particular solar thermal company which found its origins in Australia has raised a $60m Series C round. It's worth checking out.

Success with Powerpoint

Ok, I think I've figured out how to post a powerpoint presentation. Here it is:


There is one minor bug - the animations don't work, so the first graph shows the stock prices of Ballard and Sunpower, but doesn't say which is which. Sunpower is the yellow one and Ballard is blue.

Otherwise, not a bad service.

Welcome to Alice Springs!

I'm here in sunny Alice Springs. I'm not kidding, the weather forecast varies from "sunny" to "mostly sunny". The high temperature is 37C, which is 98 to my US friends, and it looks like the perfect place to hold a solar conference. I'm speaking at the ANZSES conference this week. My keynote compares the fortunes of Ballard Power Systems and Sunpower and tries to compare and contrast the fortunes of the fuel cell industry ten years ago to the solar industry today.

If I can figure out how to post a powerpoint presentation, I'll put it up after I present (thanks for the tips, Shuman!). The basic gist is that the solar industry today is looking a lot like Ballard was in 1998. Both Ballard and Sunpower rose from $1b~$2b market caps to ~$6b market caps in roughly 18 months.



Both companies have had a long string of successes. Both companies are built on the premise that there is a huge market to be served (automotive for BPS and utility power for SPWR). Both companies have their hopes pinned on expected, but not yet achieved cost reductions.



So what happened? Well Ballard went from stratospheric to ex-orbital (is that a word?) between January and March 2000. The value of the company shot up to around a peak of a $15b market cap! At this time the markets had thought that Ballard's product (the Mark-900 automotive fuel cell) was ready for mass-production and the market. Over the next 2, 3, 4 years it became clear that, while the product was fantastic (full disclosure: I was a proud Ballard engineer during this time) there were just too many hurdles to getting to market. Ballard's value fell and it is now "only" a $500m company.

What's different with the solar industry and will it suffer the same fate? While it is true that the solar industry, globally, is heavily subsidized, and if those subsidies went away there would be a massive decrease in the new installations of solar, the solar industry does not face the difficult path that the fuel cell industry did. The fuel cell industry faced a huge "chicken and egg" problem - no one would buy a fuel cell vehicle without refuelling stations established - no one would establish fuelling stations without an installed fleet of vehicles. There were many other difficulties too, but let's stick with this one as it is the one which is not solvable with technical improvements. This "chicken and egg" problem prevented, not just mass-production, of fuel cells, but darn near any production of fuel cells. Fuel cell companies could not even begin to start riding the learning curve of production down to reduce costs.

Solar, on the other hand, doesn't face such a barrier. This is allowing solar energy (and here I'm just speaking of PV) to be produced in huge quantities. Each solar cell produced costs less than the cell before that. This is giving the solar energy the momentum it needs to continue to drive down costs, and then eventually compete without subsidy against other forms of electricity generation. This slow, but steady, improvement is an opportunity the poor fuel cell was never provided. Ballard's engineers built a killer product, but it was required to compete fairly with the automotive engine from day 1, and build out a supporting installed base at the same time.

So, are solar energy stocks overvalued? Perhaps, perhaps not. If I knew for sure I'd be calling my broker. However, we at Starfish feel that the opportunities in the solar industry are certainly real, and that, this time, there are real, long-term, sustainable, businesses to be built that have a decent path to market. I'm here in Alice to see if I can support any. Oh, and to soak up some sun!