Solar Opportunity Assessment Report
The following is an excerpt from Solar Opportunity Assessment Report. To read the full report, please download the PDF file by clicking on the link to the left.
What will it take to transform solar energy from a niche resource into a competitive, mainstream technology - and beyond, to serve society with solar's full promise? This Solar Opportunities Assessment Report, or SOAR, attempts to answer that simple but complex question and offer some possible pathways forward. It examines what is needed to grow the U.S. solar industry -- incrementally into a thriving industry, as well as through bold, audacious measures that could dramatically accelerate the transition to a clean-energy future. It focuses on three pathways for solar's future over the next quarter-century: Current Growth, Accelerated Growth, and Hypergrowth, and describes the challenges and opportunities within each.
SOAR is based on in-depth interviews with more than 30 leading authorities in the solar field to understand their perceptions and best thinking about the state of the solar industry, the challenges the industry faces, and where the best opportunities lie to break through those barriers to accelerate the growth of solar photovoltaics (PV). The interviews were complemented with additional research on and knowledge of the solar industry as well as with work done for our 2002 report Bringing Solar to Scale, which promoted a plan to dramatically ramp up the supply and demand for solar photovoltaics in a way that created a cost-competitive global industry in the state of California. This research was conducted by Clean Edge, Inc., on behalf of the Solar Catalyst Group.
Among the key challenges to growing the U.S. solar marketplace are:
- its small production scale, which keeps quantities low and prices high;
- on-again-off-again government funding of solar research and development;
- a dearth of financing solutions, pricing solar out of reach of most users;
- a patchwork of regulations related to solar, forcing manufacturers and buyers of solar systems to meet different requirements in each state;
- a lack of coordination among companies, government agencies, the solar and building industries, or potential buyers of solar systems;
- a lack of standardized, plug-and-play systems that would greatly reduce the complexity and cost of designing and installing a solar-energy system; and
- a lack of education about solar's benefits to a variety of audiences.
Three Key Levers
SOAR centers on the three key levers of the solar industry: technology, policy, and finance.
- Technology challenges include the need for breakthrough improvements, not just incremental ones, that can dramatically reduce solar's costs and improve its efficiency and reliability. This is due in part to inadequate government support for research and development, as well as investors' sense that the potential market for solar is too small to justify massive infusions of capital.
But there is a wealth of untapped opportunities that could significantly improve solar's appeal. These opportunities include improving economies of scale by building larger plants; improving the "balance of system" components of a solar installation, such as inverters; and better integrating components so that solar systems can be more cost-effective to build, install, and operate. Other potential breakthroughs are budding solar manufacturing technologies that could lower prices, as well as building-integrated systems, such as solar shingles, that could greatly reduce installation costs.
Despite growing investments by some of the larger players, decreased government funding and relatively meager venture capital investments in the earliest-stage solar start-ups undercut the chances that the market will see a technological breakthrough in the near term. Like other technologies that have overcome development hurdles and been widely adopted, PV technology will continue to improve and steadily drop in cost, but it will be an incremental evolution. As it has with other technologies, a major government-sponsored R&D push could greatly accelerate the process.
- Policy challenges center on the lack of government support for solar, relative to conventional energy technologies. Like coal, oil, and natural gas, solar is dependent on supportive policies and initiatives at the local, state, and federal levels. Few solar markets in the world today are cost-competitive without government support, except for niche markets such as off-grid power for rural electrification, water pumping, and emergency signs and phones.
Among the key challenges and barriers are a lack of federal policy and regulations; few, if any, large, long-term government incentives and commitments; a patchwork quilt of state-level programs threatened by state budget woes; subsidy programs that artificially inflate prices; and resistance from utilities and other incumbent players.
Despite such challenges, there are several policies and programs that could help move solar from miniscule to mainstream. They include subsidies that decrease over time as solar markets grow, thereby reducing the chances that subsidies can artificially inflate solar prices; national standards for net metering and interconnection, which are critical in guaranteeing a level playing field for solar power in utility markets; time-of-use pricing, which reflects the cost of energy when it is most scarce and in highest demand -- during peak hours, when solar energy systems are most productive; renewable portfolio standards at both state and national levels, especially ones that "carve out" a specific portion for solar; and large, long-term purchases of solar systems by government agencies
- Finance presents additional challenges and opportunities for solar. Cost and affordability are the key detriments for many would-be solar buyers, whether consumers, businesses, or governments. In many cases this is due to a lack of understanding of solar's costs and benefits. Easy financing remains a weak link as purchasers face a dearth of compelling and affordable financing opportunities. And there is a need for financiers to reassess the risks of solar, giving large-scale solar projects better financing terms from lending institutions.
