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Solar Eclipse

Anybody reading headlines in the business press will have noticed that in photovoltaics, there's a whole lot of shaking out going on. Three significant U.S. manufacturers have gone under in the last month: Solyndra, Evergreen Solar, and SpectraWatt. Solyndra, a major beneficiary of U.S. government support, suffered the added indignity of having its offices raided by the FBI shortly after it announced bankruptcy. 

The difficulties facing solar companies are not hard to identify. Heavily subsidized, low-cost Chinese producers have penetrated global markets in a big way, driving prices for basic polysilicon modules sharply down. That translates into problems not only for North American and European makers of basic polysilicon cells, but also competing technologies.

Solyndra, which was developing a novel tube technology, just couldn't get it to market at low enough prices to compete. The U.S. and German developers of what's to be a really major concentrating solar power project in Blythe, California, have announced that the first half gigawatt of installed solar will be generic polysilicon rather than high-end concentrating PV cells. First Solar, which has boasted a breakthrough thin-film technology, has seen its share prices drop more than 60 percent in the last three years and now is getting into project development and engineering, procurement and construction.

Vertically integrated companies like California's SPI Solar and China's Yingli Solar are doing well--but often under conditions that send eyebrows jumping.

SPI, working with KDC Solar and LDK Solar, announced in August that it would build a 9.7 MW photovoltaic generator for the New Jersey subsidiary of a major pharmaceutical company; Yingli said it would supply 10 MW of PV generation for a New Jersey installation that will be "the largest non-utility owned solar intallation east of the MIssissippi River."

Solar projects in New Jersey, as it happens, boast the highest rates of return of any such projects in the world. Analysts at Lux Research found that because of New Jersey's hugely generous Renewable Energy Credit prices, solar rates of return are 40 percent and above in the so-called Garden State. Next comes Portugal, followed by Australia, Italy, and India. In Germany, with China and the United States a major solar producer, rates of return will be in the vicinity of 22 percent out to 2016, Lux predicts.

In light of the unsustainable subsidies benefiting solar energy, instabilities in the industry, and the steep learning curve it has to climb, projections of profitability are to be taken with big grains of salt. (I beg the reader's pardon: In a situation so riddled with what economists call "market distortions," resort to business journalism cliches is unavoidable.) Only in the last couple of years, as solar construction has boomed, have people begun to notice things you might have thought would be obvious.

Two years ago, Google issued a report on solar module performance, based on operation from 2007 of a California PV installation that at that time was the largest single one in the world. Among the findings: large solar arrays tend to get dirty and sometimes need to be cleaned; specifically, tilted arrays get washed pretty well by rains, but horizontal arrays do not; in the arrays that need washing, cleaning can double their electrical output.

With the industry still digesting rudimentary lessons like that, obviously there is a great deal more to be worked through. Meanwhile, in countries like Germany, Spain and the United States, the domestic solar industries that were meant to benefit from government subsidies will continue to see Chinese competitors eat their lunch--at least until their remarkably slow-witted political leaders do something about it. 

Notorious Grid Bottleneck Spawns Western Blackout

The blackout that squelched power flows to nearly 5 million residents of Arizona, California and northern Mexico last night and shut down California’s San Onofre nuclear power plant may be the latest sign of strain in an outdated U.S. power grid. The incident began during maintenance at a substation in Yuma, Arizona that lies at the center of a sclerotic section of the grid between Phoenix and Tucson—one long recognized as critically congested and thus at heightened risk of failure.

Utility officials have not yet identified an explanation for how the substation work took down such a large grid area, since transmission systems are supposed to have sufficient redundancy to survive the loss of any given line or generator. However, such incidents are not without precedent. In 2008 an engineer with Florida Power & Light blacked out 4.5 million customers in south Florida during work on a substation switch in Miami.

What is clear, however, is that the substation where trouble began last night lies at the center of last night’s disruption is located in a sensitive spot. The North Gila Substation operated by Phoenix-based utility Arizona Public Service (APS) is on the eastern edge of a zone extending to the Pacific Coast that the U.S. Department of Energy (DOE) judges to be the second-most congested transmission flow path west of the Rockies. The corridor runs from south-central Arizona to San Diego, and at its heart is a single-circuit 500-kilovolt high voltage transmission line that brings coal-fired power from southeastern Arizona to San Diego.

That single line to San Diego leaves the city highly vulnerable, since California’s environmental policies have shuttered many of southern California’s baseload generating plants. “They rely on imports, and if those imports go offline they have nothing to rely on,” says John Kyei, a former APS transmission planning engineer who is now director of Transmission for Houston-based renewable power developer BP Wind Energy.

