The Feed-in Tariff and Installed Costs in Germany

In a few weeks Germany is going to drop their Feed-in Tariff rate from 39.14 cents/kWh down to 32.88 cents/kWh. *CORRECTION (JULY 27TH) 34.05 CENTS/KWH. As a direct consequence of this rate reduction we should see a drop in the average price of PV systems from 2900 Euro/kWp down to around 2450 Euro/kWp during Q3 and Q4. *CORRECTION (JULY 27TH): AFTER REVIEWING IRR DATA IT LOOKS LIKE PRICES WILL STAY RELATIVELY STABLE IN Q3 & Q4. PERHAPS FALLING TO THE 2700 TO 2800 BUT EVEN THIS IS IFFY. On January 1st 2011 the Feed-in Tariff rate will drop from 32.88 cents down to around 28 cents/kWh. This should lead to the price of PV systems dropping from 2450 down to around 2200/kWp during 2011. **CORRECTION (JULY 27TH): I'M GUESSING FOR PRICES TO GO TO AROUND 2500 IN Q1/Q2 OF 2011 AND STAY RELATIVELY STABLE THROUGH THE YEAR. I'M DOUBLE DOG-DARE GUESSING FOR PRICES OF 2100 TO 2200 IN 2012.

I might be a tad off with my price projections but the overall point is that the FiT reduction will lead to a drop in system prices. If my math is right, Germany should hit grid parity at an installed cost (pre-tax) of around 2200 Euro/kWp. So, from my perspective it appears as though this price point will be hit sometime next year. *CORRECTION (JULY 27TH) SOMETIME IN 2012 SEEMS MORE LIKELY NOW. NOTE: GRID PARITY DOES NOT CREATE A SUSTAINABLE MARKET.

That's interesting in an of itself but in the back my mind I keep thinking that if Germany can reach 2200 Euro/kWp, a similar location with access to the same basic capital & labor ingredients should be able to match these installed costs - maybe not tomorrow or the next day but within the next 5 years. I think this is a reasonable assumption. But then I think - California gets 1200 to 1400 kWh per kWp compared to Germany where you get 800 to 900 kWh per kWp. Your LEC in California is going to be 30% lower!

Visualizing the Installation Market as a Factory

The photoelectric zeitgeist tends to focus on manufacturing and its symbol, the factory. This makes sense because the factory has a concrete footprint, a time line to completion and most importantly a measurable cost. As an added bonus we have mental shortcuts (research even) that helps us understand how a 1 GW factory is more efficient and competitive than a 100 MW facility.

I think we fall short when it comes to visualizing what a 1 GW installation workforce looks like. We rarely talk about how creating a 1 GW installation workforce requires a significant investment comparable to building a factory. I think this lack of recognition causes problems. It allows racking manufacturers to claim savings of 50 cents/Watt on installation without anyone calling them on the hollowness of their statements. More generically, we don't seem to be thinking about how installation costs will change as markets transition from 100 MW to 1 GW. This lack of consideration allows us to be distracted by technologies that claim installation savings which will most likely never exist. We're missing the fact that these supposed savings are more likely to be captured naturally by competitive pressures and learning by doing effects inherent is scaling up the size of the installation market. This is similar to the improvement in performance associated with scaling up from a 100 MW factory to a 1 GW factory that some of us have come to take for granted.

Big Installation Market = Cheaper Installation Costs = Higher Panel Price Sensitivity

I suspect a big part of the reason why Germany was able to soak up so much PV in 2009 was because they had a multi-GW workforce. By way of analogy with manufacturing, they had already made the jump from the 100 MW facilities up to the GW level and captured all the associated efficiencies along the way. When the panel prices started plummeting in 2009 the Germany market with it's low installation costs was more sensitive to the drop in panel prices than anywhere else. It's now been a year since Germany's PV market began its surge (June 2010) and Germany is still the only multi-GW market around. Germany still has the lowest installation costs and by extension they still have the greatest sensitivity to falling panel prices.

What does it all mean? Sensei say the zeitgeist is out of balance. There needs to be more focus on the installation side of things. Only then will there be peace.

EPIA Goal for Photoelectrics in 2020

The EPIA wants 12% of EU electricity consumption to come from photoelectrics by 2020! That's roughly 425 TWh.

Assuming a ballpark thumbrule of 1 TWh per GW of installed capacity you'd need to install 425 GW in the next 10 years. If you assume a steady 35% YoY growth rate Europe will need to consume half of the yearly worldwide production for the next decade. That is an ambitious goal.

German Photovoltaic Thumbrule

A fellow by the name of Kollector coined this thumbrule...

The installed cost of the photoelectric set should not exceed the ten year payout of the feed-in tariff.

Example: A set that delivers 850 kWh/kWp in its first year will deliver approximately 9700 kWhs/kWp over ten years of work. The following examples give a rough picture of how this thumb rule predicts installed costs will trend between now and the beginning of 2011.

--If the value of the feed in tariff is 39 cents/kWh (current FiT) the installed cost should not exceed 8275 kWhs x .39 cents/kWh = 3227 €/kWp.