Among the opportunities in the finance arena are loan or mortgage-related instruments that make financing of solar easier for residential and small-business customers; new financing instruments; and new market players. Other means to ease financing challenges could include low interest rates, akin to those used successfully by automobile dealers; utility incentives, including the ability for customers to finance solar purchases through their monthly bills; government procurement initiatives that account for total life-cycle energy costs; simpler, faster rebates; tax credits; and solar service companies, through which customers buy solar energy without necessarily investing in solar hardware.
Three Key Strategies
Along with these three levers, we identified three cross-cutting strategies that need to be addressed to help bring solar to scale:
- Education. One common frustration is the lack of reliable, comprehensive, and easily accessible information resources about solar -- its costs, benefits, and when and how it makes sense. Critical information gaps can be found in all corners of the market, from manufacturers and installers to end users of all stripes and to policy makers.
- Standardization. The lack of plug-and-play solar systems, whether for residential or commercial/industrial buyers, frustrates buyers and sellers alike. For the former, buying solar requires a dizzying array of options and technical decisions; for the latter, each new installation requires resource-intensive one-off design and installation plans.
- Market Development and Aggregation. Leveraging the power of bulk purchases from government agencies, companies, homeowners, and others, thereby lowering prices through economies of scale, is a compelling means of bringing solar to scale. There is a wide range of possible aggregation strategies, each with its own challenges and opportunities.
Each of these strategies can be combined with the three levers to create a menu of options and opportunities for spurring solar's growth. For example, at the confluence of "Technology" and "Standardization" is the need to improve balance-of-system components to create simpler-to-install, "plug and play" solar systems; and the standardization of marketing claims about solar, such as system power output and warranties. At the confluence of "Finance" and "Education" is the need for information about the true costs of energy, including the high cost of subsidies for conventional energy technologies; the dissemination of best practices in financing; and enhanced consumer awareness of buy-down and utility solar programs.
A Vision for the Future
All of the strategies and ideas above can help accelerate solar beyond its current growth path. But what about an even grander vision -- a highly ambitious effort based around an audacious, man-on-the-moon-by-the-end-of-the-decade type of goal? A goal that would transform the way industry, politicians, and the public think about solar, and in which a myriad parties and interest collaborate to create a robust solar future. One that would ensure that solar represents a substantial portion of the energy needs for America and the world. In other words, a "Manhattan Project" for solar.
Clearly, there are potentially as many big visions as there are solar experts. We propose one potential vision, which we've dubbed the SHINE -- Solar High-Impact National Energy -- Project. The SHINE Project calls for 290 gigawatts of cumulative installed PV in the U.S. by 2025, providing 10% of total U.S. electricity consumption.
SHINE involves two concurrent pathways, one promoting products -- the accelerated manufacture, purchase, and installation of solar equipment -- and the other promoting services -- a new generation of solar energy utilities.
- Products: Massive Industry Ramp-Up. To rapidly bring solar to scale requires a simultaneous, coordinated ramping up of both supply and demand. This overcomes the chicken-and-egg problem of high prices depressing demand, which keeps prices high. And a short-term or one-time increase in demand won't work. For manufacturers to scale up their operations or build new plants requires what strategic planners industry analysts refer to as "sustained, orderly growth" -- steadily rising orders over a period of several years.
Among the components needed for the ramp-up are large corporate and institutional purchases, including from the U.S. federal government and the military, to ensure a sustained, orderly market for solar manufacturers; national incentive programs, modeled after the buy-down programs of California and other states; manufacturer incentives, to lure more large companies to set up solar-manufacturing plants on U.S. soil; attracting new and well-funded players into the market; utility cooperation; and changes in local building codes. There would also be the need for workforce training, to ensure a solar-savvy job force, and ample quantities of public education to help business and residential customers fully understand and exploit solar opportunities available to them.
