It’s Econ 101. Prices for solar modules will fall. But not smoothly…nor painlessly. Except for the highest efficiency suppliers (basically SunPower and Sanyo) and specialty products (Andalay) there is absolutely no differentiation in the module supply chain. Since all modules are basically just blue/black glass with aluminum frames, the only way to get an integrator’s order is based on price.

So prices have started to fall — and fast. Second and third tier manufacturers without strong downstream distribution will have to reduce their price the most in order to get orders. Smart integrators will hold out for even lower prices, and will direct their orders to manufacturers who have staying power.

There are not many people who were in the solar industry in the “Old Days” when module manufacturers had to actually MARKET and SELL their products. I’m talking 2004 here! I may be “geezing”, but I remember when module prices marched steadily down to the mid $2 range, and that was when worldwide production was a fraction of what it is now. Since 2004 it’s been purely a sellers market; module companies (and upstream players) steadily raised their prices because that was what the market supported.

It’s changing almost overnight to a BUYERS market for solar modules. While this may put some stress on the margins of module manufacturers, these lower prices are terrific for the industry. Low module prices mean low system prices — which will mean a huge increase in customer demand. These lower prices, coupled with the 8 year ITC in the U.S., means that the residential retrofit, commercial flat roof and utility scale markets will all see very rapid growth in the coming years. The surviving module companies will do terrifically well once prices and margins settle down to a more sustainable level.

It’s reasonable to expect other value chain adjustments as module supply exceeds demand. Module manufacturers will slow down their production ramp and only consume the raw materials to which they have committed. Silicon prices will come down quickly. Manufacturers will consolidate, both horizontally and vertically.

And finally, as these silicon prices plummet, the cost advantage of thin film modules will completely disappear. Remember, BOS and installation costs for thin film are at least $0.75/watt higher than crystalline. So who needs an 8% efficient thin film module at $1.75/watt when a perfectly good 15% efficient crystalline module is available for $2.50/watt by late 2009?

All industries go through cycles, and we’ve got a front row seat on the solar industry gaining scale and becoming much more customer focused — and AFFORDABLE.

In February the U.S. House of Representatives approved the Renewable Energy and Energy Tax Act of 2008. This Act would eliminate $18 billion in tax breaks for big oil companies to help pay for extending renewable energy tax credits. Now we’ll see if Senate Republicans can vote for good energy and environmental policy — or just vote for Big Oil again.

We’ve been through this before. Last December Senate Republicans voted along party lines — at the urging of the White House — to defeat a similar bill. This year, Republican opposition to this bill and favoritism to Big Oil is becoming a theme of the presidential campaign.

The result is that solar power and other forms of renewable energy have become politicized — to the detriment of everyone who uses electricity and cares about the environment. Fortunately, it looks like the next new thing is clean tech: silicon for solar cells as well as chips. But there’s a cloud on the horizon — and that is the Federal Government’s apparent hostility to any industry that has the potential to impede Big Oil. We’ve seen this with absurdly lame CAFÉ standards, the EPA’s refusal to allow California to regulate their own emissions, and outright obstruction of the Kyoto Protocol’s efforts.

The Spicy Solar Guy has been a registered Republican for over 20 years. This year I find it impossible to support a party that bends to the wishes of Big Oil. Their excuse is that the White House does not want to reduce incentives for finding new sources of oil and gas. We’ve obviously got an energy shortage — but let’s put these renewable energy incentives in perspective.

Renewable energy legislation that Republicans should pass moves $18 billion in tax incentives from Big Oil to the renewable energy industry over 10 years. In 2007 alone the profits of the Big Five oil companies were over $120 billion — if these profits continue at this pace they’d generate $1.2 trillion in profits over the same ten-year period.

Sound public policy is compromised when there is that much money at risk by incumbent industries. As a result, many people in the renewable energy industry are resigned to just waiting until the next President takes office for any substantive change in federal policy. But that delay will jeopardize thousands of Silicon Valley jobs, billions to our local economy, and puts us just that much farther behind compared to the rest of the world.

