Sunday, April 29, 2012

3 Years Later

“The industry could grow 30 to 40 percent a year for the next 20 years and it still won’t amount to a hill of beans in terms of energy production.” 
Jesse Pichel, circa April 2009

Funny thing about growth... In 2008 the worldwide demand for photoelectrics was 6 GW. If you project this level of demand 20 years into the future at a 35% growth rate (the middle of Pichel's range) you end up with 2425 GW of capacity in 2028. This capacity would be able to supply around 10% of the expected worldwide electricity demand. Maybe Pichel is being quoted out of context here? It's hard to see how someone would characterize 200 billion dollars worth of electricity as a hill of beans. 

Friday, April 27, 2012

Monday, April 23, 2012

Marijuana Leaf Necklaces - $10

Date: 2012-04-23, 5:57PM PDT

$10 for both or $4 each

Recommended Reading

A tale of two solar energy reports

Taste the Hoff

I stumbled across the first picture but found the others on

Saturday, April 21, 2012

Part 1: Irrationality (A Working Sketch)

Every oil production site from a lonely stripper to the Ghawar complex needs a market and a means to market. Pipes over earth and tankers by sea circle the globe to fill this need. Sophisticated long-term planning and continuous coordination are required to maintain a worldwide balance between exploration, production, distribution and marketing. 

The photoelectric industry dances to a decidedly different tune -  a frantic, discordant, jumble of a song. Following several years of raw material and component shortages the market moved to a state of over-supply in early 2011. The oversupply condition has been attributed to the aggressive expansion of manufacturing capacity in China -  actually, it's not attributed to China so much as blamed on China. In a strange twist the situation has evolved into a cause célèbre with many wondering aloud how China has managed to expand production so fast. Some have claimed China is using a convoluted collection of subsidies to support this rapid expansion. Other say it's much worse. 

Brain-eating zombies

We have reports that China is using a slave army of commie zombie (comzoms) to build and staff their photoelectric factories. As if this wasn't evil enough, we've also been told the comzoms are fed a strict diet consisting entirely of cuddly baby animals - puppies, kittens, bunnies etc. The working theory among experts is that furry cuteness cancels out furious brain-lust resulting in a more manageable and productive workforce. Cross-referenced intelligence suggests the Chinese are instituting a massive selective breeding program to develop progressively cuter animals to fuel their growing army of comzoms. 

Brain-dead management

Of all the problems on the solar plate "too much" isn't one of them. Highly productive Chinese factories, even the fictional ones staffed by puppy eating zombies, ain't a problem either. This may come as a surprise but the solar industry's ailment has little to do with the bite sized prognoses thrown around in the press. Our cheerleaders don't want to admit the obvious, the U.S. solar industry is suffering from a severe case of demand-side mismanagement. Special interests within the solar industry and the federal government are the culprits. Here are the top management fuck ups.
  1. Irrational emphasis on utility solar
  2. Ineffective tax based incentives
  3. Gross R&D misconceptions
  4. Lack of Accountability
Back in December of 2007 the Edison Power Research Institute (EPRI) issued a whitepaper that succinctly described the photoelectric market like so:
"In all areas, the remote grid and residential and commercial building applications are expected to be economic before central PV plants compete at the wholesale level."
EPRI isn't pointing out the philosophical superiority of distributed solar over central solar. EPRI is pointing out that in all areas, distributed applications which displace retail electricity have a high ground advantage (economically speaking) over central plants that compete in wholesale markets. 

If distributed solar has better economics why have governments thrown so much money at utility scale solar plants? A story from Greek mythology may provide some insight. 


Pandora's "gift" to Epimetheus
It was a Monday afternoon when Prometheus warned his brother to avoid all gifts from Zeus. A fortnight later Zeus came a calling and the altercation went like so:

(knock, knock, knock)
Epimetheus: Who's there? 
Zeus: Eh, you know who... 
Epimetheus: Uh...
Zeus: Aww... cahm awhn... It's Zeus... How many other guys you know with thunderous baritone voices?
Epimetheus: Uh...
Zeus: Fuggedaboutit... I got someone out here you should meet
Epimetheus: I, I don't know... 
Zeus: Trust me... You'll thank me
Epimetheus: Hmmm... I don't know
Zeus: Open the GOD DAMN door!!!
(door opens)
Zeus: Epi, meet Pandora
Epimetheus: CRIKEY!
Pandora: Would you like to see my box? 
Epimetheus: Hummana Hummana Hummana... 

