The Future of Solar Power Lies in the Northeast

Renewable Energy Access ^ | 12/27/2006 | Jonathan Klein

[Uncledave]

The Future of Solar Power Lies in the Northeast

by Jonathan Klein, Founder of the Topline Strategy Group

Soon there will giant farms of photovoltaic panels baking in the sunlight of the southwest deserts, the resulting energy powering Phoenix, Las Vegas, and the rest of the region. If this vision of the future of solar power in the United States sounds right to you, it would probably come as a surprise to learn that some of the best potential customers for the solar power industry are homeowners and small businesses in the Northeast who will install small-scale systems on their property.

When a panel generates more electricity, the cost of that electricity falls because the fixed price of the equipment is spread across more kilowatt-hours. The Southwest does enjoy a tremendous sunlight advantage over the Northeast, making solar power less expensive in that region. However, the advantage does not come close to compensating for the difference in electricity rates.

Today, even in the best case scenario, solar power still requires substantial subsidies. It will be another decade before it reaches the break even point -- that is, the point where solar power becomes economical without subsidies. Until then, industry growth will largely be determined by how far available subsidies can be stretched in order to support the installation of the most equipment possible.

In a world where supply constraints are the industry's top problem, worrying about stretching subsidies to fuel more demand is probably the last item on everyone's agenda. However, even hypergrowth industries go through periods of faster and slower growth. Laying the groundwork now for fueling the next spurt of demand can mitigate or even eliminate any potential slowdown.

This requires a focus on stretching subsidy dollars, which in turn means focusing on the customers who require the least amount of subsidies to make solar power a profitable investment; namely, customers for whom the cost of solar electricity compares most favorably with the cost of conventional electricity. Remarkably, it is small solar installations in the Northeast that fit that bill, not large commercial installations in Arizona or Nevada.

This counter-intuitive finding comes from two studies our company recently released on solar electricity: What the Solar Power Industry Can Learn from Google and Salesforce.com and Massachusetts a Surprising Candidate for Solar Power Leadership. It is based upon the following three facts.

Big installations have only a small cost advantage over small ones
In striking contrast to all other power generation technologies, solar electricity equipment has very few economies of scale. Coal and gas-fired power plants, hydroelectric dams, nuclear reactors, solar thermal concentrators (with their acres of sun-tracking reflective troughs) and wind turbines (whose size dictate that they be situated in remote areas) are only practical for large commercial power generators to own and operate.

California Solar Cost Data Shows Modest Economies of Scale
This is not the case for photovoltaics. This is because the basic unit of solar power is a single photovoltaic module, which typically generates 180 to 230 watts of power and takes up approximately 13 to 15 square feet. Installations with 10,000 modules are no more efficient than those with 10 modules. The small economies of scale that do exist are driven by transaction costs, not the technology. Therefore, big customers enjoy only a very slight cost advantage over small ones when it comes to the cost of solar power equipment.



Small customers pay a lot more for electricity than big customers
While it costs about the same for big and small customers to purchase solar power equipment, the same is not true when it comes to purchasing electricity. On average, utilities pay power producers under $.03 per kilowatt-hour. Major industrial customers typically locate their plants near hydroelectric dams, which can provide ample low cost power, and large commercial customers are able to negotiate favorable rates. Smaller businesses and homeowners are the ones that end up paying the most for their electricity.

Since their higher electric rates more than offset their slightly higher equipment costs, smaller businesses and homeowners require far fewer subsidy dollars to make up the difference between the cost of conventional power and solar power.

Taken together, these three factors mean that small customers in the Northeast, along with those in California and Nevada, are those for whom solar power is the most economically viable and require the least subsidies.



Prescriptions for the Industry
Currently, there are two missing factors for making this strategy practical. One, subsidy programs in all of these states that are sufficient to support the development of a robust commercial industry (with the exception of California which already has such a program) and two, offerings and channels designed to serve a large number of smaller accounts. Our prescription: Make these two initiatives top priorities for the industry.

Jonathan Klein is the founder and general partner of The Topline Strategy Group, a consulting and market research firm specializing in emerging technologies. Prior to founding Topline, Jonathan was VP of Marketing at Promptu, a venture-backed CRM software company. He also served in senior marketing roles at Documentum and Docent and also worked as a Case Leader in the Chicago office of The Boston Consulting Group, advising Fortune 500 clients in a range of industries on corporate growth.

