by Paula Mints, Navigant Consulting
June 24, 2009 – If you build it they will come. All industries, particularly during periods of strong growth, are vulnerable to believing in their own invulnerability. This is not really hubris; generally, along with the technical skills required, developing a technology or product requires believing that demand for it exists, and that it is cutting-edge enough in form factor, design, function, cost, etc. to nullify the competition. Examples: Sony Betamax vs. Video Home System (VHS), and practically all Internet-based products during the dot-com boom (with obvious and vivid exceptions). Infinite demand does not exist for any good, not even toothpaste.
During the solar industry’s most recent boom (2004-2008) the goal of infinite demand seemed attainable. Not only attainable, it seemed to many new entrants almost a foregone conclusion. That boom period is notable for the significant volumes of product sold into incentivized markets, in particular Germany and Spain. The term “grid parity” was knocked around often during these high-growth years, along with the promise that grid parity would bring with it the ability to sell everything you manufactured. New entrants envisioned a world with no barriers and just one small hurdle: getting to grid parity in a timely manner.
The photovoltaic industry does not exist in a vacuum — that is, it competes with conventional energy technologies (coal and natural gas), nuclear, and other renewables such as wind, not to mention energy efficiency technologies (primarily building materials such as windows). Energy efficiency and conservation are economical ways to control energy costs. Given the competitive landscape which includes less-expensive competitors all vying for a larger piece of the energy market, the answer to unlimited demand for solar is not as simple as achieving grid parity.
Grid parity is a complex concept. It differs by global region, country, area of the country, and US state among other factors such as time of usage (peak usage for example), whether the competitive electricity rate is wholesale or retail, customer type (some commercial customers have negotiated rates, some utilities in some countries discount rates to senior citizens and the poor, and some utilities in some countries deliver electricity at below the cost of production). At solar conferences, grid parity is often presented as the primary goal for the photovoltaic industry. Unfortunately this pronouncement ignores nuance along with educating observers (that is, potential customers) to believe in the industry’s version of Santa Claus. With apologies to Santa: to be clear, grid parity is real, however, its power to render demand for solar indestructible is up to debate. Moreover, the goal of grid parity is most often attached to module prices or, lower module manufacturing costs. It is the system price or cost that matters, and often this is overlooked in the discussion.
Perhaps I should backtrack a bit to avoid seeming unusually harsh. Lower-priced electricity from photovoltaic technologies is a worthy goal and should not be ignored, but is it only one goal of many. Technological advancement in the solar industry is ongoing, and manufacturing costs continue to decline. Distributed solar energy offers a significant answer to energy security concerns, environmental concerns, and energy independence for consumers. In rural areas, solar is often the only answer for poor populations to improve their standard of living. Solar can and will continue gaining share in the global energy mix, and not just because of grid parity.
PV industry growth, 1974 to 2008.
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The 2004-2008 boom in demand for solar products was not the industry’s first or only period of strong demand. The figure above offers a history of growth in the solar industry broken into ten year periods: 1974-1984, 1984-1994, 1994-2004, and 2004-2008. The smaller volumes noted in the earlier years do not trivialize the efforts in these earlier, mostly unsubsidized years.
Compound annual growth rates offer an often sweeping generalization of an industry’s growth. The table below provides yearly growth rates from 1974-2008. Note that there are years of significant growth, followed (sometimes immediately) by years of flat growth or shrinkage. The solar industry is a >30-year old start-up, and it has some growing up to do. From 1974 to 2008 a cumulative 15.8GW of product was sold into the market with 82% of the cumulative total sold during the latest boom (2004-2008).
Yearly PV industry growth percentages, 1974 to 2008.
All industries and companies need a story, a mythology, to propel them forward through competition, difficult economic times, manufacturing and development setbacks, and all the other issues that confront and confound them. The trick is not to believe (too much) in the story. For the photovoltaic industry, accelerated growth brought with it a host of optimistic entrants and observers, all believing that strong growth was unstoppable. Even now, the myth of infinite demand lives on with many believing that this means growth of >40% a year for the foreseeable future.
The photovoltaic industry needs stable demand, grid parity with conventional sources of energy as an equalizer, along with new business models that allow consumers to choose between buying electricity or buying a system — in other words, stable demand and the ability to compete on a level playing field with other energy choices.
Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: [email protected].
This article was originally published by Photovoltaics World.