Solar power has been a topic of discussion and high hopes for decades now. Actually, that is not a very good sign. Solar power technology still needs to “cross the chasm”, to become a widespread technology that can effectively compete with electricity generated from fossil fuels. Success is not so much a matter of popular acceptance of the technology which is high overall, but mostly a matter of cost. Here’s a suitably hot, summer mini-case study on the future of the solar power business.
Although the photovoltaic cells (PV) built from crystalline silicon have been around since the 70s, electricity produced from the sun still represents a very small fraction of total electricity generation worldwide simply because solar can not compete with oil or coal, or nuclear for that matter. So, the challenge for solar energy companies of all types remains steep in spite of the enormous potential the field holds for the future. In recent years, new technologies for making solar cells have been developed setting the stage for a strategic struggle for the best competitive positions.
Yes, the Sun is the source of almost everything, and its free (well, not quite)
The sun is THE quintessential source of energy: both inexhaustible and clean, it is the source of all other energy sources. Many ancients civilizations, most notably the Egyptians, had the right intuition when they deified the sun and made it an object of worship: the sun grows all vegetation and therefore directly or indirectly feeds all animal life (almost – see oceanic life around black smokers). What the Ancients did not know is that the sun is also the origin of fossil fuels such as coal and oil (decayed plant life), and that suns that go supernova produced the uranium that fuel nuclear reactors.
So if the sun powers the most important biological and cosmic processes in our world, why isn’t the use of solar technology for energy generation more widespread?
It turns out that this is a pretty tough nut to crack, and has been for some time. Today, massive investments poured into solar power technology in various incarnations suggests that many rational investors believe that solar energy is finally about to have… its day in the sun.
Enter thin-film PV…
The main basis for these bets is a new technology for building solar cell called thin-film PV. While solar panels based on silicon wafers account for a slowly growing portion of total electricity production , they remain expensive to manufacture and expensive to install, and their conversion efficiency is low (around 10%). They have been widely used in space and military applications – fields where spending is less subject to the ROI imperative. Silicon-based solar cells can also be quite ugly. A field of solar panels installed in the Nevada desert that power Nellis Air Force Base may not need to win beauty contests, but when perched on top of a house in the average suburb, they are an eye-sore. The promise of thin-film photovoltaics is that they would be cheaper, their conversion efficiency much higher ( 20% or maybe even more) and that their inherent flexibility would make them easy to seamlessly integrate in architectural designs. If they fulfill their potential in terms of cost, they may make utility scale (i.e. 500MW+) power plants viable.
The sky is the limit
Many venture-backed start-ups in thin-film PV are seeking to gain a foothold in a market that promises to be nothing short of immense.
But this is a space with many moving parts and rising complexity:
- There is a plethora of actors in the field, some with very deep pockets such as Sanyo and Honda, some much smaller like NanoSolar;
- The field is quite regulated to the point that some see red tape as a main obstacle to growth;
- Solar technology is global in nature because many countries are interested in the long term strategic value of solar power, not least of which is energy independence;
- As a result, it is the object of national subsidies both to encourage the creation of solar technology/solar power companies and to support the installation of solar power generation capacity by businesses and individuals;
- Of course, traditional suppliers of fossil-fuels have had, and will continue to cast a forbidding shadow on the adoption curve of solar power technologies;
- Once produced in large plants built on cheap land (i.e. far away from cities), solar power still has to be transmitted to the place of consumption, which remains very expensive;
- There is some criticism that the net energy impact of thin-film solar cell plants is not favorable due to the high energy use of the sophisticated manufacturing process;
- The solar cell is not the only thing: it needs to be installed and this balance-of-system cost has traditionally made solar power uncompetitive.
The road to success…
For a small innovator in the field of solar cell technology, the paths to success are many. The intrinsic risk/reward profile of each path is difficult to assess and is becoming more so because of the increased attention and money that recent breakthroughs have brought to the field. Opportunity now stalks what was for a long time a slowly evolving space. Like salmon running up a river, solar power start-ups are picking different channels to make it upstream. This has the making of a fascinating strategic marketing challenge.
It turns out that there is no shortage of technologies to make electric current from photons. The problem lies elsewhere, in the mass manufacture of the cells. Solar cells based on silicon have the advantage of leveraging the processes and tools developed for the semi-conductor industry. The tools are available but they are extremely expensive which implies that a high-volume operation is required to justify the investment. The cost structure of crystalline silicon-based based solar cells has not been able to compete with fossil-fuel electricity generation (although that is changing fast- more later), the result is the slow growth pattern in solar experienced until recently.
