There is a lot of price pressure and cost pressure in the photovoltaics industry. Much of that is coming from the scale that’s happened and the capacity that’s been installed. We’ve seen costs come down fairly rapidly in addition to those prices coming down and that’s helping make this technology evolve and grow even faster. (Many) of the markets are geographically significant — Germany and Europe more broadly — but what we’re seeing is also a lot of change and growth happening in China, in India, in the U.S. and other parts of the world.
Many parts of the world already have electricity rates that are over $0.40/kWhr. Solar today averages $0.25/kWhr. In almost all of Africa, Pakistan, Hawaii, Italy and large portions of Japan, the price of electricity is already in excess of what the cost of electricity is coming from solar. Solar can make a difference and what’s exciting is that the markets can grow as the industry grows. We’ve had a lot of different opportunities to be able to scale this industry in an organic and continuous fashion.
Of the changes that are happening, we see a lot coming from China. We see utilities in China where there are basically less than 10 major utilities already getting actively engaged in solar and becoming vertically integrated. A utility in China is very different than a utility in the U.S. so those utilities are able to bring the market along with the manufacturing. Many of them today make their own aluminum, for example, as part of how they do load leveling. Rather than worrying about pumping water uphill for storage, they use that nighttime power to create other products. Several utilities have already taken large steps toward getting to large-scale manufacturing. Many of them are becoming significant players, able to bring down the total costs across the value chain.
I just visited BYD in China. You probably know that very well as a company that Warren Buffett invested in for their auto business. But they have a very large-scale LED manufacturing business, a very large-scale solar manufacturing business and a very large-scale advanced battery manufacturing business. They see a convergence happening here where storage–which they’re working on for their electric car–can be scaled in a way to meet utility needs. There are also companies like Nokia that are making everything from cell phones to large screen displays to cars. Give them an active involvement in the way manufacturing can be done and bring those together with the market expertise that they have. There’s a lot of change that’s happening and a lot of that is happening on ever smaller localized scales. That’s the parallel to the Internet. Those localized scale uses are now being connected to these manufacturing industries that can be sustained as local economies.
If we were to be able to change the cost of capital for solar just to match what the cost of capital is for rural electrical cooperatives across the U.S., where the cost of capital is 2 percent, then solar would not only compete with peaking power, but it would also be competing with load following power. Government policy and the ability to access capital are the two key drivers which have helped this industry grow at the rate at which it has grown in the last decade.
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