Solar Industry Heats Up The Technology Is Here, But Not the Investment

Aided by rising fossil fuel prices, interest in solar power is at an all-time high. And the cost of solar cells continues to drop, thanks to greater efficiency and thinner silicon wafers that use fewer raw materials. Where once solar energy was relegated to off-grid systems, 90% of the industry was tied to the grid in 2007, according to Paula Mints, principal analyst for the PV Services Program at Navigant Consulting.

Homeowners with solar roof systems can generate enough electricity to zero out their bill, but, unlike in Europe, few will get money back for producing more than they need.ed)© John Benson/Solar City

Insiders often speak of “grid parity” or “cost parity,” which means the point when a solar system averaged over 10, 20, or 25 years will cost the same as traditional electricity. Those figures vary because there are thousands of different utility rates around the world, says Julie Blunden, vice president of public policy and corporate communication for SunPower, a cell manufacturer. In places where rates are high, from 35 to 50 cents per kilowatt hour, one could argue that cost parity has happened (depending on the system purchased and how it’s amortized).

In other places, rates are 8 to 10 cents per kilowatt hour (kWh), and cost parity could happen in four to eight years, according to Blunden. But cost parity doesn’t necessarily mean that solar will take off. The technology still needs significant capital investment, says Daniel Tomlinson, a senior consultant at Navigant.

In Europe, higher-than-U.S. energy prices and government incentives are spurring the movement to solar. European countries have encouraged solar with feed-in tariffs, rate guarantees funded by a surcharge on public utility bills. When people build solar projects, they are guaranteed a certain payment per kWh over 20 or 25 years. Germany’s 40-euro-cent-per-kWh tariff has generated 40% of all solar installations worldwide, according to Stephen Torres, COO of DRI Energy out of Irvine, California. He says 75% of 2008 installations are in countries with feed-in tariffs.

“That’s clear evidence that the feed-in tariff is working as the most attractive mechanism to incentivize [sic] solar installations in the world today,” he says.

The U.S. government is slow to follow, but is beginning to give solar more serious support. In October, Congress voted to extend the federal solar investment tax credit (which was set to expire in December 2008) for another eight years, and to lift the $2,000 cap for residential rebates. States like California, New Jersey, Arizona and Florida have instituted state incentive programs for residential installations, adding thousands to rebates and elimating property taxes on systems, among other measures. The remaining U.S. incentives are at the city level, and most are not large enough to make those markets financially attractive to industry, according to many insiders.

In spite of Europe’s success with feed-in tariffs, the U.S. is not expected to follow that model. U.S. regional utilities are decentralized, with pricing dependent on whether they are publicly or privately held. Utilities also have different methods of dealing with investments, owning power plants and equipment, and amortization. And homeowners with solar power are also subject to net metering, which is fundamentally different from Europe’s feed-in tariffs.

Tomlinson explains: “U.S. customers can zero out their bill, but most net metering laws prevent them from collecting a credit over a period longer than one year. In the U.S., the utility will almost never cut you a check for production, whereas in Europe customers are paid for every kilowatt hour generated.”

Still, there is evidence of U.S. consumer support for solar. “New solar homes in California are selling twice as fast as homes in neighboring communities without solar,” said Blunden. “That’s really important in a situation where you’ve got a down housing market.”

Up-front costs—in the range of $20,000-$60,000 for residential homes—are a barrier to adoption for many people. But new companies are offering financing models. Sun Run in San Francisco owns the panels on people’s homes, allowing homeowners to pay less up front and to buy electricity at a fixed rate. MMA Renewables provides financing and solar systems for commercial customers by attracting investors looking for a tax write-off and an investment in line with their values. A company called SolarCity has a community program, in which it targets residential neighborhoods to sign up 30 to 40 homes in a three-mile radius. Working in volume and installing multiple projects at once saves 20 to 25%, according to SolarCity CEO Lyndon Rive. SolarCity also has a lease-to-purchase option, where lease payments combined with new electricity bills are still lower than traditional electric bills, according to the company.

Traditionally, solar cells were made with crystalline silicon. But this technology is starting to lose market share to thin-film technology, which is now being developed commercially. Crystalline still dominates, with 89% of modules sold in 2007, according to Mints, but many think thin film will grow in the years to come.

There are several types of thin film, and their flexibility lends them to creative applications. They also reduce the amount of material required in a cell, which means they can be less expensive than crystalline. But many are currently less efficient as well. The dye-sensitized solar cell (DSSC), which uses a dye as the light-absorbing material, has now been put into a thin-film coating. Innovators hope to expand DSSC to building-integrated materials, put-ting cells inside light fixtures, on window blinds and more.

Depending on the technology, in addition to the solar cell, consumers must pay for the module, inverter and installation. This can be 50% of the cost for a residential system. The industry is trying to reduce these costs. Some thin-film products eliminate the frame. Torres’ company, DRI Energy, integrates labor into the sale by doing the installation. New developments can include solar for less than add-on projects. Others are going big—a large central power installation requires fewer trackers to hold up and move modules. Large-scale projects—whether a commercial space or a neighborhood installing panels simultaneously—are always more cost effective than one person going it alone.