Solar’s Future May Not Be Pre-Ordained

 

 For virtually everyone who cares about climate change, the election of Donald Trump precipitates an unprecedented crisis. The Paris climate agreement, an extraordinary commitment to global cooperation by more than 200 countries to dramatically curb carbon emissions, is now in grave danger. The Clean Power Plan is almost certainly dead. Our domestic politics are failing us, the world, and future generations yet unborn.

There has been much commentary in the last week that despite the shift in political winds, that solar remains a bright spot (see: “Trump Can’t Stop the Energy Revolution” and “Trump Can’t Stop The Clean Economy”). These articles cite the industry’s commonly accepted wisdom about the inevitability of continued cost reductions. While I fervently hope these optimistic voices prove correct, it would be a dangerous mistake to assume that cost reductions are inevitable simply by extrapolating historical trends.

If the global solar industry could agree on any one thing, it would be Swanson’s Law: the cost of the photovoltaic cells needed to generate solar power falls by 20% with each doubling of global manufacturing capacity. Manufacturing capacity grows to match demand for solar. As a result, continued cost reductions are dependent on global solar demand continuing to grow. So an examination of the top 3 global solar markets that account for 70% of global demand—China, Japan, and the US—provides insight into the ability of the industry to continue to reduce costs.

Last week, China slashed its 2020 solar target by 20%, cutting 40 GW from the expected global market over the next four years. Japan continues to cut its national feed-in tariff. As a result, last week, Orix, a major Japanese financial institution with 1.5GW of solar assets, announced that they are ceasing new investments in solar to focus on other categories. And in the U.S., we all know the challenges that our industry titans are facing. SunEdison is gone. SolarCity is looking to shoreup its balance sheet through a merger with Tesla. The U.S. market, even without president-elect Trump, was faced with the prospect of flat growth, compared to the double-digit annual growth rates the industry has grown accustomed to.

Due to these significant headwinds, it should be no surprise that Greentech Media estimates that global solar demand will actually shrink in 2017, for the first time in the industry’s history–and by a full 10%. If we truly believe in Swanson’s Law, we can no longer blithely assume that cost reductions are inevitable. We must acknowledge our vulnerability. The Solar Revolution has been stopped before: just look at what happened in the 1980s.

The question we must answer as an industry is how do we generate continued cost reductions despite a zero- or negative-growth environment? There are no easy answers.

There is very little left to squeeze out of module costs in the near term. Gross margins for module manufacturers have been compressing and will likely approach zero-margin territory like they did in 2012. Historically, module manufacturers’ profit margins have been the industry’s most reliable target for “cost reductions,” but we are rapidly exhausting this cushion.

So where can solar companies drive down cost? The answer lies in solutions addressing the ubiquitous “soft costs” that now account for the lion’s share of total solar project costs. Firms like mine must redouble our efforts to scale our solutions. Whether our collective efforts are to help through new insurance products, smarter risk management, more efficient O&M, improved system designs, innovative sales strategies, or streamlined installation processes, we all need to double down, now. Improving the business of solar needs to become the primary business of our industry.

Unlike my software engineer colleagues, I studied international relations in college. One of my favorite political thinkers, Alexis de Tocqueville, made an observation about the American national character in the early 1800s that still resonates today. He noted that in times of adversity, Americans look to their communities to jointly create their own solutions, rather than looking for a solution handed down from their government. In Trump’s America, we who care about climate change are now forced to look to each other for our solutions—we cannot expect any answers from this government.

No one should expect the next few years to be easy. But I’m optimistic that by working together, we will come through on the other side of this uncertainty stronger than before. We have to work harder and smarter to drive down costs, even when Swanson’s Law is (temporarily) not working for us. That is what I’m committing to and I hope you will join me.  Let’s get back to work. We have a planet to save.     

By Richard Matsui; November 17th, 2016

Richard Matsui is the CEO and co-founder of kWh Analytics, a risk management data platform for solar energy assets. For his work at kWh, Richard was named one of the Forbes “30 Under 30” for energy. Richard has more than 10 years of experience in solar, including as a founding member of McKinsey & Company’s solar practice in their Greater China office where he was the firm’s leading expert on the global PV industry.

News Roundtable: Presidential Election 2016 and What Will Trump Do? (Podcast)

The marathon Presidential election is over and Donald Trump is the next President. Join the podcast as Yann Brandt and Frank Andorka try to make some sense of what the election means to solar and how the industry did on the State level votes. Coverage includes what Trump’s moves could be on energy and votes in Arizona, Nevada and Florida. This is part 2 of 2.

News Roundtable: Presidential Election 2016 and State Solar Votes (Podcast)

The marathon Presidential election is over and Donald Trump is the next President. Join the podcast as Yann Brandt and Frank Andorka try to make some sense of what the election means to solar and how the industry did on the State level votes. Coverage includes what Trump’s moves could be on energy and votes in Arizona, Nevada and Florida. This is part 1 of 2.

Solar Is The Olive Branch President Trump Needs To Unify The Country

 By Yann Brandt; I am a pragmatic person. On Tuesday night before it was called I went to bed knowing I would make up to the news that Donald Trump would become the Country’s next President. I hold the office in high regard and though I differ on many policies, I will respect the office.

To my friends that voted for Trump and my friends that did not, let’s discuss the political reality. The GOP holds all three houses and with a nuclear option in the Senate can pass any legislation they want. I don’t know if the option will be triggered but it is there.

The other reality is that though we are all Americans. We are deeply divided. Millions more voted for someone other than Trump. It looks like Clinton will end up with more votes than Trump as well. All of that doesn’t matter. The electoral college is the rule of the game and that’s not going to change.

In the past when things were this divided there was an olive branch to the other party. Clinton had Cohen and Obama had Gates and Hagel for Defense as an example. I sincerely doubt that this will happen here but just throwing it out there that if we want a nation united then those in power should reach out.

Everyone knows that my passion is energy. Particularly the transition to a post fossil fuel energy system. A transition. I’ve been public about a need for diversified energy portfolio that operates in competitive markets. Nothing crazy or divisive about this. President Elect Trump does not have a personal passion about energy and the vacuum will be filled with oil and gas billionaires and Palin perhaps. If Trump wants to reach out to liberals, doing so on energy would go a long long way.

It wouldn’t even be controversial. Oil and gas doesn’t need any new regulations except for new leases that under Obama expanded an incredible amount. Coal is dying because it can’t compete because the price of gas is crushing coal. Coal is dying because utilities replaced their coal power plants with gas power plants. The oil embargo was lifted last year under Obama. Free markets will determine the cost and price of energy commodities that our power markets want. Corporations will go into the markets and choose the price and type of power they want. We can go further and deregulate the energy monopolies that are costing consumers billions. Because we know that free markets are either free or they are not free markets.

Why energy? Because it doesn’t matter who you voted for, you are likely to agree with me that we want more solar. That climate change exists and we should pollute less. National parks are treasures for everyone to enjoy and we shouldn’t drill for oil there. I know you agree because 84% of Trump voters want more solar. I know you agree because only 50% of Trump voters want more fracking.

So here is my commitment to playing my part. I will continue to advocate the way I do everyday through my newsletter, SolarWakeup. But I will go a step further. If the Trump administration wants to continue to push free markets to do what everyone wants, more solar, then I will join the effort if asked. I made the same offer to the Jeb! Team that I would join the administration to do more solar. I won’t be asked and it won’t be part of the administration’s mission but I would do my part.