In this ancient myth, the seduction of newness is a root cause leading to the release of evil into the world. In the solar version of this story a well intentioned bureaucrat is sold on the shiny newness of solar. It's easy to understand how this could happen. When I first saw PS10 in person I was inspired. Pictures do this project no justice - it's an amazing site. I can see how a  bureaucrat would react similarly and maybe even get caught up with the idea of harnessing the sun at scale. While I can appreciate the situation you can't let yourself get carried away - you've got to look at the price tag before you sign the check. That hasn't happened. Billions and billions in tax grants, loan guarantees and special depreciation benefits have been given away with little regard to the uncompetitive economics of centralized solar. No amount of financial support can change the fact that centralized solar has no business competing in wholesale markets.  

FUBAR + Groupthink + Shale Gale = Shit Storm

Natural gas prices are currently at record lows. These low prices have been driven by the development of shale gas deposits using advanced directional drilling techniques (AKA: slant drilling) and a wondrous process called hydraulic fracturing (AKA: fracking). The ingenuity required to unlock these deep secrets is tremendous. Rather than celebrate the American know-how behind the Shale Gale many in the renewable press are hard at work setting up an adversarial situation. The handsome clowns and Silent Springers have set up shop and are busy manufacturing shit like this. 

A Greentech article recently asked, "Does the ascendance of cheap natural gas from fracking come at the expense of renewables?" This is a trick question. The first problem with this question is that it's framed from in a wholesale/utiity-centric perspective. The second problem is that it groups all renewables in one basket. There's no doubt that wind is going to have a tough time competing against natural gas in the wholesale market. Solar by contrast need not compete in the wholesale market and what competition there is between solar and natural gas in the retail market is relatively indirect. A quick overview of electricity prices shows this. 

An additional thing to consider is that the Energy component from the graphic is further broken now into Fuel costs, Capital costs and O&M costs. It's wrong to think photoelectrics are competing against natural gas. Photoelectrics are actually competing against natural gas + O&M + T&D +  Fees + Taxes. 

Dropping natural gas prices will certainly lower electricity costs but not as sharply as commonly believed. The imagined beef between solar and natural gas is actually bull. Low natural gas prices are good for U.S. consumers and the economy at large - an economy that needs all the help it can get. Anti-natural gas propaganda and confrontational journalism are no friends to solar. 

To be continued...

Friday, April 20, 2012

Solar Tiers

Chinese Tier 1 (According to Digitimes)

Canadian Solar - 1323 MW
Hanwha - 844 MW
Jinko - 761 MW
LDK - 646 MW
ReneSola - 280 MW
Suntech - 2096 MW
Trina - 1512 MW
Yingli - 1604 MW

Non-Chinese Tier 1

Aleo Solar
Bosch Solar
First Solar
Panasonic (Sanyo)
Schott Solar

Note 1. Jinko and Canadian Solar graduated up to Tier 1 status in 2011 - GTM still rates these two as Tier 2. If it were up to me I'd categorize Hanwha, LDK and ReneSola as Tier 2 but am following Digitimes' lead here.

Note 2. "Tier 1 manufacturers are characterized by economy-of-scale and low cost. They satisfy cell/module market requirements, and – most importantly – have sales pipelines/backlogs. Today, 21 manufacturers fall into the Tier 1 grouping."

Note 3. My list looks a little short compared to Colville's. He suggests there are 21 GW of Chinese/Taiwanese Tier 1 capacity for 2012 and 5 GW of non-Chinese capacity. 

