Last week's SunShot Summit and Technology Forum in Denver, Colorado, promised to muster the “brightest minds in government, industry, and academia to strengthen US leadership in global clean energy.”
Energy secretary, Steven Chu, called to arms his lieutenants of clean energy innovation – Ramesh Ramamoorthy of the SunShot Initiative and Arun Majumder, of ARPA-E.
In light of recent responses to American prowess in solar manufacturing, Chu's language was suitably bellicose. “We're not funding just for the innovation to get the patent so it can be manufactured in Malaysia or somewhere. We want to look at the whole ecosystem,” he said.
Chu fired his starting gun on the race to the US$/watt SunShot goal two years ago and despite dramatic cost reductions for PV modules, even he admitted that the industry is a long way from grid parity.
R&D to drive down hardware and non-hardware costs, manufacturing the next generation of solar technologies in the US, and developing the financial pathways needed to deploy solar at large scale are just some of the challenges the DoE has recognised en route to the 2020 goal.
When SunShot started in 2010, the price of a residential PV system was in the region of US$6/w – that figure hasn't budged significantly. Although PV costs hover above the US$1 mark already, SunShot targets installed costs – a much more ambitious goal.
DoE's focus on cost reductions in the balance of systems is all very well, but the “soft costs” of project development have taken on a sharper profile as other costs decline.
Angiolo Laviziano, the former CEO of Mainstream Energy (parent company of REC Solar and AEE Solar), said that the DoE has adapted to this reality and made this message clear in Colorado last week.
“There's going to be [an informal] coalition forming that makes this goal. It will be a painful, but feasible goal.
“DoE is definitely trying to do the right thing. For many years, the DoE was really R&D hardware oriented and they now understand that innovation in soft costs is important. Soft costs are still stubbornly high.
“It still has a long way to go.”
A lot of work needs to be done on red-tape, said Laviziano. He estimated that up to 10% of the costs of a project are added through payroll additions to deal with permitting, inspections, engineering requirements, different interconnection standards, licensing requirements. In the absence of any standardisation between jurisdictions, cities and local authorities fill the bureaucratic void with their own red-tape.
“In New York state for example I can't be a statewide operating company. I have to have licences county-by-county, city-by-city.
“Those things add up. They translate into people on the payroll that need to administrate this. Permitting fee is not that high, it's about the knowledge pool that you need to create to administrate it.”
Local authorities could streamline processes to attract solar developers instead of incentives in cash-strapped US cities and counties, he said.
“Cities don't have a great budget at the moment. A collaborative approach [could work] where the solar industry is not just expecting to get everything for free.
“In return, they get a very easy and streamlined process. It requires some competition between local authorities. DoE is trying to do that with some of the SunShot money.”
But some in the industry warn that SunShot goals – cheap solar and grid parity – sends a powerful but warped message that can only lead to a downward death spiral for solar companies.
Paula Mints, a director at Navigant and principal analyst of the solar programme, said SunShot is a harmful cost target that ignores the quality of the electricity.
“It's good to have a goal. But the US$/watt goal is not doing solar a favour. Overall, it does harm. It's good to have goals and targets but they need to be reasonably set. Many of these goals and targets were set based on the assumption that these price points were realistic and could be maintained over time without everybody going out of business.
“But everybody is going out of business. To me that says they're not sustainable. You end up chasing a target of a price point that will eventually drive them out of business. I find that ironic.”
Mints presented a paper to the IEEE Photovoltaic Specialists Conference earlier this month in Austin, Texas, which claimed that demand for grid-connected systems is 100% driven by incentives.
“PV pricing does not exist in a vacuum and the primary ability of the technology manufacturer to enjoy profit is the availability of incentives. Without incentives manufacturers are forced into a situation of defensive pricing.
“Moving into 2012, softening demand continues to compound the situation as inventory on the demand side is resold at lower price levels. At the beginning of 2012, the average price for resold module inventory was US$0.85/Wp.
Rumours of low prices also help fuel the waiting game for continued price declines. This unhealthy industry situation is leading to company failures and significantly, fewer monies for research and development.”
Healthy margins and positive revenues can only be restored if the solar industry develops new business models and rapidly reduces installation costs, she added.
Mints further argues that consumers have been misled by the expectation that solar should be cheap to the detriment of values which go beyond a price that cannot compete with fossil fuels after a century of subsidies.
“Value and cheap are not the same thing so we've got to the point where our subsidies are highly visible we are constantly apologising for them and that is unfortunate.
“As an industry we've promised that nebulous and unrealistic goal that we've set up that is genuinely meaningless [that] we're going to be the cheapest energy source around.
“So why set us a target that is likely not achievable? It's unrealistic. I would like to see all renewables step back a bit, take a breath and say which is more important? Innovation is not cheap. We keep pushing down to the price where revenues will not support R&D but without R&D you just don't move forward.
“If you take a look at the financial statements of any manufacturer they are losing money at today's price point. I'm constantly astounded when people say these prices are legitimate and we have to go even lower – did you look at the quarterly statement? These prices are not supportable.”
The Department of Commerce's tariffs will do little to level the playing field, she said.
“Punitive measures almost always never work out well for anybody. Encouraging measures do. This has started such nastiness in the industry. People fighting amongst themselves is not helpful. The unintended consequence is that it's really the small business installers that are going to suffer.”
Although Laviziano agrees that R&D in hardware such as modules, converters, mounting and other infrastructure will be crucial to cost reductions, “the biggest dollar contribution will be in terms of the process cost.”
Laviziano, who still sits on Mainstream's board, said he had also identified two other important trends: capital and the consumer.
“Another very important part is the so-called savings acquisition costs – the cost of finding the customer are going to come down as the industry gets more innovative. The product becomes more mainstream. By now it becomes possible to sell solar through a call centre approach because it doesn't look so different than utility services. It's no longer a big investment upfront. But you can now pay-as-you-go on a dollar per watt basis.”
Financial innovation will also unlock potential capital that could make project development much cheaper.
Securitization of residential solar leases and commercial-scale power purchase agreements through aggregation into financial products that can be traded on secondary markets is thought to be the next big breakthrough in unlocking more low-cost capital.
“Solar is still not the lowest risk asset class for a financial investor that is going to change very soon. Within 12 months rather than 36 months there will be fully fledged securitization similar to credit card receipts that you're packaging into asset backed securities. There will be solar receipts from financed systems that will also be packaged into securities. That will really bring down the cost of financing.
“People talk a lot about the hardware but [securitization] will be a game-changer.”