The economics of large-scale solar projects still don't work without massive subsidies and mandates that consumers pay above-market rates for solar power.
Posts tagged ‘solar power’
In my younger, more naive days, I would have drawn the following lesson from this story: "Never create a business plan predicated on subsidy checks from the government. They may stop at any time." I still think this is mostly true, as FirstSolar is finding out. But my sense is that a range of folks from GE to Kleiner Perkins still get their checks. So one may cynically rewrite the rule: "Never create a business plan predicated on subsidy checks from the government unless you are confident you have the political connections to guarantee and expedite the payments."
It seems like local solar company perfect power tried to feed at the government trough without actually having sufficient clout in the corporate state. Bad idea
About 100 Arizona homeowners who paid $4,500 up front for solar-power systems fear they may never get their rooftop panels after being left waiting for months by the installation company.
Angry homeowners are demanding their systems or refunds. The company, Perfect Power Solar, is blaming the delays on federal government red tape.
Perfect Power owner Lynn Paige said the company has cash-flow problems because energy grants that were supposed to provide substantial funding of the solar systems aren't being approved quickly enough. She pledged to deliver the systems or refund all customers by the end of the year.
Treasury officials would not comment on the situation. Government e-mails sent to Paige suggest Perfect Power's grant applications were incomplete. In them, officials point to problems with submissions and warn of potential denials.
Industry experts and owners of other solar companies in Arizona said that the grant program is fraught with risks for solar companies and that some built business models based on future payments from the government without the financial reserves to cope with delays. They describe the situation as a high-tech gamble that some companies lost.
Residential solar-power systems cost $15,000 to $40,000. The Section 1603 grant program, part of the American Recovery and Reinvestment Act, offered developers cash to offset 30 percent of the costs. Although the program was not available to homeowners, some companies tapped the grants to sell residential solar systems as leases. A company would install and own the system, then lease it to a homeowner.
Program rules required developers to complete installations before they could apply for reimbursement. But funding was not guaranteed, and even after systems were built, the government delayed approval of some applications and denied others.
If this was one of Kliener Perkins' companies, for example, Ray Lane would just call the White House and get his money released. If your solvency depends on continued flow of taxpayer cash, you better have the clout to keep the money flowing or you are likely to get hosed. Bureaucracies tend to have default answers of "wait" and "no". Those are the answers average people without pull are going to get. The "yes" goes to those who cut through the red tape from the top. These yeses, like the ones to Solyndra, only make it more likely everyone else get the "no" answer, as the agencies need to show they are being particularly diligent to offset the impression of sloppiness they get from the Solyndra-type cases.
Retroactively, the company's leadership has figured this out, that to survived at the government trough, they have to go political
Paige has asked customers not to file complaints or talk to the media about problems the company is facing.
"It has been very unhelpful ... that a few customers have chosen to write very negative letters to the BBB," she wrote in a May e-mail to customers.
Instead of filing complaints, Paige said, customers should write to Arizona U.S. Sens. John McCain and Jon Kyl to request their help in freeing up the government grant money and to pressure the Treasury Department....
That month, the BBB revoked Perfect Power's accreditation and gave the company an F rating. The company had 16 complaints filed against it the past year. The registrar shows four open complaints against Perfect Power; a fifth complaint was listed as settled or withdrawn.
Forget about the customers. Let's just focus our attention on our two Senators.
In the past I have been critical of First Solar, like I have most solar companies, for having business models that were almost entirely dependent on huge government subsidies, particularly in Europe. When these go away, the businesses start to crash.
I have not had time to dig into their financials to look for shenanigans, and to parse out how much is still dependent in some way on either direct subsidies of solar projects or incentives that cause utilities to buy solar electricity at above market rates, but First Solar reversed their large losses to a profit in the last quarter. I am not sure if this is BS or not, but I like this attitude if true:
The company's cost per watt is the lowest in the industry, but it increased slightly during the quarter, to 72 cents per watt, because of the under utilization of its factories. If the factories had run more, the cost would have gone down, officials said.
Hughes said First Solar is making headway on its plan to target regions of the world with ample sunshine and a need for electricity, where solar power can compete without subsidies that make it cost-effective when compared with traditional energy sources.