Tier 2 (Determined by volume unless otherwise noted)

Aide Solar - 497 MW
Astronergy - 550 MW
Changzhou Eging PV - 525 MW
China Sunergy - 411.5 MW
Hareon Solar - 855 MW
Jiawei SolarChina - 598 MW
Solar Frontier*
Tianwei New Energy - 938 MW

Tier 3 (Based on sales offers seen in the last few months unless otherwise noted)

Hengji Solar
Luxra - made in China, one supplier is Jinko, rebranded
Mage - made in China, rebranded
Neo Solar*
Ningbo Qixin Solar
Real Force
Xinyou Solar

*Judged so by GTM

Thursday, April 19, 2012

Photoelectric System ASPs Continue Decline in Germany

See: Statistic data on the German Solar power (photovoltaic industry) - BSW - April 2012

Recommended Reading

Digitimes Research: China solar module makers see major reshuffle in 4Q11 rankings

Changes to Feed-In Tariffs for Solar Photovoltaic Technology in the United Kingdom

UK Solar Update - The BOHICA Syndrome Strikes Again

The U.K. installed 4.6 MW in the first week of March. This installation rate was down sharply from nearly 100 MW in the previous week. Industry watchers sweated and fretted over these disappointing results. The second week of March was hardly better at 5.8 MW - this led to more disappointment and wailing. The third week of March surprised on the upside with 15 MW. The final week of March came in at an almost astounding 32 MW - an installation rate that works out to a 1.5 GW per year, fully double the installations in 2011. Industry watchers started to think the FiT cuts may work out after all. Despite the exciting progress of March, April has thrown the market back in the doldrums with weekly installs of 1.2 and 1.7 MW in the first two weeks. The pessimists are back to their all is lost position. They claim these low installation rates prove the new FiT is rotten. 60% appear to think the new rates aren't only rotten, they're murderous.  

Murderous eh? Let's take a step back and take few deep breaths The big thing that changed between March and April was the introduction of a new Energy Performance Certificate (EPC) requirement. This new requirement is clearly a bottleneck. What do you do about it? Whine and stomp? How about fix it. Get guys out in the field who by eyeball can tell if a home is EPC compliant. Get these guys to train other guys. Think of the EPC certification process as another part of the supply chain that you need to develop. You grow this part of the supply chain by farming the easiest homes first. Eventually the EPC compliant pipeline will balance with the installation demand and things will continue trucking along. This should all be relatively obvious. 

There is far too much whining in the solar press these days. People who may be interested in installing a system hear some of this whining and immediately think that the economics don't work anymore. This is not true at all. Everywhere you look the new FiT rates remain very generous. The message from the industry should be a loud and clear, Come on down! The price is right! Let's do some business!

The U.K.'s new FiT design may not have saved every last business model but it saved the best models. The losers should shut up, get new business models and get back to business.

Sensei Say: If at first you don't succeed don't be sad bohican clown. Keep trying. Someday you can be happy light clown.

SEE: The BOHICA syndrome: a symptom of cynicism towards change initiatives?
FOLLOW UP: UK Solar Industry Associations Maintain Solar PV Is Still Viable

Wednesday, April 18, 2012

Monday, April 16, 2012

Rumor Has It

Rumor has it CNOOC is thinking of acquiring Canadian Solar. Canadian Solar has denied this rumors but what if it's true? My first thought was you'd have to expect CNPC and Sinopec to follow suit with acquisitions. My second thought was why stop at oil companies when it comes to potential solar suitors - any big bucks conglomerate would do. At this point Suntech, Trina and Yingli (AKA: Suntringli) are the established name brand Chinese module makers. Runner-up brands include Canadian Solar and Jinko. If one of these companies gets acquired it could start a sugar daddy scramble among the remaining players. Analysts often point out that all the Chinese solar companies are carrying high debt loads but this worry would mostly go away if large conglomerates got in the game. Big money could look at the existing debts as development costs and simply write a check. Things would get extremely interesting after that. 

The GLC Route

Why buy at a premium when you can pull a GCL? A few years back GCL jumped into the solar wafer business with both feet. The chart on the right shows their rapid ramp up. Back in 2010 it looked like LDK and Renesola were going to dominate wafering. Today LDK and Renesola both look ready to close up shop.

Why wouldn't new entrant not try the same strategy with cells or modules? If you started things from the ground up and built a factory with all new manufacturing equipment you'd have the lowest manufacturing costs in the industry. You'd probably be able to run the other companies into the ground and then buy up all their patents on the cheap. Three problems with this strategy come to mind. 1. The Central Banks that are holding Suntringli's debt wouldn't look too kindly on this maneuver. You'd have a hard time getting any money out of them. 2. Purchases can backfire. Total's purchase of SunPower is a prime example. 3. Wafers are different than modules. When you buy a photoelectric system you care about who makes the panels - name-brand comes into play. Name-brand allows Suntech to sell at a 10 cent/Watt premium. When modules are selling for 80 cents/Watt a 10 cent/Watt premium is a big deal. 

