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Has Solar Power Finally Arrived?

by | published April 17th, 2014

Solar power has always offered up the promise of three tremendous benefits.

It’s renewable, it’s great for the environment, and it can be produced right here at home – safely insulated from the ups and downs of global politics and market bottlenecks.

But there has always been one big problem with solar – the price.

For years now, its high cost has always been the biggest weapon in every critic’s arsenal. “It’s just too expensive,” they claim.

However, a study released last week by investment bank Sanford Bernstein suggests this objection is about to fall by the wayside for good.

It was brought to my attention in an article last week by Giles Parkinson of RenewEconomy. To say its findings are rather dramatic is an understatement.

In fact, I can promise you this study will definitely turn some heads

You Can’t Turn Your Back on Research Like This

Now I must admit, not all analysts (myself included) would accept the study’s premise without some discussion, but its overall conclusion is impossible to ignore.

According to Bernstein, solar PV (photovoltaic systems that generate electricity directly from sunlight) is now cheaper than oil and Asian liquefied natural gas (LNG). The investment bank bases its conclusion on calculations made on a million British thermal unit (MMbtu) basis. This is the standard way analysts equate and compare the energy output for various liquid fuels.

“For these [developing Asian economies], solar is just cheap, clean, convenient, reliable energy. And since it is a technology, it will get even cheaper over time,” Bernstein writes in the report, adding, “Fossil fuel extraction costs will keep rising. There is a massive global market for cheap energy, and that market is oblivious to policy changes” in China, Japan, the EU or the U.S.

Of course, the bank does provide a needed dose of realism when it acknowledges that the current market share of solar PV in the global energy mix is so small that “the idea that oil and gas is the ‘loser’ in this formulation is laughable… in 2014.”

To the point: The latest BP Energy Survey estimates solar PV accounts for only 0.17% of the global market. That’s the smallest component of any major source. By comparison, oil accounts for 33%, coal comes in 30% and natural gas provides 24%. On the lower end of the scale, there’s hydro power at 7% and nuclear at 4%. Even wind and geothermal power (if you’ve ever been to Iceland, volcanoes provide the power) top solar PV, rounding off the list at just about 1% each.

The Long Chase Might Finally Be Over

The “Holy Grail” for solar enthusiasts has always been what the industry refers to as “grid parity.”

Grid parity simply refers to the cost of the source used as being equivalent to that of the primary manner in which electricity is generated. And until recently, most of the solar input could not be sustained in market terms, unless it was the recipient of significant government subsidies

However, as locations were weaned from dependence upon public sector support, some of them showed signs they could become self-sufficient. Above all else, these projects required two things: lots of sunshine and infrastructure networks that were already in place.

Of course, these developments by themselves were hardly enough to change the global energy landscape. Local changes in the energy pattern have a minimal impact on worldwide energy flows and pricing projections.

But the Bernstein report takes a different view, positing that’s not likely to be the case a decade from now. According to the report, solar is already eating away at the margins of oil and gas demand. Bernstein says the adoption of solar in off-grid areas in developing markets will translate into less demand for kerosene and diesel. Even oil demand in the Middle East will feel the effects.

Meanwhile, the increased use of solar power in China, developed Asia, the U.S., Europe and Australia will likely serve to reduce natural gas demand as well.

But Parkinson’s article goes on to reveal something much bigger. The kicker in the report is what he refers to a veritable “bombshell.”

As he writes, “While solar has a fractional share of the market now, within one decade, solar PV (plus battery storage) may have such a share of the market that it becomes a trigger for energy price deflation, with huge consequences for the massive fossil fuel industry that relies on continued growth.”

A Market as Big as Two Billion Backyards

According to the report, “The behavior from here seems clear: the solar industry will expand. Retaliatory steps from distribution utilities will increase the market for cost-effective battery storage.”

Bernstein maintains, “This becomes – initially – a secondary market for battery technologies being developed for the auto sector. A failed battery technology in the auto sector (too hot, too heavy, too rigid a form factor) might well be perfect for the home energy storage market… with an addressable end market of 2 billion backyards.

