New Ideas and New Products

I read an article today which mentioned that the naturalist Sir David Attenborough has become patron of the Optimum Population Trust, a think tank campaigning for global research and awareness of the issue of population growth and the effect it is having on planet earth.

According to the United Nations the global population is expected to grow from 6.8 billion today to 9.1 billion in 2050. Here are a few of the OPT’s conclusions:

• Water demand exceeds supply in nearly half the world’s countries: by 2025 two-thirds of the Earth’s population will live in water-stressed areas.
• The proportion of cultivated land on the planet has increased from 7% to 40% in 300 years, with almost no room left for expansion.
• Oil and natural gas look set to ‘peak’ within a decade or two and it’s doubtful that either nuclear or renewables can fill the gap. (I agree with the first half of that statement but disagree with the second half. I believe solar power has the potential to be an extremely cheap and abundant form of energy in 10-15 years. Although Nuclear Fusion power has its issues as I discussed here recently, I believe it could be a potential solution in the more distant future.)
• If we believe climate change has anthropogenic origins then population growth is not going to help.
• Population is growing at 1 million people every 5 days.
• Humanity is currently using 120-140% of the resources that the Earth can sustainably provide.
• This topic has become too controversial an issue for politicians and environmental groups to address for fear of causing offence. It can sound anti-people, and pro-poverty.
• This isn’t just an issue for the developing world. People in the developed world consume far more resources and emit more pollution than those from the developing world.
• Ultimately the world needs to reduce its population by about half to around 2-3 billion.

Some rather sobering conclusions but I believe they come from solid academic study. How we start to address this problem I do not know. Maybe Obama should wait for his second term to address this issue!

Last Thursday I wrote about how China was going to give the solar industry a boost by introducing government backed incentives for solar project developers.

Well yesterday Japan announced it was going to extend its already existing Solar incentives by providing around 2 Trillion Japanese Yen to be spent on solar projects over the next three years. This equates to around 1GW of demand per year which is very significant seeing as Japan only installed around 280MW last year.

Japanese manufacturers of solar panels such as Sharp and Kyocera should be the first to benefit but the solar industry as a whole should benefit from this extra demand as it reduces the supply/demand inbalance I talked about last Thursday.

Most of the additional demand in Japan will come from Building Integrated Photovoltaics (BIPV) as land values are too high to justify large utility scale “solar farms” as Japan is such as mountainous country.

So two good bits of news for the solar industry in one week. With the G20 meeting on Thursday we could see some further positive news. There is also talk of a green stimulus element to the Chinese stimulus plan which would be further good news for the alternative energy industry as a whole.

The solar industry received a boost today when the Chinese government said it was going to step in to provide incentives to encourage the development of solar installations.

This is good news as the solar industry has had a tough time through the credit crunch and consequently there is an oversupply of solar modules which is driving down prices and effecting manufacturers’ margins.

The Chinese government is saying that they will subsidise solar projects to the tune of around $3 per Watt. Given that solar module prices are currently around $3 per Watt that means that all the developers will effectively pay for is the balance of plant and labour which should be considerably less than what is paid in Europe, Japan and the US. Therefore, this effectively makes the cost of installing Solar in China less than half of what it was before today’s announcement.

The focus is going to be on Building Integrated Solar Photovoltaics (BIPV) and systems will have to be over 50kW to qualify. So we aren’t really talking about Chinese families putting solar panels on their houses as for this you would need nearer 10kW. I guess it will focus on factories, schools, hospitals, etc.

The Chinese are also making sure that subsidised installations will use quality panels requiring at least 16% for monocrystalline panels, 14% for multicrystalline and 6% for thin-film.

The big question is what does this do to solar demand. How many MWs will China install this year and going forward? It’s really hard to say but I think this could add 500-1000MW this year. Planning processes are likely to be fast and installation times will be quicker than in Europe and the US .

China is expected to need to double its electricity generating capacity between 2005 and 2015 and so it looks like solar can play a fairly significant part. China has the manufacturing capacity and technical expertise to continue to expand and this is likely to play a big part in helping the solar industry globally to get to grid parity.

Ultimately this subsidy is about supporting the Chinese solar manufacturing industry and developing a home grown source of additional electricity generation capacity. However, perhaps there is an element of China taking its first steps towards helping the world deal with climate change.

However, you look at it we now have great subsidies in place in the two most important economies: the US and China. Hopefully they can now build on the efforts that governments in Europe and Japan have made to develop the solar industry.

A fairly significant amount of money from the recent Stimulus bill has been earmarked to develop the alternative energy industry in the US. The net effect of the legislation could translate to around $150 billion of investment. There are numerous programmes in place from direct federal investment in R&D, putting solar panels on government buildings and making them more efficient, upgrading the electricity grid, support for electric vehicles manufacturers, etc.

The most important in my mind though is the $6 billion of federal loan guarantees for new alternative energy projects such as solar and wind installations. This $6 billion investment will support $60 billion of government guaranteed debt financing which is sorely needed after many financial institutions have simply stopped providing to financing to capital intensive infrastructure projects.

When I first read about this part of the bill I thought to myself, this is really good news for the alternative energy industry, but, it’s going to take them a long time to get this money to the people who need it. The applications for this kind of financing through the Department of Energy have historically taken months or even years. Energy Secretary Steven Chu has been revamping the process to apply for DoE grants and he had said he expected to see projects being approved by May which I thought sounded ambitious. Therefore it was great yesterday to see the first company benefit from this programme.

The company Solyndra is a manufacturer of Solar Photovoltaic panels and they have received loan guarantees of $535 million to allow them to build out a new commercial sized production plant.

Although it was positive to see that money was starting to be allocated at this early stage I was somewhat surprised to see this programme being used to support a manufacturer with a relatively unproven early stage technology (they use a relatively inefficient thin-film technique using CIGS instead of the established crystalline silicon technology). It seems to me the DoE should be targeting this money at new alternative energy installations such as large scale solar and wind farm projects. There is currently an excess supply of solar panels in the market and adding to that supply in the near future is not going to help the industry as a whole or the economic viability of a company based around young technology. Don’t get me wrong I’m all for investing in new technology and R&D but I don’t think this is the programme that should be used.

There is an opportunity to take advantage of the worldwide excess supply of solar panels by helping to fund large utility scale installations who can take advantage of depressed solar panel prices based on proven technology. These large projects are far lower risk than providing debt to an early stage company like Solyndra. Solar farm projects have very predictable cash flows, low ongoing costs, and can be installed quickly once approval has been given.

I will keep my eyes peeled for further news of where this money is going and keep you updated.