The New GCL Route

It's pure speculation but it occurs to me that CNOOC isn't the obvious match for Canadian Solar - GCL is. GCL and Canadian Solar already have a sizable joint venture in the form of a 600 MW wafer plant in Suzhou. Maybe the rumor of CNOOC's interest was planted to force GCL's hand? Like I said... pure speculation. One thing's for sure though, we haven't heard the end of this. 

Saturday, April 14, 2012

Friday, April 13, 2012

Good Samaritan Gone Bad

I left my house at 4:25 A.M. I went down 6th and turned left on Clarke. Up ahead I saw a woman aggressively gesticulating. I stopped and rolled down the window.

Paula: Watashi wa byōin ni shutoku suru hitsuyō ga arimasu. Anata wa watashi o tasukeru koto ga dekiru?

I had no idea what Paula was saying but it was pretty clear she needed to get to the hospital. She wasn't obviously injured or ailing but there's only one reason to be hailing down cars at 4:30 in the morning.

I put her walker in the trunk and she hopped in the car. I started driving and trying to pull directions out of her.

Me: Left, right, straight?
Paula: Simple, simple, simple, simple
Me: Simple? Do you mean temple? Are we headed to a clinic?
Paula: Simple, simple, simple

We got downtown and we started jigging and jagging down streets. I was hoping she knew where we were going but she didn't. All I was getting out of Paula was her mantra peppered with what sounded like Japanese phrases for, "turn here" and "Yeah, keep going".

I didn't have my phone on me and my brain wasn't exactly firing on all cylinders. The last thing I wanted to do was start driving around in circles trying to figure out where simple was. Paula was already stressed out - I did not want to make things worse for her. Fortunately, I did have one good idea and a bit of luck. I spotted a taxi and pulled over to chat.

Me: I'm trying to be a good Samaritan here. I picked up a lady who obviously needs to get to a hospital but I can't tell what she's saying.

Paula had walked up the passenger window.

Paula: Simple
Taxi Man: St. Paul's
Me: (relieved) Aha!
Me: (not knowing exactly where St. Paul's was) Can you take her there?
Taxi Man: Of course

I gave Paula a hug and she thanked me. The Taxi Man took Paula the last 4 blocks to St. Paul's. The whole event was probably 10 minutes start to finish.

It started out as a pretty good day. I had the best excuse ever for being late to work. But then one bad move with Renewable Energy World and BLAMO. Sigh... I really don't know what to do with myself without being able to comment on the REW site. Here's something interesting though, the REW jokers totally banished all my comments. Not just the ones I posted under Anonymous but also the ones I posted under a screenname of Going4DistanceGoing4Speed. That's some serious 1984 Ministry of Truth type shit right there. Thanks to Google's cached pages it's not so easy to wipe the record clean.

Germans Revise Solar PV Tariffs for 2012 and Set New Degression Schedule

Banished Version

Why the 1603 Treasury Grant Program Matters to Solar and RE

Banished Version

Solar Leases Attracting New Demographic

Banished Version

This story indicates two other guys who've been banned. 

Yeah so... When I wrote this post the banished versions were different than the standing versions. Turns out Google cache is highly perishable content. I guess I should have made back up copies but that would have been lame. At the end of the day who cares?

Maybe Nikolai Jezhov called Stalin a dick too?


I've Been Banned

Apparently "P.S. I'm a dick" is grounds for having your account banned on the Renewable Energy World site. This tremendous loss is going to keep me up at night. 

A Proxy Theory - Rome vs. London

Jefferies put out an outstanding overview of Italy's new FiT rules today. This report is hands down the best research note I've seen in a coon's age. Note: Apparently coon's age makes some people uncomfortable. That's pathetically over-sensitive if you ask me. Are we to stop watching Dukes of Hazzard for fear of an appearance by Cooter? One time my dad and I lost our black lab in Watts. Once you've experienced yelling out Blackie, Blackie, Blackie on a dark night in Watts you don't find coon's age all that provocative. But I digress...

The proposed new FiT rules in Italy bear a striking resemblance to the UK's rules. In the new FiT structure you get one FiT for all production and what amounts to an additional bonus for backfeeding. This structure is exceptionally generous considering Italy's plentiful sunshine and sky high electricity rates. Here are the proposed FiT rates for small rooftop systems.

