Solar Power Finance Without the Jargon

The following sections are included:

• About the Author
• Acknowledgements
• Contents

This book aims to provide a useful introduction to finance, via solar power, for people with an education in science, engineering or humanities subjects and an interest in energy technologies. It assumes very little knowledge of finance, business or economics, but fortunately none of those are difficult…

There are three major applications for solar power. They are passive solar heating, solar thermal electricity generation and photovoltaics. The first two involve using the sun’s heat to make a fluid — usually water — hot, and if you make it very hot you can use the steam to run a turbine to generate electricity, exactly as in fossil fuel-fired power plants. They are included for completeness and because solar heat can, in the right place, significantly contribute to energy supply. The third application, photovoltaics, is the main focus of this book. It is a technology that has no moving parts and requires no material inputs once it is installed, and generates electricity directly. It is also the one that has made great progress technically and economically in the last few decades, and looks set to explode further.

The following sections are included:

• What Is a Startup?
• Startup Failure Rates

After a more general chapter about startups, I’d like to share my experience of being part of a successful one, from very early on to its profitable acquisition and integration into a larger company. Most startups will not succeed, and I was very lucky to be part of one that did. Nonetheless, the experience of working there would have been worthwhile even if it had failed, for anyone with few responsibilities and a lot to learn…

This is a summary of photovoltaic progress so far. Many of the events after 2005 will be examined more closely in further chapters, but a preview may help to put the story into context…

I have chosen 2005 as the first year to write about mainly because it was the year I started working full time in clean energy, but it is not unreasonable: new photovoltaic installations globally rose from 1106 MW in 2004 to 1488 MW in 2005, when the German ‘feed-in tariff’ introduced in 2004 started to kick in. This was a landmark piece of legislation that had both intended and unintended consequences, and has been both emulated and cursed. It will be a brave government that passes an uncapped feed-in tariff for solar into law again, for reasons that will become clear. However, it was a major factor in driving the dramatic cost reductions in solar, and everyone now working in the solar industry owes the German electricity consumer a debt for paying the first mover prices…

One of the problems with economics and finance as sciences is that they tend to find a relationship in the past and assume it will continue into the future. This works well, until it doesn’t. Unlike with physics, there tend to be more variables than actual data, and experiments (for example, policy changes in the real world) generally change all the variables at once in a very unscientific way. It’s very difficult to tell what will happen until it does, after which it is so obvious that any idiot should have predicted it…

In 2007, the Spanish government made an amendment to a law, subsidising big solar projects in Spain for the first time. This was one of the most regretted pieces of legislation ever passed in solar. The Spanish government appears to have copied the German law, and asked solar companies what level of incentive they would like…

Physicist Niels Bohr is reported to have said “Prediction is difficult, especially about the future”. While significant strides have been made in weather forecasting and predicting at least the frequency of earthquakes over the past 100 years, predictions relating to human behaviour and economics remain direly inaccurate. As statistician Nate Silver says in his excellent book The Signal and the Noise (2012), “we are unable to predict recessions more than a few months in advance, and not for want of trying”. He observes that in December 2007, economists on The Wall Street Journal forecasting panel predicted only a 38% likelihood of recession in the next year, which was remarkable because the data would later show that the economy was already in recession at the time…

Energy is a sector in which even the most ardent proponents of the free market admit the need for some regulation. The decisions made — what sort of power plants to build, whether to add gas pipelines, whether to invest in the power grid — will affect the country for the next 30–50 years, and conditions may change significantly. Building a fleet of gas plants at a time when gas is cheap leaves a country vulnerable to higher gas prices or disruption in supply in future. Building a coal plant today risks higher coal prices and carbon taxes in future. Solar and wind plants will not suffer from higher input costs in future, but new plants will get cheaper, and when solar or wind becomes a substantial part of electricity supply, intermittency becomes a problem. (Back in 2006, when no country had more than 2% of its electricity from solar, I thought ‘what happens at night?’ was a dumb question because there was no risk of running out of backup. It’s not a dumb question today, although it is generally asked by people who don’t actually want to discuss possible answers. It’s also not become a huge problem yet, even as some places — Greece, Italy, California — edge toward 10% solar in their total electricity generation. Chapter 22 discusses this)…

One of the things I find hardest about the world of work — and, specifically, business rather than academia — is knowing how to behave in certain situations. Some people find this easy, some feel really awkward at the intersection of professional and social behaviour. Maybe that’s not you, in which case, lucky you. There is probably a class element to it, as well.

When the Spanish solar market hit its deadline in 2008, a global financial crisis was in full swing. The US subprime mortgage market collapsed in 2007, and the investment bank Lehman Brothers filed for bankruptcy on September 15, 2008. The financial crisis was widely blamed for the crash in solar module prices, but as far as I can tell had little to do with it — the prices of physical modules (as opposed to the stock prices of companies) fell simply because supply grew faster than demand, as new factories came online. Annual new build volumes continued to hit a new record every year, and annual investment figures hardly saw a dent; the problem was a fundamental oversupply of every part of the solar value chain. The financial crisis almost certainly had a role in the fall in solar stock prices which made it more difficult for solar manufacturing companies to sell more shares and raise more money, but that was a secondary effect as most were not in an expansion phase anyway.