--If the value of the tariff is 33 cents/kWh (FiT as of July 1st) the installed cost should not exceed 8275 kWhs x .33 cents/kWh = 2730 €/kWh.

--If the value of the tariff is 26.5 cents/kWh (projected FiT as of Jan 1st, 2011) the installed cost should not exceed 8275 kWhs x 26.5 cents/kWh = 2193 €/kW.

With Chinese panel cost falling under a euro per watt it looks possible to achieve installed prices in Germany of under 2200 €/kW. One interesting question to ponder goes something like: will sunnier markets outside of Germany start producing higher rates of return for PV investment such that Germany no longer drives the market clearing price of panels?

Another interesting question is, how will Germany transform the FiT structure once grid parity is reached (installed costs of 2200-ish €/kW). Will the self-consumption premium result in smaller PV sets compared to the oversized 10 kW+ sets that have become common? Will batteries come into common use? Hmmm... Neglecting the cost of input energy and assuming a daily charge/discharge cycle, what are the LCOE for batteries over their lifetimes? Something for the EV car guys to deal with.

The Future of Polysilicon

A recent report (Polysilicon Industry Faces Shakeout) notes:

"...fluidized bed reactor technology has not delivered on its promise of lower manufacturing costs."

The funny thing is, I've heard the exact opposite from insiders as recently as a few months back. Is FBR going to take over the poly space overnight? No, but we should start to see a shift in what kind of plants get built in the medium term - i.e. over the next 5 years.

Comparing Then to Now

THEN (2004-2006): Polysilicon was bottlenecking and prices were rising. You could sell any poly you made for a handsome profit. What do you do when prices are high? Add production capacity so you can sell more... Given a choice between Siemens and FBR plants, which are the refiners going to build? One could reason that the shovel ready refinery projects with short lead times (real or perceived) had a clear advantage. That means Siemens refineries.

NOW (2009-2010): Spot market and contract prices have been trending down continuously for two years. There is excess poly supply with still more coming down the pipe. The expectation is for poly prices to trend down in the future. We're projecting more demand for PV which means more demand for poly but the confidence level of these projections isn't there yet. The only course for a refiner to take in this sort of environment is to methodically plan capacity expansions. In this sort of environment the advantage shifts from short lead times to low production costs. That means FBR refineries.

If REC or MEMC announce yet another 10,000 MT FBR plant in the next year or so (which I expect) we'll have a strong indication that FBR delivers a cost competitive product.

The Photons, Germany and the EEG/FiT - Plus Thoughts on Germany

Photon Consulting is the smartest kid in the Solar Analysis class. They are the only consulting house that deserves any respect - by respect I mean, when you think they're wrong you need to take a moment and think again. They will smoke you.

Perhaps there's something about using the term Photon in your moniker because the folks at Photon Magazine also deserve props. Their managing director Anne Kreutzmann is the only one I know of within the PV community who has openly spoken out against the current FiT structure in Germany. She has said the obvious. Hey guys look... The FiT is set higher than it needs to be. This high FiT is going to result in a lot more installed capacity than what has been planned for. There are two options. Option 1. Let the FiT stay where it is and apologize in the aftermath Option 2. Recognize that the FiT is too high, control it and suffer a slightly lower growth rate. Option 2 is much better because it gives the PV industry more control over its destiny.

Option 2 points towards sustainability. Sustainability jargon gets thrown around in a lot of smelly ways but the core idea behind "sustainability" is balance. Balance is something the PV industry needs in a big way. There is much too much snake oil and slick-shit advertising these days.

Thoughts on Installation costs in Germany

Many companies have claimed they have some sort of quick snap or stick on technology that lowers installation costs. That's great press but it needs to be examined. We should ask two basic questions.

Question 1: What is the underlying installation cost assumptions of these companies? Question 2: What trajectory are installation costs actually on?

Answer 1: The general assumptions are $1/Watt in installation costs. This is currently a reasonable assumption for the US.
Answer 2: No one knows for sure what installation cost will be in three years but it's a fair assumption to expect the trajectory of installation costs to follow Germany's example. That means installation should fall from $1/Watt to around 40 cents/watt.

The upshot here is all these fancy technologies that claim to lower installation costs are assuming much higher installation costs than we can reasonably expect in the future. To put it another way, a 25 cent/Watt mounting structure that saves you 50% on installation labor will not be competitive for much longer.

I'm not saying all these technologies that claim to lower installation costs are bunk. Just pointing out the obvious trend in installation costs that we're seeing in Germany and how this will project into future markets.

The Osama Bird Laden Event

In 2004, bird droppings caused a three unit trip at Palo Verde and subsequent loss of the Redhawk Power Station. Losing 4 GW is a big deal - a big fucking deal as Biden would say. And upon reflection he would continue, "If a god damn DC line had been out we might have lost the fucking Western Interchange!"

I am reminded of the Palo Verde event when people mention the intermittency of photoelectricity leading to grid instability.