“And for some years, that will be the extent of the effect. We have previously calculated how large the solar sector would need to be in order to become a material share of incremental energy supply each year and therefore begin to displace high-cost oil and gas supply and start to depress prices.

“We estimate that the solar industry would need to be an order of magnitude larger than it is today to have this kind of impact. At the point where solar is displacing a material share of incremental oil and gas supply, global energy deflation would become inevitable: technology (with a falling cost structure) would be driving prices in the energy space. But even on an aggressive view, this could take the better part of a decade.”

Giles adds that, according to the Bernstein analysts, “The chief risk is that they are being too conservative. The big oil and gas producers, and the investors that control the flow of capital, may not wait until energy prices do actually deflate; they will likely change their behavior well before that in anticipation that it will happen.”

The report speculates that, “If the downward sloping forward curve is ever accepted as permanent, rational behavior from energy producers will guarantee it is so. Sitting on oil and gas reserves for the benefit of generations yet to come ceases to be a rational strategy if that reserve represents a depreciating rather than an appreciating asset.”

This, Bernstein says, is the hidden flaw with the idea that solar is “too small to matter.”

Ultimately, it says, what may kill the energy market for equity investors is not the fact that renewable technology and battery storage will turn into behemoths, but the realization of that future as inevitable.

With that in mind, there are two things to remember as we move into what the bank claims is going to be a significant change in energy production cycles worldwide.

First, as veteran OEI readers well know, my position remains that it is all about the energy balance, not simply just the pushy new kid in town. It’s the ability to maintain the balance of multiple available and interchangeable energy sources that will bring overall end-user costs down and improve efficiency.

Second, the envelope in this area is really going to get pushed by the nation rapidly accumulating the lead in net generation solar systems…

China. More on that as it develops.

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  1. Terry
    April 17th, 2014 at 12:39 | #1

    SE usage could be an exponential curve. As more use it, new methods/materials of fabricating the panels could come on line making it’s use cheaper making things more readily available, etc.. I recall as a kid being told to turn off the lights in a room when you left the room. I suspect the price of electricity back then was much higher per unit of income then it is now? And how much energy and money could be saved by turning off/reducing the amount of ad lighting? Strob warning lights on tall structures need an exemption however.

  2. Michael Coston
    April 17th, 2014 at 15:17 | #2

    Is it possible to have a battery system used as the main system and still be connected to the grid, selling any unused power?

  3. April 17th, 2014 at 16:26 | #3

    Hello Kent,
    Your commentary on the report by Sanford Bernstein on the future of solar is certainly compelling. But, you (and apparently Bernstein) make no mention of the problem posed by the silver supply. Solar power depends on a lot of silver. Chris Martenson has computed that the production of 20% of current power demand with solar PV systems would require 200 billion ounces of silver. Yes, that’s with a “B”. Estimates suggest that the earth’s crust currently holds about 4 to 5 billion ounces.
    If this is true it would raise certain obvious questions. In addition to silver, solar PV requires rare earths. Wind power requires even greater, actually massive amounts of rare earths for the current generation of large windmills. To truly challenge oil and gas the technology will have to change and the costs will have to stop falling and turn up again. This may turn into quite an expensive competition.
    Thank you for your fine letters!
    Regards, David

  4. April 17th, 2014 at 22:58 | #4

    I know of a company with recently developed new techs, including a blade-less turbine that can produce CLEAN WATER (from polluted or salt water) AND electric power from the free, clean energy of the sun (and / or bio-mass) for less than we pay now for just the filthy electric power from coal. For anyone interested in more info on these techs (and others) and a tax utilization program they have that is working great – they can learn of this and make contact at the website referenced.

  5. ChrisM
    April 26th, 2014 at 12:49 | #5

    Interesting, but… I am curious about advancing battery technology such as vanadium. Does this introduce opportunities in the area of battery/storage utilization and scientific advances which may produce significant advancements over solar? What I have no information on is the long term environmental implications of moving to vanadium based storage. If long term storage and material handling issues are minor, this may compete with solar over time

  6. ChrisM
    April 26th, 2014 at 12:50 | #6

    Or better yet compliment the solar development story

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