It’s always easy to point at mistakes made by executives and companies with the benefit of hindsight, but the people managing solar manufacturers after the 2008 crash in global prices were in a very difficult situation. The selling price of modules was often below the cost of production, and the main way to improve cost of production is by expanding production volume and setting up new, technologically advanced factories. The economically logical alternative, simply to shut down until the module price went up, would probably be the end of the company as competitors would continue to expand and bring their costs down. Large firms which had invested in their brand were unwilling to do this. About the only good way forward for manufacturers was to start developing and building their own solar power plants, to capture some of the margin they were losing to competition on module sales…

Solar panels are sold in Watts, while energy is sold in kWh or MWh. This chapter aims to lay down the foundations of how to translate from one to the other, and explains Levelised Cost of Energy (LCOE) and why it varies.

The solar market started to look brighter for some firms in 2014. Prices stabilised across the value chain, long-term polysilicon contracts expired and the best module manufacturers started to make positive profit margins. The European feed-in tariff policies had generally been removed or brought under control, and the solar markets of Western Europe contracted, installing an approximately flat amount year-on-year after the spectacular booms and busts of 2004–2011.

After 2015, it became increasingly undeniable that large-scale photovoltaics is the cheapest way of generating electricity in some countries. This shifts the focus of solar policy away from bulk subsidies for generation, towards more tailored incentives attempting to get the best prices and to match electricity generation to demand. We are living in the early days of cheap photovoltaics.

Chapter 10 detailed how, in a normal power market, simultaneous power supply, demand and the cost of generating a marginal MWh sets the price of power. Generally in hot countries, peak power demand is in the daytime for air conditioning, but continues well into the late afternoon and into evening when the outside temperature is still high and people come home to cook dinner. This load is not well served by photovoltaics, the output of which drops sharply in the late afternoon as the sun gets low…

Crystalline silicon is the workhorse of the photovoltaic power industry, making up about 95% of the modules sold in 2017. There are only two significant companies supplying anything else, as of December 2018: US-headquartered First Solar Inc making cadmium telluride modules, and Japanese Solar Frontier KK making copper indium gallium selenide (CIGS) modules. Both are considered ‘thin film’ technologies, i.e. the process of making the modules involves depositing the semiconductor onto glass as a vapour and letting it crystallise in place in a layer a few microns thick. This is in contrast to the standard crystalline silicon type, where the semiconductor (silicon) is first crystallised into a block (ingot) and then cut it into slices at least 100 microns thick, a batch process with significant wastage (Table 18.1)…

Chapter 14 on the cost of energy assumed that the running cost of a PV plant is negligible, which is good enough for a first approximation. The beauty of PV is that it sits in the sun and generates energy with very little interference, and most plants (with the exception of those using tracking) have no moving parts to break…

Over the last 50 years, Asian economies have become better and better at producing all sorts of goods — plastic trinkets, shoes and clothes, semiconductor chips and computer hardware — for a low cost. The exact dynamics change over time — I remember in the late 1980s, ‘Made in Japan’ was considered low quality at least in my corner of rural England, while now ‘Made in Japan’ is a stamp of pride from a high-tech economy considered one of the most developed in the world. Perhaps in 2050 we will look at Vietnam or Indonesia as similar pinnacles of technological achievement…

We have not yet discussed the first, most intuitive, once and perhaps future largest market for solar panels. This is the world beyond the existing power grid, where solar competes with candles or kerosene for producing light, and with diesel generators for producing electricity…

I’m going to assume that the reader already has serious concerns about climate change caused by humans burning fossil fuels. If not, it is unlikely that I can say much to convince you; it is the biggest challenge to humanity of this century, likely to have serious impacts in all kinds of unanticipated ways and kill millions of people. This chapter will focus on whether solar can make a meaningful contribution to the world’s energy supply so we can continue to use power, and have the standard of living we have come to expect, without digging stuff up and burning it…

In late February 2018, the UK was in the grip of an extreme weather system called the ‘Beast from the East’. This was a period of intense cold and snow across the country, which is usually protected by the warmth of the Gulf Stream ocean current, and has infrastructure designed for a generally clement climate…

Every year, standard crystalline silicon gets a bit cheaper or performs a bit better. In 2018 alone, we have been surprised by the rapid expansion of bifacial modules, which give you a bit more energy just by using glass on the back instead of an opaque sheet. We have also been surprised by the rise of floating solar, especially in Korea and Japan, which can overcome land constraints while reducing evaporation from reservoirs. The march of progress is far from done. Human civilization is still in the ‘shallow decarbonisation’ phase where solar is nowhere near fundamental limits of what it can supply, as most of the grid runs on fossil fuels. Deep decarbonisation, taking us to zero net emissions, is barely even on the technological radar, although Spain and California have targets to run on 100% clean energy by 2050 and 2045, respectively…

The following sections are included:

• References
• Key Terminology
• Index