In 2008 DOE designated the Arizona-California transmission path as a National Interest Electric Transmission Corridor – a move intended to inspire transmission upgrades to crack open the Arizona bottleneck and secure delivery of the state’s power to the coast. A National Grid Congestion study issued by DOE the next year expressed optimism that new and upgraded lines were on the way, and removed the Phoenix-Tucson area (including Yuma) as a Congestion Area of Concern. But some key projects have since lagged.

DOE expected that one critical connector highlighted by Kyei, a 500-kV link from the Palo Verde nuclear power plant to APS’s now infamous North Gila substation, would be in service by next summer. APS now says via its web site that the line won’t be done before 2014. Kyei calls such delay’s business as usual, thanks to the phalanx of roadblocks – from environmental approvals to funding refusals by state-level public utility commissions with parochial interest – that regularly stretch new line planning in the U.S. to a decade or longer.

Kyei says adding a second circuit to the 500-kV line segment that crosses the California-Arizona frontier will be tougher still, because eliminating congestion equalizes prices on either side. California regulators approved a proposal by utility Southern California Edison to expand the line in 2007, only to see it rejected by the Arizona Corporation Commission.

If that stalemate continues, this may not be the last time that visitors to San Diego’s Sea World amusement park find themselves stuck on a roller-coaster, or that pump failures at treat plants spill sewage into water supplies. There is, however, a chance that federal authorities will step in to force transmission improvements. The Energy Policy Act of 2005 empowers the Federal Energy Regulatory Commission (FERC) in Washington to override opposition from states and push through transmission upgrades within designated National Interest Electric Transmission Corridors.

DOE is currently considering a proposal to also delegate to FERC its power to designate national interest corridors, thus streamlining the process for federal involvement. To date use of the federal power has been blocked by state challenges to the DOE’s designation process – a situation that FERC staff would like to change, according to a policy paper posted last week. As they write: “Clearly, the backstop transmission procedure established by Congress has not yet been effective."

What Might Obama Retreat on Air Regulation Portend?

President Obama's quiet decision last week to delay tightening of anti-smog regulations has alarmed environmentalists and his more liberal constituents, perhaps more because of its political tone than its substantive content. In giving job creation precedence over environmental standards—thus conceding something that doesn't need to be conceded, namely that environmental progress can only be made at the cost of economic growth--is the president setting the stage for a retreat on carbon regulation?

Several years ago a Supreme Court decision found that the Environmental Protection Agency could and probably should regulate greenhouse gas emissions under the Clean  Air Act and its amendments. The Obama EPA has been getting set to issue such regulations toward the end of this year. Furthermore, EPA's authority to act has been the president's trump card in struggling with Congress over climate legislation. If Congress failed to enact a cap-and-trade bill or a carbon tax, in effect the White House could simply issue decrees to cut emissions.

Might the president now give away that trump card? If tighter smog regulation is bad for jobs doesn't it follow that tighter carbon regulation also would be bad for jobs? John Walke, an air quality expert at the Natural Resources Defense Council, takes comfort in the complete unpredictability of Washington politics: "One thing I've learned never to do after spending nearly 20 years in Washington is to confuse logic and politics," says Walke. "What distinguishes carbon from ozone is the central reason cited by the president in his ozone decision," namely, a pending 2013 review of the ozone standard" last set during George W. Bush's administration.  That is to say, an ozone standard already exists and the issue is how strict to make it, but a carbon standard has yet to be created.

The ozone standard, by the way, is not to be confused with the important cross-state pollution rule, which courts struck down during the Bush years and the Obama administration recently reformulated and re-issued. It, at least to date, is intact.

World Will Install 44 Gigawatts of Wind Power in 2011

The World Wind Energy Association released its mid-year report for 2011, and showed an increase in installations over the same period a year earlier. A total of 18,405 megawatts of wind power were installed in the first half of this year around the world, up from 16,000 MW in 2010.

Unsurprisingly, China accounted for a huge chunk of the 2011 installations, with 8,000 MW of new wind power. The U.S. followed far behind, at 2,252 MW; that represents a big increase over a lackluster 2010 for the U.S., though, when 1,200 MW were added in the first six months of the year. Some other countries adding a lot of wind capacity through June 2011 were India (1,480 MW), Germany (766 MW), and Canada (603 MW). WWEA expects another 25,500 MW to be installed around the globe the rest of this year, bringing the total for 2011 to 43,900 MW. This represents almost a 17 percent increase over 2010's 37,642 MW.