…leads to the swamp of manufacturing challenges
The dream is that a thin film of atoms could be cheaply applied to a substrate that would result in an inexpensive and highly efficient solar cell. That’s the dream, and industry will get there at some point in the future. In the meanwhile the problem is that the tools required to apply the film (there are a few different methods) do not yet exist for the most part, and the manufacturing processes corresponding to each technology (i.e. different types of atomic elements used to generate current from sunlight) in large part still need to be refined. This forces the innovative solar technology start-ups to delve deeply into the development of highly specialized tools and sophisticated industrial processes. These are very expensive endeavors that require the kind of R & D and manufacturing prowess displayed over the last 20 years by the likes of Intel and Applied Materials. When combined with the need to achieve economies of scale to compete with the cost of electricity from fossil-fuels -which benefits from almost a century of investment, the result is a highly capital intensive exercise. What compounds the risk of the investments is that no one is sure whose process will achieve the best combination of $/Watt of power generated, vs. conversion efficiency the fastest, and who will achieve the scale to satisfy market demand at a competitive price.
One thin-film solar cell manufacturer is out of the gate early with cells using Cadmium Telluride: First Solar. They are scaling fast and must give the jitters to other thin-film start-ups. First Solar has recently made announcements relative to their ability to drive economies of scale. How far can they continue to drop marginal costs? Will their conversion efficiency hit a wall? The group of contenders that aims to produce cells based on a layer of CIGS (Copper, Indium, Gallium, Selenide) are chaffing at the bit to get into the race although as of yet only two out of more than ten have managed to deliver product.
The early bird gets the worm but the second mouse gets the cheese!
Some recent moves by big players show how dynamic a strategic playing field solar technology has become. BP has long been committed to solar technology, and that wasn’t just R & D but included a full manufacturing facility in Spain, until this April that is, when BP decided to close the plant and outsource cells from First Solar.
Shell had run a large PR campaign on the basis of its investment in alternative energy sources, including solar. Shell, which has always been a technology leader among big oil companies, said it would just concentrate on biofuels from now on (last March).
These moves could indicate that the drop in the price of oil no longer makes it urgent for oil companies to invest aggressively in alternative energy, including solar. It may also signal that the investment and know-how required to get in the thin-film game has become too high, too risky and too remote from their core business to justify continuing in this direction considering the caliber and scale of specialized competitors.
To make things more complicated, the price of crystalline silicon is now dropping rapidly from $350/kg until last October to $80/kg and still heading down, making the price-per-Watt of the actual cells reach $1.1-$1.2. First Solar, the low cost leader for thin-film cells claims a sub-$1 cost/Watt. It may be that the drop in the cost of crystalline silicon cells will be only temporary as demand for semi-conductors for the electronics industry is expected to rebound. If the world economy settles in a long-term slow growth pattern, silicon cells may yet a give a serious run for its money to new thin-film technology. Major silicon-based solar cell manufacturers are based in Asia with a cost-structure made even more competitive by low local labor costs, made even lower by the recession. Interestingly, the cost of Cadmium, Telluride, Copper, Indium (by-product of Zinc processing), Gallium (by-product of Aluminum processing) and Selenide does not seem to be a major cost factor for thin-film competitors (compared to equipment and R & D costs.)
Where to from here?
The price of oil has fallen off from its peak of over $140/barrel last year, although it has been creeping back up quite worryingly in spite of historically low demand. It is now back at a level ($70) that was considered unsustainable a few years ago when the world economy was used to $20-30/barrel oil. A combination of speculation based on the structural shortage of production capacity to easily satisfy the needs of emerging economies such as India and China (when they are running at full tilt), and the successful restriction of oil production by OPEC countries is behind the rise in prices. This is probably good news for the thin-solar field.
The recession has seriously affected the construction industry, a major possible outlet for solar cells, because of the combined drop in economic activity and the financial meltdown. Both events also affect the availability of capital for solar technologies, as much as the demand side of the solar equation. Considering how capital-intensive thin-film solar is, this alone may weed out competitors that cannot raise more financing to stay in the R & D game.
The new administration has put infrastructure projects and alternative energy sources on the front burner of the federal government’s agenda. The recent passage in the House of Representatives of the cap-and-trade bill (Waxman-Markey climate bill – or – American Clean Energy and Security Act of 2009) will encourage the providers of alternative energy technologies, if it passes in the Senate. Some of this would undoubtedly trickle down to the thin-film start-ups, which in no way alleviates the need to score significant wins in the process engineering and manufacturing scale battle.
Picking which segments to serve when manufacturing is up, with what partners, and at what price point and features, will probably determine which of the current thin-film technology start-ups make it to the next round of this rapidly accelerating competitive situation. These are both exhilarating and trying times for all the players.
Tags: vertical marketing