Those places include Australia, India, the Middle East and other regions, he said.
That would be terrific. I would love to see a solar boom driven by real economics and not taxpayer largess.
Dispatches From the Corporate State: Apparently, Taxpayers Don't Give Enough Money to Solar Companies
More subsidies for the solar industry in Arizona are crucial to avoid being left behind by other states and China, a Phoenix business leader said today at a solar-power conference.
Tax incentives and loan guarantees "make a lot of sense" right now in Arizona, which is already a leader in the industry, said Barry Broome, president and CEO of theGreater Phoenix Economic Council at the Solarpraxisconvention.
Despite the high-profile financial failure of the Solyndrasolar plant this year in California, Broome told a packed conference room that solar power is destined to be a major force in Arizona and elsewhere. The only question, as he sees it, is whether sunny-skied Arizona will take full advantage....
Behind Broome on an overhead screen, a chart showed that Texas, Oregon, Nevada and other states provide more "aggressive economic development tools," (a.k.a. public money), for solar power than Arizona, and the state can't compete without doing the same thing.
What is this, a football game? This strikes me as turn-of-the-century small town boosterism updated to the 21st century, with a dollop of tribal rivalry thrown in. He's talking mainly about manufacturing of solar components. I am left with a couple of questions
- Why should the fact that Arizona has sunny skies have any bearing on whether or not it is an appropriate spot to manufacture solar panels. Should Seattle subsidize umbrella manufacture because it is rainy there? My sense is that transportation costs are a small part of the price to end users. Arizona clearly will be a great spot for solar panels to be installed -- why does that mean we need to manufacture them?
- If other states like Oregon or China are subsidizing solar products that we might buy, shouldn't we celebrate that? Thanks, taxpayers of Oregon, for forking over your tax money so we can buy solar panels cheaper in Arizona. Why in the hell should be try to out-do them at this? Now we can go invest our capital in a business that actually makes money.
- I am obviously not a fan of government-led economic/industrial policy, but if I were, why in the hell would I want to direct my state's capital and manpower towards a business that requires subsidies, ie can't make a profit on its own in the marketplace?
Its just too easy to snipe at about everything in this article, but this caught my eye in particular
To help move the industry's message, Broome said, solar advocates must stop infighting over their competing technologies and present a unified and positive position.
Normally, I think an economist would argue that in an immature (both market-wise and technologically) product, competition and creative destruction between various competitors is critical to ultimate success. So in fact this advice is totally senseless, unless you see the industry as a taxpayer-money-magnet rather than a real business, and then it makes perfect sense. Politics, after all, demands simple sound bytes and a unified front.
Update: In the first week of Harvard Business School, I learned a lesson from strategy class, in a series of two cases, that still may be the most important thing I learned there. The cases were a hot, sexy electronics company, and a boring, dull as dirt water meter company. To cut to the chase, the electronics company sucked as an investment, and the water meter company was a gold mine. The moral, among several takeaways, is don't get fooled into thinking the hot, sexy business of the moment is necessarily a good investment. Our development agencies in AZ are making this mistake in spades. In fact, the entire history of government economic development efforts in Phoenix has been to chase sexy businesses at the top of the market, spend taxpayer money to get some plant relocations, and then see the businesses struggle. We certainly did this with semiconductor fabs a couple of decades ago.
In these grim economic times, one U.S. industry has defied gravity. Not only is it growing, it's thefastest growing industry in the country. It now employs 100,000 Americans at 5,000 mostly small businesses spread across all 50 states. Unlike in so many others, in this industry the U.S. has a positive trade balance with China; it is a net exporter of high-tech manufactured products....
The startling counter-cyclical growth of this industry had been unleashed by a modest bit of economic stimulus: a cash grant program that helps project developers compensate for the crippling credit crunch. In contrast to the familiar tax credits -- which tend to go to large, mature companies that have enough profit to benefit from them -- cash grants help small, innovative, growing businesses that are plowing revenue into growth. In fact, a recent study found that they work twice as well as tax credits. In 2009, this cash grant program pulled in $4.50 of private capital for every public dollar it invested.
The cash grant program expires at the end of the year. Extending it for a single year could support 37,000 additional jobs over and above the industry's baseline. And here's the capper: Since the cash grant program is simply repurposing money that's already devoted to a tax credit program, it requires no new federal revenue.
