Distributed Solar Generation: A Developer’s Perspective on Opportunity in the Changing Economy

PARC Cleantech Forum Series
February 26, 2009

Arno Harris CEO
Recurrent Energy
http://arnoharris.typepad.com/cleanenergyfuture

Summary

This was an interesting talk from someone whose company is installing and operating some big solar electric PV installations, including the upcoming 5 MW system in San Francisco.

The most important information for me was that PV is coming down in price, is already competitive with the expensive power markets and will soon achieve grid parity with peaking natural gas power. However Arno felt that for the foreseeable future, it will not replace coal and nuclear because these will remain the cheapest forms of electric power.

Abstract

The business of “downstream solar”—project development and investment— has changed significantly over the past decade with increasing demand and declining equipment costs. The industry now finds itself at a critical turning point as bargaining power shifts to developers, the financial crisis reduces the availability of project capital, and new government policies radically change the attractiveness of various state markets. Arno Harris will explore these changes, their impact on downstream and upstream markets, and the role of distributed generation in the global energy mix. He will also give his perspective on strategies for meeting the renewable energy goals set out by policymakers, including the time and scale advantages of distributed solar; the evolving roles of developers, utilities, government and the private sector; and what the expectations are for the solar industry both nationally and globally. Finally, he will share his thoughts on being a renewable energy entrepreneur and positioning a private equity backed startup for growth during tough economic times.

History

• Large rooftop resources for distributed solar
• First solar cell invented in 1953 at Bell Labs, but sere very expensive
• First market was space-based applications
• 70s offshore and commercial markets developed in places where the cost wasn’t an issue
• Before 1995, most solar was for off-grid uses
• Now bulk of solar is on-grid
• Germany and Spain feed-in tariffs responsible for latest surge
• World market share: Germany 50% and Spain 23%

Recurrent Energy Overview

• Distributed power company
• Global focus on scale opportunities in commercial, government and utility PV markets
• Headquartered in SF

Distributed Power Company

• Puts PV installations next to where it is used
• Sells via power purchase agreements (PPAs) and feed-in tariffs
• Sizes
  • Utility – Substations: 5-20+ MW, 40 acres
  • Utility – Distribution: 2-8 MW
  • Retail: 1-3 MW
• 12 to 18 month build period
• So they don’t sell systems: they sell the power just like a traditional power company

Sample Projects

• City of San Francisco
  • 5 MW, 25,000 panels
  • Largest municipal project in US
  • Largest PV in CA
• The North Face
  • 1 MW, 5,500 panels
  • Located in Visalia, CA
• San Domenico School
  • 412 KW, 2,300 panels
  • Selling electricity directly to end-user

Solar Value Chains

• Upstream: PV manufacturing and distribution: Silicon, cells and modules
• Downstream: Project development and investment: Develop, build, own & operate

Financial Crisis Impacts

• Solar is very capital intensive, so current financial crisis is having a big impact
• They put in 20% and raise the rest based on electric sales
• Going full speed with development, but slowing down building them out
• Financial slowdown effects
  • 1: Stalled projects
  • 2: Shake-out,
  • 3: PV volumes down (prices coming down)
  • 4: New tech hurt, new technologies less attractive
• Germany and Spain have cut back on incentives
• Getting credit markets working again is a top priority
• Significant consolidation and shakeout

Benefits of Lower Prices

• Lower module prices opening up new markets in 2010-2012
• Grid parity achieved in expensive power markets: peak and retail
• Seeing PV prices down to $1.75 per watt!
• Now seeing a lot more utility demand for PV projects
• Bigger projects: 5, 10 15 and 20 MW scale
• Downstream solar business models looks like wind business
• Since manufacturing capacity is so great, PV models will stay low even as demand comes up

US Leadership Opportunity

• Over last 8 years, US lost its leadership
• US lags in production percentage and investments
• But US natural leader
  • Tremendous natural solar resource
  • $300B_ electricity market – the worlds largest
  • Tech, financial and entrepreneur leadership
• With the right polices, the US can become the world’s largest PV market

Obama’s Energy Plan

• Part 1: Stimulus Bill
  • Temporary tax credits and DOE laon guarantees
• Part 2: Renewable Electricity Standard (RES)
  • Mandates 10% renewable by 2012
  • Grow installed solar capacity to 13.9GW (from 1GW today)
• Currently US makes less than 20% of PV

Questions

• Thin film?
  • First Solar is active in Europe
  • They are not using it
  • Seeing just a handful of thin-film projects
  • Banks skittish about thin-film, except First Solar which has proven itself

• Expand on grid parity?
  • Electricity ranges from 3c to 4c for Nuclear base load to 30c to 40c for peak power plants.
  • So solar can compete with higher cost power and will be able to compete at lower costs over time
  • PV will be competitive with natural gas peak
  • However, since coal is the cheapest, PV won’t compete with coal for a long time

• PV compared to solar thermal?
  • Thermal good in hot place at end of power line. PV good locally. Not sure how the competitive pricing will shake out.
  • Article in Physics Today about this

• Seeing any loosening in credit markets?
  • They are not planning for it this year
  • Probably take the banks 6 months to complete their “reset”
  • However stimulus plan should help

• Net metering
  • Not applicable to their model
  • Engineers believe grid can handle single digit PV easily, and maybe even up to 25%

• PV prices
  • Now modules are $3.80, in 2 to 3 years are coming down to $1.75
  • Installed costs coming down.
  • Large system installed is sub $5 per watt, used to be $8 to $9 watt

• Storage needed?
  • Intermittent impacts: once solar because larger percent, it is harder to schedule so will need more demand-response or storage

• Permit issues?
  • Not a problem for them
  • Greenfield problem is environmental impacts
  • Interconnects and scheduling will be a bigger problem

• RECs?
  • REC – renewable energy certificate. Represents green methods associate with electricity generation, fulfills RPS
  • Sometimes sell electricity to one party and REC to another
  • Can trade RECs across state boundaries
  • RECs in CA are about 2 to 3 cents. (watt? kwh?)

• Electricity cost increases?
  • 4-5% long-term sustained basis
  • Volatility also a risk