-All production will receive a minimum tariff of 13.3 ct/kWh
-Exported production will receive a tariff of 21.5 ct/kWh

If you assume a 70% Export Factor (equivalent to a 30% self-consumption rate) the Value of Production (VOP) breaks down like so:

VOP = (Production FiT + Retail Rate) x (1 - Export Factor) + Export FiT x Export Factor 
VOP = (13.3 ct/kWh + 24 ct/kWh) x .3 + 21.5 ct/kWh x .7 = 26.24 ct/kWh

This VOP is less than the UK's VOP of 31.8 ct/kWh but there are two factors that require attention. For simplicity I've used the same Export Factor (AKA: 1 - Self-consumption rate) in all the calculations I've made in the last few posts. When I was comparing Germany to the UK this was a reasonable assumption but this isn't a good assumption for Italy because Italians make different demands on electricity than the Brits or Germans. We can safely assume that A/C requirements in Italy will lead to appreciably higher self-consumption rates. If you plug in a revised Export Factor of .5 it changes the VOP:

VOP = (13.3 ct/kWh + 24 ct/kWh) x .5 + 21.5 ct/kWh x .5 = 29.4 ct/kWh

This VOP is still less than the 31.8 ct/kWh VOP in the UK but I don't think the Italians will care much. Consider that a 1 Kilowatt photoelectric system in Italy can annually generate over 1200 kWhs. The same system in the UK may only generate 800 kWhs. Sunshine is so unfair. 

Do Things Tie Together?

Lately I've been following the UK installation statistics closely. It's always fascinating to see how a market reacts to new incentives. It appears that installs are gaining speed surprisingly fast in the UK despite the new FiT rates. If the installation rates keep climbing we will see over 3 GW in 2012. I don't want to get ahead of myself but here's an interesting thought. I'd argue that we can use the British market (which closely tracks installation statistics) as a proxy of sorts for the Italian market (which does not closely track installations statistics). This may seem like a stretch but borrowing rates, installation costs and FiTs/VOPs are comparable in both countries. If not for the solarity advantage of Italy we would expect very similar IRRs between these nations. But like I said, sunshine ain't fair so we'll see higher IRRs in Italy and by extension you'd have to assume higher growth.  If at mid-year the statistics show that the  Brits are on track to install 3 GW  in 2012 we'd be able to use this stat as a baseline and figure that the Italians will install more than 3 GW. It should be interesting to see how this Proxy Theory plays out. 

Follow up...

I took another look at the installation statistics for the U.K. today. Turns out, everything dropped off a cliff in the first week of April. You'd expect this to happen if there had been a FiT revision starting in April but as far as I know the FiT revision (99% of it at least) went into effect on March 3rd. 

"From April 2012, the feed-in tariff rate for systems under four kilowatts will be 21p per kilowatt hour. Anyone who installed between December 12th and March 3rd 2012 will get the higher rate of 43.3p. Anyone who installed between March 3rd and April 1st will get the higher rate for a few weeks and then drop to the 21p rate in April."

If the FiT adjustment took place in March why did the installs drop off in April? Very curious. Here's a clue that explains why the market tanked. 

"On April 1 a new requirement was put in place where a ‘building’ to which a solar PV system is attached must be independently assessed to meet Energy Performance Certificate grade D (EPCD) or above in order to claim FiTs." 

It appears this new energy assessment requirement is creating a traffic jam of sorts. Not to worry - this is nothing more than a hiccup. 

Thursday, April 12, 2012

High Coo

el eye ef echo
to Heckle, Jekyll and Hyde
e i e i o

Jenny Chase Saying FiT Like FiT Is

"Worldwide solar costs have fallen much faster than policy can be changed, to the embarrassment of every government which has tried it. The UK government is only the latest to face slightly self-righteous outrage from parts of the solar industry after panicky and botched attempts to control consumer costs.

The government had accidentally written homeowners and installers a blank cheque for high profits, payable by electricity consumers, and responded by pushing through cuts without due process. The lawsuit brought by installers in response was technically valid, but lacks pragmatism. I suspected at the time that the programme would end altogether, as the UK does not need it to meet its binding EU targets.