So you'd think this would be a home run, right? At a time when jobs are at the top of every politician's mind, surely a bit of low-cost economic stimulus that doesn't increase the deficit and leverages tons of private capital and creates tens of thousands of jobs can serve as the rare locus of bipartisan cooperation. Right?
Except the industry in question is the solar industry. And because this industry involves clean energy rather than, I dunno, tractor parts, it has been sucked into conservatives' endless culture war. Rather than lining up to support the recession's rare economic success story, Republicans are trying to use the failure of a single company -- Solyndra -- as a wedge to crush support for the whole industry. Odds are they're going to succeed and the cash grant program (Sec. 1603) won't be renewed next year.
Do you see the basic assumption -- if we don't take money from taxpayers and give it to businesses in a certain industry, that means we don't like that business. Really? That means that there is not a single industry in this country that I like, since I don't support subsidies for any of them. Unless you believe the state is mother and father to us all, the fact that I don't support state subsidies does not mean that I don't like the industry somehow. Kevin Drum even goes so far as to say that opposition to solar power subsidies is an aspect of the culture wars. Huh? Oh and by the way, the politicization of this loan process is just amazing to me. More and more people at Solyndra seem to be fund raisers for Obama, and here is a story of how a cleaning products company turned donations to Democratic candidates into taxpayers subsidies for themselves.
It is interesting that he would mention tractor parts. Guess what, folks who don't like the solar subsidies probably don't support subsidies for tractor parts either. I was going to say something like, "guess what, we don't subsidize tractor parts" but in our screwed up corporate state, we probably do at some level, like with some special export program snagged by a John Deere lobbyist. But I can pretty much guarantee that we don't subsidize anywhere near the total value of the tractor parts industry like we do the solar industry.
In one silly passage, he says
"In addition to being successful, this industry is wildly popular with the American public, across regions, demographics, and political parties. It has been embraced by mainstream institutions from Walmart to the U.S. military"
I could say the same thing for iPods too, but no one is rushing to provide grant programs for their manufacture. If it is so wildly popular, why does its use require so many government incentives and subsidies. Because the author pulls the trick of looking at one narrow solar program, and attributing the entire solar industry growth to that one program. And then he says, see, look how much benefit we get from this tiny sensible expenditure.
But solar's growth (I don't have the data, but I am willing to be real money that his "fastest growing industry" claim is BS) is due not to just this tiny programs but to a plethora of federal, state, and local subsidies and mandates. The government gives money to capitalize companies, and then then provides tax credits for up to 30-50% of their customer's purchase, and then through public utility commissions enforce above-market feed-in tariff rates for solar power. One reason we export so much (the export market for US solar is nearly entirely to Europe) is that European governments have feed-in tariffs for solar power more than 5 times higher than the market rate for electricity. They are paying something like 70 cents a kilowatt for solar electricity.
So of course solar is growing. If the government were to buy small cars for $150,000 each, there would be big growth in car manufacturing. This does not mean the product makes sense -- in fact, the necessity for so many government supports at every step of the process means almost by definition that it does not make sense economically. Look at corn ethanol. Corn ethanol is the stupidest product ever, but it has grown like crazy due to the same combination of government subsidies, price floors, and mandates.
By the way, I am a huge fan of solar, in theory. I honestly think that solar will some day be the power system of choice in this country, as companies figure out how to roll solar sheets out of the factory as cheaply and quickly as carpet comes out of Dalton, Georgia. We are not there yet, and I am not at all convinced that the current approaches are anything but dead end technologies. Beyond wasting a lot of money, there is a real risk the government actually slow ultimate implementation of sensible and economic solar, just as I would argue they did by forcing manned space flight and the transcontinental railroad ahead of their time.
I was going to leave this topic behind, but I just couldn't resist after Krugman's bit of snark on the topic. Please see my new Forbes column here. One bit, actually off topic from the rest of the article, that I added as a postscript:
Perhaps the worst Administration decision of the entire Solyndra affair has yet to receive adequate scrutiny. Just 6 months before Solyndra failed, the Administration allowed Argonaut, the largest shareholder, to grab the senior debtor position from the US taxpayer in exchange for $75 million in new financing. The Administration’s argument was the loan was needed to buy time, but buy time for what? Solyndra’s relative cost position was getting worse, and it was experiencing a huge loss on every unit sold. No one involved has been able to say what the company was counting on to save it in the 6 months this loan bought it, except perhaps the opportunity to cajole another half billion out of the US taxpayer.
