Wednesday, November 26, 2008

'09 Panel Prices Could Remain Flat

Part 2 of a two-part projection

Yesterday's post gave projections of two solar stock analysts on PV panel pricing in 2009. Their reasoning included the most common market drivers of oversupply of polysilicon, oil below $60 a barrel and the credit crunch. This blogger contends many other factors could very possibly keep panel pricing flat next year. Confused? Then, let's lay it out.

1) Polysilicon glut: Granted, there are many more players making silicon wafers than just three years ago but oversupply could be short lived next year. When the federal solar investment tax credit was extended in the Wall Street bailout, it also dropped the $2000 cap on the residential tax credit allowing a full 30% credit (like commercial projects) of a PV system's installed price. A 5kW residential system at around $37,000 will fetch an $11,100 credit instead of a measly $2000 before.

Furthermore, private (taxable) utilities are no longer exempted from the tax credit. Utility-scale PV installations by nature can be huge. The very smallest are one megawatt (MW) and as large as 40MW (and getting bigger). Using an average 200-watt panel on a 1MW project is 5000 panels. Power utilities (as opposed to water utilities) are being pushed by state mandates to use more renewable sources. If utilities line up--and there appears to be a lot of action in the Southwest--panels could be eaten up like corn at a turkey farm.

2) Oil is rarely used as an energy source for producing electricity but it's the primary source of energy for transportation. Coal, natural gas and nuclear power are the primary energy sources for electricity production. Just because we pay about half as much for a tankful of gas now than we paid in June doesn't mean our electricity bills are going down, either. They're not. In fact, there have been three rate hikes alone since spring with San Diego Gas & Electric. So it doesn't follow that falling gas prices will lessen the demand for solar power.

3) Credit squeeze. This doesn't apply very much to large commercial solar projects as most of them are financed through power purchase agreements (PPAs). This is the financial instrument that got WalMart and Safeway stores on the solar bandwagon. A PPA firm is composed of private investors with the need to mitigate their tax burdens. PPA investors actually assume ownership of large, multi-million dollar PV projects to take advantage of the 30% federal tax credit along with any state or local incentive. The host customer (like Walmart) agrees to pay the PPA firm say 15 cents per kilowatt-hour for the 15, 20 or 25 year life of the PPA agreement. Thus no up-front cash by the end-user is required; the system is owned and maintained by the PPA group; and the customer gets the benefit of lowering its carbon footprint and lots of good PR.

4) A blowback in wind. Wind is a clean, renewable source of energy but windfarms are usually a long way from the urban areas that need their power. In Texas, transmission lines are already maxed out and upgrading to a larger infrastructure will cost billions. (Maybe that's a reason T. Boone Pickens curtailed his "Plan" for the time being.) Another issue with wind is that it produces power best when the power is less needed, in spring and fall, not during the dog days of summer. Finally, wind turbines--though they're getting better all the time--are mechanical and require shutdown for maintenance. Solar panels crank from June through September when air conditioning loads are highest.

5) Greenhouse Gases and Jobs. In the widely viewed "60 Minutes" interview of Barack Obama on Nov. 16, the president-elect appears locked into promoting clean energy technologies.

Interviewer Steve Kroft asked whether cutting oil imports was less important now that the price of oil has plummeted from $147 a barrel earlier this year to under $60.

Obama: It's more important. It may be a little harder politically, but it's more important.

Kroft: Why?

Obama: Well, because this has been our pattern. We go from shock to trance. You know, oil prices go up, gas prices at the pump go up, everybody goes into a flurry of activity. And then the prices go back down and suddenly we act like it's not important, and we start, you know filling up our SUVs again.

And, as a consequence, we never make any progress. It's part of the addiction, all right. That has to be broken. Now is the time to break it.
As already mentioned, oil is most important for transportation and less for electricity production but the point is still clear. Solar (and wind):

--reduces dependence of fossil fuels thus
--cuts greenhouse gas emissions that

--mitigates global warming while it
--creates thousands of non-exportable jobs by
--establishes a long-term solar power infrastructure

Some administrations have relied on wartime economies, tax cuts or unusually low home loan rates to stimulate money flow. All of these, to one or another extent, have been utilized during the past eight years while a free-wheeling financial sector was left to "self regulate." Solar power could be the Magic Bullet of the next administration in that it could turn the economy around while achieving so many ancillary benefits. (And conservatives won't attack it as a give-away.) Like the space program during the 60s, the commitment to clean, renewable energy will take a strong political will. Even more so, it will take moral and ethical will.


The analysts covered in yesterday's blog overlooked my five counterpoints and maybe that's because this blogger is closer to the industry. So, will solar panel prices drop in 2009? Maybe, but not by much.


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