It’s an opportunity lost for the most transparent of reasons — Big Oil’s influence on our country’s energy and environmental policy. The impact is now being felt economically as higher energy prices create inflationary pressures. With $4/gallon gas and $110/barrel oil, our economy is going into a recession while our country writes ever bigger checks to foreign oil producers.

Big Oil does not need tax breaks while they’re earning record (some say windfall) profits. Senate and House Republicans need to wake up to the fact that their votes for big oil are embarrassing and politically suicidal. Our country’s energy policies are an economic and environmental dead end, and we cannot wait until next year to turn around. Let’s get an Energy Bill passed now that removes unnecessary support for Big Oil and accelerates the growth of clean, renewable power.

Did anyone notice the juxtaposition of two utility news blurbs in the August 8th, 2007 Mercury News? Are we really that naive that we can’t follow a simple money trail?

The first article pointed out that California’s largest electrical utility saw a profit boost of 16 percent due to higher electricity rates.

The next article right below quoted the same utility’s CEO as saying that the California Solar Initiative (CSI) is behind in its goal of 3,000 megawatts of distributed (on customer rooftop) solar power. This CEO continued to say that the issue is that solar power is too expensive.

Huh?

A typical 3kw residential system costs $24,000 without incentives, and will produce 4,300 kwh per year virtually maintenance-free for 30 years. That works out to costs for solar — on a residential or commercial customer’s rooftop — at 19 cents per kwh. With incentives (both from the CSI and a small federal tax credit) costs for solar are 11 cents per kwh. I don’t know how many of you live in California, but pretty much anyone with an air conditioner and a few electronic toys pays closer to 25 or 30 cents per kwh. And these prices — as this utility’s stockholders will be happy to say — will continue to rise.

Because of these high electric rates customer demand for solar power systems is an all-time high in California. Unfortunately, the new California Solar Initiative is now administered by this exact same utility — and delays to get customers connected and paid for their rebates have stretched from one month to well over six months.

And these delays are profitable! Let’s see, for a $300 monthly electric saving, that five month delay means an extra $1,500 in profit for each stalled solar customer. Multiply that by thousands of customers and you can see how much more profit a utility can generate by poorly administering the best solar program in the country.

Distributed solar power is cost effective today when it’s on a customer’s rooftop. Maybe that’s what this CEO meant — that solar power is not cost effective for him since it’s so good for his customers.

For the past few years I’ve been hearing about how efficient and less expensive it is to install solar power systems in Germany. Many people credit this growth to their feed-in tariff. But at the end of the day, it’s really lower costs that will drive faster market growth.

So I wondered, why are German installations so much less expensive than U.S. installations? Is it because of superior engineering, better beer or something else entirely.

Well, there’s only one way to find out — and that’s from the roof down. So…after tromping all over the country with our Regional Director (who’s got more roof time than me — plus much safer driving skills) we learned that fundamentally, costs are lower in Germany because there are fewer system requirements and regulations.

• Negligible incentive paperwork (job folders are 2″ thick in the U.S.)
• No engineering drawings (installers work off diagrams)
• No local building permit
• No local inspection
• No utility interconnection paperwork
• No utility inspection
• No rebate “check is in the mail”
• No AC disconnect
• No DC disconnect
• Source circuits from modules are run with USE-2 cable with quick connects right into sockets on the inverters — no wire transistions
• Source circuit cabling runs in snap-on plastic raceway — no conduit
• There are residential solar installers with storefronts in many towns
• Jobs are done in a week — from start to finish, including paperwork
• Oh, and by the way, no grounding is required on each module and rack component.

So before anyone here in the U.S. advocates that feed-in tariffs will result in a market that grows as fast as Germany, we must first recognize that our costs are structurally $1–$2 higher. Regardless of how much more efficient our industry gets (and some companies already run a very tight ship here), we cannot make these additional costs disappear easily. Note that many of these additional costs are fixed, so on larger systems they are not as significant. On smaller residential systems incentives must be designed to take this substantial “bureaucratic friction” into account.