But the loan did accomplish two things. First, it gave Solyndra time to sell every liquid asset it owned that might have been of value to…. Argonaut. And once this bit of self-dealing was complete and the company was cleaned out, the bankruptcy process could be entirely controlled by Argonaut such that it will likely end up with all the assets, most important of which seems to be a $500 million dollar tax loss carryforward. If Argonaut can take advantage of these tax shelters, it will end up costing the US taxpayer an additional $150 million or so.
In short, the taxpayer got rolled. Again.
Update: Marc Morano:
'When we had (Gulf) oil spill, we immediately had moratorium on off shore drilling. The oil industry was demonized & literally shut down'
'But after the green energy debacle, they are being feted and rewarded -- $9 billion more is being sent out to 14 more companies...Solar power is less than 1% of our electricity, yet this is being feted'
I have to take this with a grain of salt, because it is coming from GE, the current American poster-child for rent-seeking, particularly in attempting to be a magnet for green energy subsidies. But since the statement can be seen as under-cutting the subsidy argument, I have to take it more seriously:
Solar power may be cheaper than electricity generated by fossil fuels and nuclear reactors within three to five years because of innovations, said Mark M. Little, the global research director for General Electric Co.
“If we can get solar at 15 cents a kilowatt-hour or lower, which I’m hopeful that we will do, you’re going to have a lot of people that are going to want to have solar at home,” Little said yesterday in an interview in Bloomberg’s Washington office.
....GE, based in Fairfield, Connecticut, announced in April that it had boosted the efficiency of thin-film solar panels to a record 12.8 percent....The cost of solar cells, the main component in standard panels, has fallen 21 percent so far this year, and the cost of solar power is now about the same as the rate utilities charge for conventional power in the sunniest parts of California, Italy and Turkey.
I am all for that. I have always had faith that solar would make sense someday, and that we would be ranking out cheap solar conversion surfaces like carpet out of Dalton, Georgia, but every time I have priced it to date on my house, even with huge government subsidies, it has not made sense. In Europe, it requires 50-60 cent feed in tariffs (basically a subsidy in the form of above-market electricity prices paid by the utility for solar-sourced electricity) to get solar capacity installed, so 15-cents would be great and is approaching the cost of electricity in some high cost areas.
Here in Phoenix, FirstSolar does a ton of thin film. I have always had mixed feelings about FirstSolar. On the one hand, they live off subsidies and would basically not be in business if it were not for huge European subsidies of various forms. On the other, though, they have been one of the few solar companies that actively have talked for years of a development path to a cost position that does not require subsidies.
An audit of solar-power generation from November 2009 to January 2010 found that some panel operators were paid for doing the "impossible" -- producing electricity from sunlight during the night, El Mundo reported today, citing a letter from Secretary of State for Energy Pedro Marin....
Preliminary evidence shows some solar stations may have run diesel-burning generators and sold the output as solar power, which earns several times more than electricity from fossil fuels, El Mundo said, citing unidentified people from the energy industry. The power grid received 4,500 megawatt-hours of power from midnight to 7 a.m. in the months audited, El Mundo said.
Electric current is electric current. However, in a country like Germany, the price that utilities are required to pay for electric current varies based on its source. While electricity from, say, a diesel generator gets 4-5 Euro cents per KwH, ground-based solar gets about 48 Euro cents per KwH. This is a 10x greater price paid solely for absolutely identical power manufactured in a different way. So of course there is going to be fraud as to the current's source.
I had wanted to dig into the costs of a Florida solar facility that Obama recently visited. Fortunately Ronald Bailey does it for us:
Now let's do a rough calculation of the costs of DeSoto Solar versus conventional power sources. According to the Electric Power Research Insitute, a modern 1,000 megawatt coal plant without carbon capture technology would cost about $2.8 billion to build. Adding carbon capture would boost the cost to as much as $4.7 billion.
