RMI

With Nevada rolling back net metering and solar company stock prices falling, one might think the solar industry is in big trouble. In fact, a recent New York Times article stated that SolarCity and other residential solar companies face a cloudy future. The article implies that the solar business model is based largely on subsidies (federal, state, and local), and therefore highly exposed to regulatory changes. Yet we believe the opposite is true: the solar industry will continue to have sustained and significant growth despite SolarCity stock woes and net metering policy changes. And here are ten reasons why:

1. PV companies are diversifying

The PV industry is increasingly diversifying, making it more resilient to incidents of bad policy. “While the New York Times article focused on residential solar, that segment is less than 25 percent of the market,” according to RMI Associate Kevin Brehm. In fact, SolarCity, a company commonly associated with rooftop solar, is now building and owning utility-scale solar projects. As companies diversify they are less exposed to policy risk that may affect one segment, such as the Nevada policy change.

2. The PV industry is global

On a global scale, new markets will enable the U.S. PV industry to grow despite short-term recessions in local markets. In October of 2015, global information and analysis company IHS predicted 2015 global PV demand would reach 59 GW, 33 percent higher than 2014, and 2016 would reach 65 GW. This growth is largely due to increased demand in China, India, and other emerging economies. “It’s a growing global market and U.S. developers are really well positioned to capture that market,” says Brehm. For example, SunPower has been diversifying into markets including the Middle East, Latin America, and Africa, and 50 percent of SunEdison’s project pipeline is outside the U.S. First Solar is also going global with over 60 percent of its 2015 Q2 potential booking opportunities (16.7 GW) coming from international markets. “This global diversification mitigates local, state, and federal electricity policy changes to a great extent and helps to insulate the solar PV industry from microeconomic vagaries,” according to Anthony Coker, VP of Market Development for Hanna Solar.

3. Solar PV is a proven and robust technology

Standard solar PV module warranties currently range from 25–30 years and product lifetimes are far exceeding manufacturers’ warranties. Many early off-grid adopters are still harvesting solar energy from modules installed in the ‘70’s. Even inverters are getting out of the reliability hot seat with over 20 year warranty extensions based on the belief that if products fail at 15 years they will delight customers with higher-efficiency longer-lifetime replacements.

4. Solar PV cost is beating fossil fuels

According to Lazard’s latest Levelized Cost of Energy Analysis (LCOE 9.0), the levelized cost of electricity for utility-scale solar PV without subsidies is beating conventional alternatives in many parts of the U.S.—even with current low fossil fuel prices. First Solar recently agreed to sell power from its 100 MW solar plant in Nevada for 3.87 cents per kilowatt-hour (escalating at 3 percent per year), thought to be the lowest electricity price ever. And last June, Austin Energy received bids for over 1.2 MW of PV projects under 5 cents per kilowatt-hour.

5. Cost of solar PV will continue to fall

PV costs in all segments are expected to continue down. According to LCOE 9.0, “The levelized cost of rooftop solar PV is expected to decline in coming years, primarily as a result of more efficient installation techniques, lower costs of capital, and improved supply chains.” Canadian Solar estimates that the cost of the modules will fall 25 percent in the next three years, and GTM Research predicts that through balance of systems cost reductions, PV system prices will fall an average of 40 percent by 2020. Economies of scale along with improved business processes in a newly emerging industry will continue to drive down costs.



6. The industry is attracting top talent

Forbes “Top 30 under 30” list of the brightest entrepreneurs and change agents under the age of 30 has a disproportionate share of PV talent compared to market cap. The new generation of leaders is bringing a pragmatic outlook honed in the 2007–2009 financial crisis. Yet, where previous generations largely fled green agendas this pragmatic generation has analyzed the long-term trends that will play out in our lifetime and see renewable energy and energy efficiency as sure bets for both job security and satisfaction.

7. Decommissioned coal plants will drive surge in PV demand

Even with the unknown outcome of the challenge to the Clean Power Plan, a total of 46,000 MW of coal generation is on track to close in the ten years spanning 2012–2022. Just last July the 200th coal plant shut down in the U.S. As coal assets are decommissioned, solar PV is likely to step in and cover a large share of the capacity need. Solar PV is affordable, and with falling storage prices, it can be a great alternative to coal. According to Brehm, “The war on coal is over. Now it’s just a question of rebuilding and solar will be a large portion of that generation capacity.” Duke Energy, which installed over 200 MW of solar in 2015, has stated that despite what happens with the Clean Power Plan, any new generation it installs will be in natural gas and renewables. Coker adds, “No one is arguing for a single silver bullet—one generation source for the global economy’s electricity. Rather, we are seeing a displacement of coal by lower-priced gas, solar, and wind in many regions. Economics are dictating the change.”

8. Completely untapped markets still exist

New solar business models will create access for more customers. There is currently a huge market for low-to-moderate income households in the U.S. Less than 0.04 percent of these families have solar PV systems, which we estimate at a $250 billion dollar market in the U.S. alone. And worldwide, over a billion people have no access to electricity at all. As PV costs continue to decline and more developing countries enact policies supporting renewable energy expansion and continue to push for electrification to drive economic development, the solar PV market is poised to grow at an incredible rate in those countries. Solar PV can reach these populations providing them with clean, reliable, and affordable electricity.

9. New solar markets segments are emerging in mature markets such as the U.S.

Even if some currently active solar market segments stagnate, there are significant new markets opening up. Community solar is a large currently untapped market. There are currently 65 MW of community solar installed in the U.S. with an estimated 250 GW market potential. “Community-scale solar is an exciting segment of the market. Increasing demand from rural electric coops, community-based organizations, and local municipalities is driving developers and service providers to innovate new technology and business solutions,” according to RMI Associate Kieran Coleman. “Clearly this is a very early stage nascent sector that has huge potential to meet broader need.”

10. Business models are being continuously innovated

While the New York Times article makes it sound as though SolarCity and other companies’ business models have inherent flaws and risks, we believe that business models are continuously changing. Whether it is a non-profit organization like Clean Energy for Us, a for-profit solar company such as PosiGen, or a utility such as Kit Carson Electric Cooperative, there is continuous innovation to make solar more affordable, accessible, and profitable. Even large, conservative investor-owned utilities are adding more solar (e.g., Southern Company with its three military bases of over 90 MW under construction and several large utility scale solar farms publicly announced by Mississippi Power) forging new solar business models in highly regulated markets. “And regulators like the New York Public Utilities Commission play an equally important role in opening the field in business model innovation in current and emerging sectors,” adds Coleman.

A bright future

So while states like Hawaii and Nevada end net metering, and solar companies’ stock values fall with the market like oil and gas or banking stocks, we feel the solar industry does not face a cloudy future. Far from it. Policies, regulations, and the stock market can’t stop the continued growth of this clean, affordable, reliable technology; the future of solar PV is bright.

Source: RMI. Reproduced with permission.