Spain, South Korea, the Czech Republic, France, Ontario and even Germany have already staged almost exactly the same story. The Spanish and Czech governments did worse, with changes in tariffs applying to solar projects that had already been built, and almost no on-going solar support after the boom. The newest proposals are probably the best the UK solar industry could hope for: sharp cuts which will squeeze margins and enforce competitive practices, but a much more ambitious long-term plan, for 22 GW by 2020.

I am sceptical that a residential tariff rate of 21p/kWh (25 €cents/kWh) from April, or 13.5p/kWh (16 €cents/kWh) from July, will ‘kill’ the industry. It still compares quite well with the German residential rate of 24 €cents/kWh when some of it can also be used to avoid buying residential electricity (at about 12p).The Germans are expected to keep installing in 2012, even in the north, which is no sunnier than parts of the UK. Module price falls continue to filter slowly through to lower consumer prices, and the solar industry in other countries has usually managed to cut costs in line with tariff reductions and continue growing, albeit at a more sustainable rate. In the long run, an incentive regime which is affordable at large volumes is good news."

Note: Bolded by me
Translation: Don't look a gift horse in the mouth.

But wait a second... what if it's not just any horse, what if it's a Trojan Horse. Let's compare, consider and conclude. 

The UK FiT for small systems is 21 p/kWh (25.4 cents/kWh)
The German FiT for small system is 16 p/kWh (19.5 cents/kWh)

FiT rates alone don't tell the story very well. You need to look at the effective FiT rate to get a better feel for what's going on. To help with keeping things distinct I'm going to call the effective FiT rate the Value of Production (VOP)The generalized form of the VOP is:

VOP = FiT x Export Factor + Retail rate x (1 - Export Factor) + Bonuses

Germany has done away with their self-consumption bonus so their Value of Production calculation is simplified to:

VOP = FiT x Export Factor + Retail Rate x (1 - Export Factor)
VOP = 19.5 ct/kWh x .7 + 26 ct/kWh x .3 = 21.45 ct/kWh

In the UK the FiT rules are rather funky. All production qualifies for the FiT whether you consume it on site or ship it off (This situation strongly encourages self-consumption). As an additional bonus, the production that is exported to the grid gets an extra 3 p/kWh. Assuming a 70% export factor the VOP for the UK is:

VOP = FiT + Retail Rate x (1 - Export Factor) + Bonus x Export Factor 
VOP = 24.5 ct/kWh + .3 x 16 ct/kWh + 3.63 ct/kWh x .7 = 31.8 ct/kWh (26.3 p/kWh)

Conclusion: The Brits still have generous FiTs. I'd argue that solar advocates shouldn't be complaining about this level of generosity. Keep your head down and shut up. It's going to look rather fishy when installations keep piling up over the coming months despite all the sky is falling claims from some in the industry. Had the industry collectively acquiesced with this last round of cuts they'd have some good faith bargaining currency to use during the next FiT review. Oh well... Maybe next time around the pragmatic voices calling for the greater good will drown out the whiners. 

What a Tangled Web She Weaves

Purgatory was for Lisa Jones
An Eternity of writing love poems
Sad and Sick and filled with misty quips
Bout Blackened eyes and bloody lips
See Mr. Jones had been a mean old man
With violent eyes and angry hands
So on a Tuesday night she shot him dead
Done had enough of all his shit
Said wow.... Had a glass of wine
Chased it down with a suicide
To this day she don't mind what her curse is
More concerned with her verses

Tuesday, April 10, 2012

Photoelectric Prices in Germany

Preliminary data from BSW indicates Q1 prices for systems up to 100 kW were 1969 Euro/kW. The FiT revisions on April 1st put the market into a pricing transition period and it's hard to guess how far system prices will fall over the coming months. Average prices that settle out at 1800 to 2000 Euro/kW will be low enough to satisfy IRR and NPV hurdles for the sub-10 kW FiT tranche. Roughly 70% of the prices I've looked at are coming in below 2000 Euro/kW. Some systems in the 10 kW category are already approaching 1500 Euro/kW! From what I can tell there's still plenty of demand so these lower than expected prices aren't the result of starving installers trying to entice buyers with rock-bottom deals. I suspect we're simply seeing installers competing for customers.