The world's total wind energy capacity reached 215,000 MW at the end of June, and China accounted for an impressive 24.5 percent of that total, at 52,800 MW. The top five countries on the capacity list -- China, U.S., Germany, Spain, and India -- own almost three quarters of the world's capacity.

Notably, though, the global wind energy market is expanding. There are now 86 countries using wind energy (the latest three to join the party are Venezuela, Honduras, and Ethiopia), and those countries outside the top 10 in capacity now account for about 14 percent of the world's total.

Stefan Gsanger, the secretary general of WWEA, said in a press release: "We hope that especially the UN climate change conference in Durban will lead to better frameworks for wind energy mainly in developing countries. Amongst the industrialized countries, we expect that Japan will play an active and positive role in wind power in the foreseeable future and join soon the group of leading wind countries.” This, of course, being particular relevant in the wake of the Fukushima disaster and Japan's decision to rely less heavily on nuclear power.

(Image via WWEA)

D.O.E. Supporting Massive Increase in Thin-Film Solar Manufacturing

Thin-film solar modules, long touted as a revolution in renewable technology, are getting a big boost from the U.S. government. The Department of Energy recently announced a $197 million loan guarantee for SoloPower, a San Jose, California-based company that manufacturers CIGS (copper, indium, gallium, and (de)selenide) solar modules. SoloPower is constructing and expanding facilities in San Jose as well as Portland, Oregon.

Together, three facilities supported by the loan guarantee will produce about 400 megawatts of flexible CIGS modules each year. According to the SEIA solar trade balances report we covered here on Monday, only 197 MW in total of thin-film solar -- which includes CIGS, amorphous silicon, and cadmium telluride technologies -- were installed in the United States in all of 2010. Moreover, the entire solar industry only installed 956 MW of all types in 2010, so 400 additional MW will play a major role in total US installations.

Thin-film solar cells have the advantage of flexibility, and can be easier to install than traditional photovoltaics. There has been talk of flexible, thin-film technologies that are also almost entirely transparent, allowing for the creation of solar windows. CIGS designs are also improving rapidly, with one research group recently setting a conversion efficiency record of 18.7 percent, up from 14.1 percent in 2005.

The loan guarantee for SoloPower joins a list of 41 projects with guarantees totaling $41 billion, all for renewable energy.

Image via SoloPower.

Significance of Exxon-Russia Deal

The oil development deal announced yesterday by ExxonMobil and Russian prime minister Vladimir Putin is important from many points of view. First of all there are the terms of the deal itself:

--a partnership between Russia’s state-owned Rosneft oil company and the top private oil company

--$3.2 billion in immediate investment by the two partners, mainly to explore and develop reserves in Russia's Kara Sea in the Arctic and in the Black Sea

--$450 million for a joint Arctic research center in St. Petersburg

--stakes for Rosneft in Exxon field operations in the Gulf of Mexico, Texas, and elsewhere

The agreement will give Russia access to advanced offshore oil drilling and onshore hydraulic fracturing  technology. It represents a mending of fences between Russia and Exxon, which have been sparring for years over the terms of developing Sakhalin 1 off eastern Siberia, and a definitive end to negotiations between Russian oligarchs and the joint venture TNK-BP, which had sought the same kind of deal involving the same three Kara Sea fields to be explored by Exxon and Rosneft. (Perhaps not coincidentally, BP's Moscow offices were raided the day following announcement of the Exxon agreement, as the business press declared BP's "Arctic dream" over.)

Just as important is the larger political and economic context. Especially since the arrest of former Russian oil tycoon Mikhail Khodorkovsky and his re-conviction at the beginning of this year, foreign investors have been extremely reluctant to risk money in Russia. At the same time, there has been a great deal of capital flight, indicated by negative net investment flows. That troublesome situation has been probably the most important element in the ongoing struggle over who will take the country's six-year presidency next year--Putin or his protegé Medvedev--as Medvedev has styled himself as a reformer more eager to embrace standard free-enterprise business rules.

The Exxon deal, inasmuch as it was announced by Putin personally with a beaming Exxon  CEO by his side signals that it is he who will stay as the paramount leader next year. So too the prominent role in the deal-making by Putin loyalist Igor Sechin, deputy prime minister for energy, who suffered something of a demotion at Medvedev's hands earlier this year. (Medvedev decreed that he an others could not serve in top government jobs while at the same time holding positions in government-owned corporations.) Over the next decade, Sechin claims, the deal could involve hundreds of billions of dollars in oil investment. The deal says loud and clear that Putin doesn't need Medvedev to get big money from abroad.

