Why Solar is the Hottest Technology in Clean Energy

Going Through The Roof

When is comes to clean energy, the most rapidly growing segment by a wide margin is solar. World solar cell production grew by almost 40% in 2006, while U.S. shipments increased by over 50%. For many of these companies, their biggest problem is meeting demand and some have several years’ worth of orders.



Even politicians on the far left who rarely have anything good to say about corporations or capitalists have blessed these companies, and most are calling for greater “investment” here. Many states will pay part of the cost of purchasing one of these systems and the Federal government will also chip in some incentives. Meanwhile, these companies have a miniscule share of what is a huge potential market.

Why Solar?

The major alternative energy technologies include biofuels, hydrogen & fuel cells, wind turbines, and solar. Of these, solar panels are by far the cleanest and safest method of power generation. In addition, they don’t require new infrastructure, generate power at the intended site, can be connected to the existing electricity grid, produce maximum power during periods of peak demand, require little maintenance, and can last up to 45 years.

The biggest issue for this industry is that solar is still a very expensive way to produce electricity. Without government subsidies, demand would be a small fraction of what it is now. However, manufacturing economies of scale are steadily reducing the cost. The rule of thumb, based upon decades of history in Japan, is that costs decline by around 20% every time production doubles. As a result, the most rapidly growing solar technologies have the best chance of producing electricity for a competitive price in the shortest period.

The Market

Although solar cells were developed about 50 years ago, high costs limited their use for many decades. As costs gradually came down, solar became cost effective for some remote locations not covered by the electricity grid. As costs came down further, solar began to make sense in countries with high electricity generation costs and in growing third world countries that had a constant problem with power reliability and availability. Add expanding subsidies because of concerns over climate change in some parts of the world, and demand increased further. Because of historically high power costs and the willingness to provide generous incentives, Japan and Germany are currently the largest global producers of solar power.

The United States is currently the world’s third largest producer even though it has more sunshine and real estate than Germany and Japan. A leftward shift in state and national politics in the last few years has produced more solar incentives, and this technology is currently gaining momentum. In 2006, shipments in the U.S. increased by over 50% while world production rose by about 40%. Although this growth is from a very small base, the current rate is still significantly higher than other clean energy technologies.

According to industry sources, revenues are expected to increase to by 23% annually to 2010. Given current order rates, this expected growth rate of 23% may turn out to be conservative. Even if these forecasts pan out, solar will still account for less than 1% of overall electricity production in the U.S in 2010. However, once it becomes competitive without subsidies, solar will be poised to take a much larger share of the market for electricity. This is now around $275 billion in the U.S. and several times that on a global basis www.eia.doe.gov.

Subsidies

Solar panels are still too expensive and most still have relatively poor efficiency (the amount of sunlight converted to electricity). As a result, subsidies are required to make the economics work for most potential buyers. Leaving aside the ethical issue of requiring taxpayers that decide not to install solar panels to subsidize those that do, the most important consideration when it comes to subsidies is politics, not sunshine. At the state level, an abundance of liberal politicians is more important than an abundance of sunshine, which is why you’ll find more solar panels on roofs in New Jersey than Arizona.