The 25 megawatt DeSoto facility cost $150 million. Scaling it up to 1,000 megawatts would cost $6 billion. But coal power plants operate 90 percent of the time snd solar only 30 percent, so in order to get the equivalent amount of electricity out of solar plant would mean tripling the capital cost for a total of about $18 billion. In other words, building a solar power plant costs between 4- and 6-times more than conventional, or even carbon capture, power. Even worse, a scaled up DeSoto-style plant costs 18-times more than a natural gas plant.
As David Myers scans the rocky slopes of this desert canyon, looking vainly past clumps of brittlebush for bighorn sheep, he imagines an enemy advancing across the crags.
That specter is of an army of mirrors, generators and transmission towers transforming Mojave Desert vistas like this one. While Whitewater Canyon is privately owned and protected, others that Mr. Myers, as head of the Wildlands Conservancy, has fought to preserve are not.
To his chagrin, some of Mr. Myers's fellow environmentalists are helping power companies pinpoint the best sites for solar-power technology. The goal of his former allies is to combat climate change by harnessing the desert's solar-rich terrain, reducing the region's reliance on carbon-emitting fuels.
Mr. Myers is indignant. "How can you say you're going to blade off hundreds of thousands of acres of earth to preserve the Earth?" he said.
Terry Frewin, a local Sierra Club representative, said he had tough questions for state regulators. "Deserts don't need to be sacrificed so that people in L.A. can keep heating their swimming pools," Mr. Frewin said.
A: Start with 10 million current jobs.
Kenneth Green argues that Obama's claim that obsoleting current infrastructure and requiring its replacement with new, greener infrastucture creates jobs is just the broken windows fallacy (where have you heard anyone else say that?)
If Obama's energy promises rely on questionable science, they rely on even more questionable economics. We are to believe that replacing conventional energy sources (especially coal) with renewables (especially wind) will create 5 million new "green jobs." The hope is that armies of workers will be enlisted to build
tens of thousands of windmills; to manufacture and deploy solar-power installations; to harvest, transport, and process huge amounts of biofuel feedstock; and to string the power lines that will allow the U.S. power grid to incorporate a major expansion of intermittent energy.
Unfortunately, the idea of government "job creation" is a classic example of the broken window fallacy, which was explained by French economist FrÃ©dÃ©ric Bastiat way back in 1850. It is discouraging to think that nearly 160 years later, politicians still do not understand Bastiat's basic economic insight...
Now consider Obama's "green jobs" plan, which includes regulations, subsidies, and renewable-power mandates. The "broken windows" in this case would be lost jobs and lost capital in the coal, oil, gas, nuclear, and automobile industries. Currently, these industries directly employ more than 1 million people.
Conventional power plants would be closed, and massive amounts of energy infrastructure would be dismantled. After breaking these windows, the Obama plan would then create new jobs in the renewable
energy sector. The costs of replacing those windows would ultimately be passed on to taxpayers and energy consumers.
For a while, I have been writing that traditional silicon/germanium based solar-electric panels are not yet economic as an electricity source.
I have hopes for other technologies eventually making direct solar conversion to electricity. However, there seems to be some activity in solar concentrating plants, where solar energy is reflected onto tubes to boil water and drive traditional steam turbines to generate electricity. Fortune has an article on one such plant opening recently:
The completed solar arrays will be trucked to California where Ausra
is building a 177-megawatt solar power station for utility PG&E (PCG) on 640 acres of agricultural land in San Luis Obispo County. (To see a video of the robots in action, click here.)
The arrays focus sunlight on water-filled tubes to create steam to
drive a turbine. Ausra manufacturing exec David McKay points to where
standard-issue boiler pipe will be fed into a machine and treated with
a proprietary coating that transforms it into a solar receiver.
I would love for this to work, but the article goes on to say that this approach still requires federal tax subsidies to compete with other electricity sources. I am not very familiar with the economics of such plants. Does anyone have a link or source that delves into the economics. I am increasingly frustrated of late with alternate energy articles that fail to give any of the relevent economic info. For example, I read an article in the Arizona Republic (sorry, lost the link) about Arizona's first wind project, but I could not get a sense from the article if the power was being purchased at market rates or some special inflated rate.