In January I posted a rough bottom up breakdown which indicated that prices could get down into the 1400 to 1500 Euro/kW zone if need be. We are starting to see these sorts of prices. Maybe the prices are the result of demand falling off a cliff. Maybe the prices are the result of competition. My money is on competition. I suspect we will end the year with average prices down in the 1500 to 1700 Euro/kW range and over 8 GW installed...(Did I really say over 8 GW? Damn that's bold. Go high or go home I suppose)

Here's a 28 kW tier 1 system in Germany priced at 1412 Euro/kW. That's 1850 USD/kW.

Here's a 10 kW tier 2 system in Germany priced at 1690 Euro/kW (2213 USD/kW).

Here's a 7 kW tier 2 system priced at 1510 Euro/kW (1978 USD/kW).

Here's a 7 kW tier 2 system (LDK modules) prices at 1350 Euro/kW (1769 USD/kW). This is a fully installed price as far as I can tell. This is the record lowest price for a system in this size bracket!!!

Sunday, April 8, 2012

Gotye - The New Peter Gabriel

System Prices vs. FiT Rates in Germany and Italy

This simple graph compares photoelectric system prices in Italy and Germany and the FiT rates in each country. The prices reflect system sizes of < 100 kWp in the case of Germany and 3 kW systems in Italy. Considering the disparity in system sizes this isn't an apples to apples comparison but it comes close enough for my purposes. Better data would undoubtedly show a stronger convergence in prices than this graph. Note also that photoelectric systems are tax free in Germany while the Italians impose a 10 percent tax.

When I look at this graph the thing that pops out at me is how much higher the FiT rates are in Italy compared to Germany. The rates are especially high considering how much more sun Italy gets than Germany - 1200 kWh/kWp compared to 900 kWh/kWp. Logically, we would expect the Italian FiT to be about 25% less than the German FiT. The Italian FiT is already slated to step down to 25 cent/kWh in the second half of 2012 but I expect them to revise this plan. A more aggressive plan would have them instituting the 25 cent/kWh FiT in July but then also implementing 1 cent per month degressions for the remainder of the year such that they enter 2013 with a sub-20 cent/kWh FiT. An aggressive FiT reduction scenario would take FiT rates down below retail pricing in Italy. Once you get FiT rates below retail pricing you have more flexibility when it comes to cutting the FiT even more.

FiT parity leads to Net-FiTs

FiT parity is the cross-over point between FiT rates and retail electricity prices. When FiT rates are higher than retail electricity prices the end-user wants to backfeed all production into the grid to get the FiT rate. Once FiT rates fall below retail the end-user prefers self-consumption over backfeeding. FiT parity in Italy will lead policy makers to change the FiT structures from their current form to a Net-FiT form. In a Net-FiT structure the end-user only gets the FiT rate for the portion of production that is backfed into the grid. Germany adopted a Net-FiT structure on April 1st as part of their much contested incentive overhaul. If Italy implements an aggressive FiT degression plan we can expect them to adopt a Net-FiT structure at the beginning of 2013.

Net-FiTs ain't that Bad

The retail price for electricity in Germany is 26 to 28 cents/kWh. The FiT in Germany for systems under 10 kW is now 19.5 cents/kWh. The 6.5 to 8.5 cents/kWh spread between retail electricity and the FiT rate acts as a sort of shock absorber. Let's assume the average photoelectric system owner is self-consuming 30% of their production. In this scenario the effective value of their production is 70% based on the FiT and 30% based on retail electricity prices - .7*19.5 + .3*27 = 21.75 cents/kWh. Here's  a sketch of how the FiT and effective value play out going forward. Note: Retail electricity price is assumed to stay constant at 27 cent/kWh. 


These numbers show us that the FiT can be chopped in half but the effective value only changes by 30%. I'm prone to think things will actually turn out better than this because better system planning (appropriate sizing) and a new generation of smart appliances (water heaters, dishwashers, dryers, refrigerators) are going to help raise self-consumption rates. Here's how the effective value plays out if we assume a self-consumption rate of 50%.


These significantly higher values tell us the self-consumption lever will play a steadily increasing roll in the profitability of photoelectric systems. 

The shape of things to come?