- Services: Distributed Solar Utilities. In addition to deploying thousands of megawatts of solar equipment, as described above, there is a need to create new solar service companies that can offer customers the benefits of solar without the upfront expense. The second part of the SHINE Project calls for creating solar utilities or service companies in which customers -- residential, commercial, industrial, and government -- receive solar-generated power from nearby panels, perhaps on their own roofs, that are owned by third parties: in effect, solar utilities.
Such a system offers a variety of benefits to both buyer and seller. The system owners (the solar utilities) handle all aspects of installation, operation, financing, and maintenance, and own the systems, even when installed on a customer's roof; the solar utilities receive long-term purchase commitments for electricity from the building's occupants while their customers receive guaranteed fixed prices. The solar utility can sell any excess energy back into the grid at market prices, and also receive all rebates, incentives, depreciation, and tax benefits.
It is important to note that such solar services should not be limited to rooftops. There are vast untapped "fields" of solar energy to be harvested on parking lots, brownfields, covered reservoirs, and other large, open spaces. Moreover, there may be significant opportunities to deploy solar energy in manufacturing hydrogen for the emerging fleet of fuel cell-powered vehicles, thereby creating another major market niche for solar panels and services.
SHINE would require other components, among them a national Renewable Portfolio Standard, mandating that a certain percentage of all electricity in the U.S. come from renewable sources by a target date -- and that a specific percentage of that total come from solar PV; and the need to integrate energy efficiency with solar. Ideally, SHINE's army of installers and integrators will learn to profitably bundle energy-efficiency products and services with their solar systems, and ensure that solar-heated or -cooled buildings are adequately insulated.
Finally, SHINE will need the full participation and innovation of the financial services sector to create financing packages that will enable both systems purchasers and solar utilities a source of affordable capital.
As this report suggests, there is much work to be done. To help focus and further identify key pathways toward ensuring and accelerating our solar future, the Solar Catalyst Group recommends six projects or initiatives:
- Demand-Side Survey. A buy-side survey to complement this current report to learn what it would take to get buyers to make large-scale, long-term commitments to solar purchases and installations -- and, in doing so, to assess the potential market for solar at various price points.
- Marketing/Messaging Plan. A study to prioritize target audiences and provide recommended marketing channels, outreach programs, marketing messages for each target audience -- outlining calls-to-action and desired outcomes.
- Utilities Study and Summit. A utilities-based Solar Opportunities Assessment Report -- perhaps followed by an industry summit on the topic -- that could identify key issues and barriers to mass deployment of solar by this sector. Participants would include utilities, regulators, and other key players.
- Climate Change Study. A research project to evaluate and quantify the role that solar could play in helping to mitigate climate change. The study would help to quantify how much solar would be needed to play a central role in mitigating climate change, and over what period of time.
- Super Solar Group Initiative. A major coordinating body to cross all the sectors involved with solar, including equipment manufacturers, marketers, installers, financing organizations, utilities, and regulatory bodies. This organization would be charged with pulling together the various groups and interests to coordinate and orchestrate/lobby for the advancing of common goals: pushing for standards, regulatory changes, technology developments, marketing, education, and training.
- "Financing a Solar Future" Project. A research project to identify ways in which breakthroughs in financing could accelerate solar deployment. Such a project could include a survey of existing financial institutions serving the solar market and the most effective products they offer, and a look at what models from other industries -- home mortgages, car loans, home-equity loans, and others - could be emulated or adapted for the solar market.
The three pathways presented in SOAR -- Current Growth, Accelerated Growth, and Hypergrowth -- represent critical, strategic choices to be made by the solar industry, political leaders, and citizens alike. They reflect nothing less than Americans' vision of their country and their world in the next quarter-century and beyond. Will our energy future -- and all of the economic and quality-of-life impacts that stem from our continued reliance on fossil fuels and nuclear energy -- depend, as it has to date, on a seemingly half-hearted effort to move to a more sustainable, renewable-energy future? Or will it reflect a strategic, ambitious, collective effort on the part of industry, government, and consumers to transform our energy future to fully exploit the untapped power of the sun and other renewable energy sources?
We believe, of course, that the latter is not only desirable, but critical to ensuring our economic, environmental, and social health. And we think the time is ripe to embrace and implement a collective vision to include solar energy as a pivotal part of our energy future -- to move beyond the current pathway by making the rapid and dramatic growth of solar energy an urgent, national priority.