When Putin sent his cops to arrest Khodorkovsky in 2003, one of the counts against the Yukos chieftain was that he had been discussing a joint venture with Exxon without first getting the Kremlin's permission. With yesterday's deal, the story comes full circle, Using as his vehicle Rosneft, which acquired the Yukos assets stripped from Khodorkovsy (and a lot of private investors), Putin has reached the kind of agreement that Khodorkovsky would have liked to make.

United States a Net Exporter of Solar Technology, to the Tune of $1.9 Billion

A new report from the Solar Energy Industries Association and Greentech Media Research showed that the United States was a net exporter of solar energy products in 2010, with a total positive balance of US $1.88 billion.

The United States had a solar energy positive trade balance with China that alone accounted for as much as $540 million. According to the report, $2.5 billion in polysilicon was exported from the United States; the material is the primary feedstock used in manufacturing crystalline silicon photovoltaic cells.

The report notes that though finished solar modules tend to be used as a benchmark for the health of the industry, a full 50 percent of solar energy–related revenue came from so-called "soft costs": site preparation, labor, permitting, financing, and others. And this is interesting: Though the country's largest export was polysilicon, its largest import was finished PV modules; $2.4 billion-worth of these were imported in 2010.

The $1.88 billion positive balance marks an amazing increase of more than 100 percent over the previous year. The United States was still a net exporter in 2009, but with a positive balance of $723 million.

(Image via SEIA/GTM Research)

The End of Energy Policy

We may as well say it out loud: Not only is fiscal and monetary policy running into limits in the advanced industrial (or OECD) countries, so that growth and jobs increasingly seem a question of luck; energy policy also is running into a brick wall. Everywhere in the rich countries of Europe, North America, and Asia, budgetary shortfalls, a reluctance to do anything that would further jeopardize growth, and the fallout from the Fukushima nuclear catastrophe have trumped energy and climate objectives.

OPEC, contrary to some expectations, now accounts for almost as large a fraction of world oil reserves as it did in 1973. Though it had little success in 2008–09 in slowing a precipitous drop in oil prices, this hardly matters in the larger scheme of things. With demand sure to keep growing sharply from the fastest-growing developing countries, and with the age of easy oil over, the basic trend will be for prices to remain high. For OPEC's biggest customers, "energy independence" is as distant a goal as it was a generation ago.

Though Europe has managed to cut its total oil consumption for several years in a row, its North Sea reserves are running low and its dependence on imports from Russia as well as the Middle East is growing. What is more, as Germany and Italy have adopted plans to limit or end reliance on nuclear energy, natural gas imports from Russia are sure to rise too—imports that are even more vulnerable than oil to interruption and manipulation.

Less reliance on atomic power also means much more generation of electricity from coal, in both Germany and Japan, and with that, higher-than-hoped-for greenhouse gas emissions. Since the adoption of the Kyoto Protocol in 1997, Germany and the United Kingdom have been the most aggressive and successful of the world's major world economies in reducing their greenhouse gas emissions. But that leadership now is threatened not only by greater dependence on fossil fuels but also by limits to how far and fast they can go with wind, the only real alternative to coal, gas, and nuclear for utility-scale power generation.

Germany, to be sure, has strengthened government incentives for offshore wind, and it remains optimistic about wind's growth potential. But let's not forget that favorable onshore sites have been largely exhausted, that the country's electricity prices already are rising quite sharply post-Fukushima, and that more expensive offshore wind could run into a consumer backlash.

We're already seeing that in the UK. Several years ago I paid a visit to the offices of Britain's Friends of the Earth in London, having previously visited in 1978. I learned that FoE's grassroots organizers were now trying to persuade activists to promote (and not oppose) plans for new wind farms; thirty years before organizers were helping activists block proposed nuclear power plants. Because of wide opposition to onshore wind in the UK, the government has had to resort to an ambitious program of offshore generation.

According to one critic of the program, the costs of British offshore wind could come to almost US $10 000 per citizen and be, on an installed megawatt basis, 10 to 12 times the cost of new natural gas generation.

Because of rising costs and economic worries, we have not been hearing the leaders of Germany, Japan, and the UK complain about the weakness of the U.S. greenhouse gas reduction program. It is basically an obsolete "no regrets" approach, of the kind widely recommended in the 1990s, when the scientific consensus was that climate change might turn out to be a serious problem: Promote green energy technology and domestic energy technology—things that make sense to do anyway, and which also would have a benign impact on greenhouse gas emissions.

Today the scientific consensus is that climate change definitely is a serious problem, but the United States, China, and India remain unwilling to address it frontally, and few nations are eager to call them to account.

Is China Backing Off From EVs?