[Uncledave]

Renewable Energy Ping

Please Freep Mail me if you'd like on/off

[Calpernia]

I found solar lights for the lawn and lit up my Christmas decoration figures with them this year.

I've no idea why no one has thought of making the outside house lights solar powered yet. Or even the plug in lawn ornaments.

Hint hint for any manufacturers out there!

[Gay State Conservative]

I'd have no problem with having a solar panel on my roof *IF* it (substantially) benefited me financially.

[Bean Counter]

If this is a good idea, why not build it in the Mexican Desert, and hire the locals to keep them clean and shiny??

Oh yah. They are all up here doing the work we won't....

[ElectricStrawberry]

Today, even in the best case scenario, solar power still requires substantial subsidies

Are we gonna hear about "Big Sun" getting all these subsidies????

[TXnMA]

Typical leftist. Insisting that taxpayer subsidies are a mandatory part of the cost of production.

If you can't justify the expenditure based on ROI, then don't ask for MY money to make up the difference! Got it?

[FlingWingFlyer]

Now THAT is an excellent idea. I could make a fortune at a yard sale selling all these dumb cords.

[Uncledave]

There's plenty of solar outdoor lights available.

http://www.google.com/search?hl=en&q=solar+outdoor+light&btnG=Google+Search

[Uncledave]

The author is not arguing for taxpayer subsidies...quite the opposite

[econjack]

I wonder if the large-scale, small-scale differences are similar for wind power. The last time I looked, surplus power from wind generators can be "pumped" back into the power grid, allowing your electric meter to run backwards. This has the effect of a virtually unlimited storage capacity for the homeowner.

I saw plans years ago for a homemade system based on a 150 amp (police car) alternator, homemade prop, batteries, and inverter for under $700. While an 1800 watt system isn't going to do away with the local utility company, it might work for a cabin or vacation home.

[ken in texas]

I've no idea why no one has thought of making the outside house lights solar powered yet. Or even the plug in lawn ornaments.

They have -- but many of them are so cheaply manufactured that you're better off without them. I bought such a set of outdoor lights a few years ago. After recharging in full sunlight for most of the day they managed to produce light for anywhere from 1 to 2 hours once it got dark... nowhere near the claims on the package.

[Uncledave]

Nope, economies of scale are quite sharp in wind energy. It can cost you about $20-25k for 1kW for home based wind energy, which is $20-25 million per megawatt on nameplate capacity.

Utility-scale wind turbines can be installed for less than 10% of that. And would probably generate have a higher capacity factor for several reasons.

[decimon]

Why is there no talk of combining solar power with hybrid vehicles? Perhaps on-board panels afixed to the hybrid vehicles' roofs to trickle-charge the batteries. Perhaps small/portable solar collector/battery rigs at home to charge the hybrids' batteries at night.

The virtue of using solar to charge a vehicles batteries is in the fuel savings being on average. A cloudy week might yield little gain but a sunny week might yield great gain. Quite a difference from trying to power a home where averaging isn't good enough.

And the fuel saved in a vehicle is the type of fuel we import.

[Calpernia]

Yes there are. I used them to light up my Christmas decoration figures. The outdoor lights worked GREAT.

I was hoping a solar manufacturer would make the actual lights that go on the house or the light up lawn figures.

[Calpernia]

There are solar powered Christmas lights? Where?

[Calpernia]

Oh, you misread my post. You meant lawn lights. I bought lawn lights this year. Mine worked great. I'm looking for solar powered Christmas decor.

[alfa6]

Wait till you have to buy new batteries for them!

Regards

alfa6 ;>}

[TXnMA]

The author is not arguing for taxpayer subsidies...quite the opposite.

~~~~~~~~~~~

"...those for whom solar power is the most economically viable and require the least subsidies. "

"Currently, there are two missing factors for making this strategy practical. One, subsidy programs in all of these states that are sufficient to support the development of a robust commercial industry "

~~~~~~~~~~~

That's not the way it reads to me... The bozo assumes subsidies to "achieve breakeven"-- he's just trying to "minimize" them.

America does not need another AMTRAK.

[leda]

take a look at this one, babe :)