1. Lot’s of M&A activity throughout the solar value chain. Wafer-Cell-Module companies will vertically integrate — and integrators will merge.
2. State incentives, primarily those in CA, will drive solar growth in the U.S. East coast states, most likely NJ, will come back to life as their programs get rejuvenated.
3. The U.S. government will wake up to solar in a big way — with more generous and sustained tax credits in 2008.
4. Module companies will go back to selling, with market share as their primary goal.
5. Module prices will decline by $1/watt, and price tiers will develop based on perceived product quality and company reputations.
6. Third tier module companies will not be able to maintain profits after subtracting $1/watt from their top line — and will bail out.
7. Thin film technologies will see slow and steady production ramp ups.
8. Another severe gas crisis — as we had in the 70s — will spur demand for solar power and electric vehicles.
9. “Carbon Neutral” will replace “Global Warming” as the environmental industry’s catch phrase.
10. The solar silicon shortage will be replaced by the cosmetic surgery silicone shortage as new silicon plants come on line and Dow gets back into the implant business.

Ponder these four realities when you consider a new solar technology:
1. Start your due diligence on a 10 year old roof. It is an extremely hostile environment. When I go up there just about the only thing I see that is still in good shape is corrosion-proof metal and glass.
2. Does anyone remember TV antenna and sattelite dish rotators? How long did that mechanism last?
3. High efficiency wins except where space is virtually unlimited. Roof space is generally not sufficient to meet a building’s load for any structure over one story high.
4. Customers don’t buy solar cells — so it doesn’t matter what they cost per watt. The only things that matters to the customer are the total installed cost per watt of the entire *system* and lifecycle energy output.

Since the “silicon shortage” began two years ago in the solar industry, it had the following financial impact:

• Silicon refiners made more money as the industry grew
• Solar module manufacturers raised their prices and made more money as the industry grew
• Designers/Integrators (like Akeena Solar, etc.) made more money as the industry grew
• Customers (business and commercial) purchased more solar because their electric rates and environmental concerns escalated
• Incentives in key states (CA and NJ) were reduced (generating more installed kw per dollar of incentive) as the industry grew

Everyone has benefitted throughout the value chain. Yes, customers paid a bit more…and I would rather see prices declining rather than staying the same or even increasing. But it is a misconception that this shortage was entirely a bad thing.

Nevertheless, I’m looking forward to the day when prices throughout the value chain begin to decline again.

Heaven forbid!

How much #$%^& does Arnold have to take from his own Republican party about his stance on the environment. A governor must be a leader, even when what he wants to do may be unfavorable to his own party.

As a result of his leadership, the California Climate Act of 2006, or AB32, was passed. This bill will help improve California’s air — and shows the direction that the rest of our country’s leaders should follow.

While some people are attempting to portray this bill as bad for manufacturing and the economy as a whole, I believe the exact opposite to be true. Over 30 percent of venture capital invested in clean tech last year was invested in California companies. A key driver of this investment is California’s history at the forefront of the technology curve.

Where would we be now if California’s vacuum tube industry tried to inhibit the semiconductor industry? Arnold’s leadership on AB 32 will stimulate even greater technological innovation and ensure a robust industry supplying the rapidly-growing worldwide demand for clean tech and statewide demand for all solar technologies.

From our vantage point there does not seem to be much of a silicone shortage here in California. The cosmetic surgery industry seems to be expanding quite rapidly.

On the other hand, a shortage of refined silicon does persist in the solar power industry. Based on dramatic increases in production capacity, industry experts expect this shortage to moderate in 12 to 18 months. As long as demand for refined silicon and solar modules exceeds supply, prices are likely to remain high. Nevertheless, incentives and all-time high electric rates make the economics for solar power better than they have ever been.