China's ambitious goals for electrification of its automotive fleet call for 10 percent of the cars expected to be produced in 2015 to be EVs, as Micheal Austin reported in a "technology time machine" roundup earlier this year. The official hope has been that China might skip the hybrid phase that advanced industrial countries are going through and leap straight to all-electric cars. But the Financial Times reports this week that those goals are coming to be seen as too ambitious, and that some retuning or reformulation is in the works.

According to the FT, China's leading automotive battery and EV manufacturer BYD "has repeatedly delayed plans to commercialize and export its electric vehicles." Austin, who is in charge of BYD's U.S. operations, says in a personal communication that testing of the company's e6 all-electric sedan proceeded as scheduled and that commercial introduction of the car was delayed only because it was decided late in the game to change the size of the passenger compartment in response to dealer feedback.

Further, says Austin, the company has focused on production of fleet vehicles like its eBUS (above), responding to official emphasis on electrification of public transportation, rather on the more iffy consumer sector. While this has been "a fiscally conservative approach," he says, "the market [previously] crucified us for building capacity aggressively and then missing our 'doubling each year' targets." Yet  BYD's "15 percent growth last year should have been envied by any industry expert."

A month ago, Shanghai agreed to buy 200 of BYD's electric buses and 300 e6 taxicabs, initially to service the 2011 International Universiade Games and then, after the games end, to serve the city generally.

The consumer market in China is not looking to be an easy sell. Keith Bradsher, the New York Times' China correspondent, reports that Chinese have tended to prefer heavier, options-laden cars to the relatively light and simple EVs introduced so far. "A wide range of subsidies has not yet proved adequate to offset this," he observes. (Previously, Bradsher covered Detroit and the U.S. auto industry for the Times, so he can be assumed to know what he's talking about.) China's national government offers a subsidy for each EV bought of close to US $10 000, and the cities Beijing and Shenzhen another $10 000; Shanghai offers two-thirds that—40 000 versus 60 000 renminbi. In addition, Beijing and Shanghai exempt EVs from restrictions on issuance of license plates.

Under the circumstances, it's hardly surprising that introduction of the e6, which sells for 300 000 renminbi, has been cautious. Hertz announced this week it would start renting electric cars in China—but just three pairs of e6 sedans initially, and only with a chauffeur as part of the deal. By the end of the year Hertz hopes the Chinese total will be 25 to 30, Bradsher reports.

Complex Oil Market Complicates Global Economic Outlook

Global oil demand grew 3.1 percent last year to reach an all-time high of 87.5 million barrels per day, despite dropping sharply the previous two years, Worldwatch reports. Partly because European demand has fallen four consecutive years and partly because of continued boom growth in many of the so-called emergent market economies (such as Brazil, China, India, and Turkey), the world's less developed countries now account for almost as much of total world consumption as the OECD countries: 47.4 percent versus 52.5 percent. From 2005 to 2010, OECD oil demand fell 7 percent, while non-OECD demand grew 20 percent.

In terms of production, OPEC and non-OPEC countries (not counting the former Soviet countries) each account for about 42 percent of total supplies, with the FSU states accounting for a sharply rising share of 16.8 percent. For the second year running, Russia was the world's top oil producer, displacing Saudi Arabia in the top spot.

Prices and the balance of supply and demand show a high sensitivity to global economic trends. Prices spiked at the end of 2008, when the world economy was crashing, at over US $140 per barrel. In the next year prices dropped precipitously to about $30/barrel, despite OPEC’s decision in December 2008 to cut production targets by 4.2 million barrels per day. Prices climbed back more gradually in 2010–2011 to about $115 per barrel, only to start dropping again in recent months as nervousness about the prospect of a second recession has mounted.

OPEC’s continued centrality, despite Russia's rise, is noteworthy. During and after the oil crises of 1973–1974, free-market theorists predicted that as the organization tried to limit world production and drive up prices, competing suppliers would enter the market, causing the organization eventually to wither away. In the short term, something like that happened. From 1975 to 1985, a Worldwatch figure shows, OPEC's share of world production fell from almost 50 percent to below 30 percent. But then in climbed back in the next decades to over 40 percent, where it has held steady. 

Evidently there was a limit to how much oil was readily available in non-OPEC countries to develop. Today, another Worldwatch figure indicates, the OPEC countries account for almost as large a share of total estimated world reserves as they did in 1973.

What are the prospects for the immediate future? According to IEA figures cited in a recent Financial Times article, even with oil demand growth slowing with lower-than-expected economic growth, the increase in total world petroleum demand this year will exceed any increase in oil supplies from non-OPEC countries. So OPEC will continue to play a key balancing role and strongly influence world prices.

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