Germany just had a huge quarter that was precipitated by their FiT restructuring. The restructuring is actually staggered over the year depending on system size so we can expect Q2 to also be strong. I suspect the Italians to start talking about rejiggering their FiT. This will lead to a boiling frog scenario as people rush to install ahead of this FiT cut. I expect this will happen in Q2 or Q3. Q3 and Q4 will see rapid expansion in Japan to make up for slowing demand in Europe. And then there's China... The forecasts call for 4 to 5 GW. I expect well see more like 10 GW.

Friday, April 6, 2012


The Fourth Ring of Dante's Inferno is filled with the greedy. In this wonderful illustration by Gustave Doré we see these bums in sisyphean toil with their money bags. According to Dante, you actually can take it with you.

It is one thing to be greedy - it is quite another to steal. Thieves are kept deeper... Down below the ANGRY, passed the HERETICS and beyond the VIOLENT you come to the Cliffs of Treachery. A quick hop on the back of Geryon (human head, serpent body, furry paws) will take you past the cliffs and down to the Eighth Ring. Once in the Eighth Ring you go east on MLK until you get to the 7th borough - there you'll find the special place in Hell where thieves are kept. I've treated scrambled eggs better than Dante treats thieves.

Scams, Frauds and Screws

Charity Scam

A charity scam works like so: Bob gives Acme Aid Association a $100 donation. Acme Aid then gives Bob a receipt for $500. When tax time rolls around Bob uses his inflated receipt to take a tax credit that's greater than the original donation.

Mortgage Fraud

Step 1. Bob buys a property for $50,000.
Step 2. Bob gets an exaggerated appraisal on the property from Neil, his co-conspirator, for $100,000.
Step 3. Bob creates a fictional buyer (poof) and uses the fake appraisal to obtain an 80% loan to buy/sell the property to/from himself.
Step 4. Bob and Neil split $30,000 and head down to the Castro District for some fun. The fictional buyer defaults and the bank is left holding an $80,000 loan on a $50,000 property.

What are the red flags?

"An official with the Texas Department of Savings and Mortgage Lending notes that inflated appraisals and the constant use of the same appraiser are two of the most common signs of mortgage fraud. Agents acting in dual roles such as real estate agent and mortgage broker are another indicator."

The Solar Screw

The Solar Screw shares many things in common with charity and mortgage frauds. The screw starts off when Bob signs up for a PPA deal with a 3rd party financing company such as Solar Credit R' Us. Bob gets a photoelectric system and a lower monthly electricity bill. The photoelectric system costs $20,000 but SCRU uses a collection of smoke, mirrors and incantations to raise the Fair Market Value of the system up to $40,000. The $40,000 bill is then submitted to the US Government who subsequently gives SCRU a 30% tax credit on the inflated price. Jigar Shah talks about the practice here.

Who is doing this you ask? Who isn't is a more appropriate question. Johnathan Bass provides some delicious food for thought with this quote.

"SolarCity is unique in that it is both the developer/financing company and installer of its projects, while the vast majority of the other installers offering leases and PPAs use a 3rd party for financing."

Sound familiar? Remember the Red Flags?

"An official with the Texas Department of Savings and Mortgage Lending notes that inflated appraisals and the constant use of the same appraiser are two of the most common signs of mortgage fraud. Agents acting in dual roles such as real estate agent and mortgage broker are another indicator."

Rhone Resch recently made some interesting comments regarding this issue. The comments are especially interesting because he's talking about business practices back in the mid-eighties.

"Solar marketing firms that were using solar financing arrangements for systems were suspected of inflating the prices of solar equipment way above the fair market value and abusing the basis on which the tax credit was calculated."

He had this to say regarding the collapse of the solar industry in the mid-eighties.

"So we had a confluence of events: tax reform and companies getting greedy. Sound familiar? This cannot be allowed to happen again."

Too late Resch... As things stand its appears that tax reform is only a few moons away. At the end of the day that's not a bad thing if you believe, as I do, that tax reform will end up promoting competition. I'm personally a fan of phasing out the Investment Tax Credit (ITC) entirely but an effective preliminary measure would be capping the credit. Strangely enough there's already a precedent here as the ITC for small wind projects has a cap at $1000 per KW. Why not just carbon copy the wind legislation, CTRL+F, replace wind with photoelectric and get it stamped? Badda Bing...

If fixing the ITC isn't possible a warning to the theiverous scumdrels must suffice.