Emerging industry solar bernhard baumgartner ss

Bernhard Baumgartner BUMO 756 Industry and Competitor Anaysis [email protected] Oliver Schlake

Emerging Industry Analysis

Solar Industry

University of Maryland, Spring 2011


I. I. Industry

I identified five major forces for the development of the solar industry in the future. Some are short

termed and some are integrated in a longer process.

1. Rise in cost of energy

Energy prices are on an increasing slope for decades, the resources (petrol, gas) are not unlimited so

there is a need for an alternative. The following graph shows the increase in the price of petrol since

the 80’s. This trend is not going to reverse in the future and the costs of the ‘traditional energies’ is

going keep on increasing.

(Source: US Energy Information Administration)

2. Will of population

In the developed countries the population is in favor of the development of alternative energies. The

following graph shows the plebiscite for green energies in France.

(Source: BVA Poll: Les Français et les Energies Renouvelables 2010


Question: You personally, are you very favorable, fairly favorable, fairly not or very favorable to the development of renewable energies in

France’)

97% of the population is either ‘slightly in favor’ or ‘completely in favor’ to the development of

renewable energies in France. The same study shows that on average, French people would accept a

increase of 10% on their energy bill in order to develop green energies.

3. Problem in nuclear industry

Many developed countries have nuclear power plants on their territory. It’s a clean source of energy

(if we ignore the problem of the waste) and it’s reliable. But some accidents like Chernobyl of more

recently Fukushima change people’s mind on nuclear energy. For instance in France, an Ifop (poll

institute) poll showed that 70% of French people are in favor of abandoning the nuclear strategy.

This figure will of course decrease in the coming weeks when the emotions of the drama disappears

but if another accident occurs the politicians will take some further steps (like Germany already did).

4. Decrease in cost of production

The cost of production of a kWh of solar energy is consistently decreasing. With the increasing

production and the outsourcing in low cost countries the costs will decrease rapidly.

(Source: Solarbuzz LLC, Federal Reserve Bank of St Louis)


For instance the First Solar (thin film) panels cost $0.75 per Watt down from $1.59 in 2005 (1) First

Solar Corporate Overview March 1 2010

(First solar Corporate Overview March,1 2010)

These decreasing costs will start being competitive with other energies in a few years. Of course the

grid parity will be reached quicker in sunnier countries where the energy yield is higher.

5. Innovation

A lot of research money is allocated to solar companies and many labs are working on increasing the

energy yields of the panels. Here is a summary of the energy yields obtained with different


technologies

(Source: Data compiled by Lawrence Kazmerski, National Renewable Energy Laboratory (NREL))

As we can see the panels become more and more effective and there is a constant growth since

1975. Unfortunately there is no breakthrough technology which suddenly increases the efficiency of

the panels and there is a very low probability that this will happen. Nevertheless the long term trend

is an increased efficiency.

All these trends lead us to believe that the solar industry has a bright future. Out of curiosity I

checked the word ‘solar energy’ in the Google trends tool. It appears that since 2004 the number of

searches in volume is constantly growing so that’s one more early warning of an industry in

expansion.

(Source: http://www.google.com/trends?q=solar)

II. II. My Opinion

1. Long term trends

a. HUMAN BEHAVIOR

The use of energy by humans changes every century. Before 1800 the energy resources were mainly

renewable (hydro…) and the needs weren’t that high. Then coal started to be used more and more.

http://www.google.com/trends?q=solar


Petrol and gas started to be used as well at the turn of the twentieth century. These three sources

still account for 82% of the energy use in the world today. (See graph below + projections).

(Source: AEO 2011 Early Release Overview: http://www.eia.gov/forecasts/aeo/pdf/0383er%282011%29.pdf )

I believe that with the increase in cost of oil and gas the world will go back to greener energy sources.

We already analyzed some trends in the first part. We have some more leads that go towards the

same direction. The electrification of third world countries may not be on the same model as the

developed countries. In order to save money on electrical lines and in order to have a decentralized

energy production, non-electrified towns can opt for local energy production (solar or other source

of renewable energy). This also applies to richer countries. For instance in France there are two

regions who are in a constant threat of energy shortage (due to the centralized production and the

way the electrical grid was build). These two regions are Bretagne and Provence Alpes Cote D’Azur,

and they are looking for local ways to produce energy.

b. REGULATIONS

The European Union set a target for 20% of its energy production coming from renewable sources by

2020. To comply with this rule many incentives have been given to consumer in order to produce

solar energy (Feed in Tariffs in almost every country). Some American states also have such targets.

The Renewable Portfolio Standards (RPS) adopted in many American States will also push the

demand.

c. CHINA

Many green energy companies already outsourced their production in low cost countries, mostly in

Asia. Thus, China is now the biggest green energy producers before the United States and Brazil.

http://www.eia.gov/forecasts/aeo/pdf/0383er%282011%29.pdf


(Source: Renewable Energy Data book 2009).

With its development China will also have to increase its energy production. Chinese officials already

signed agreements for huge solar plants to be built in the desert (First Solar won the market). 2Gwp

are projected to be installed in the Mongolian desert over a 10 years’ time span.

2. Short term trends

Having worked in this industry in France for one year I have a good insight of the development of the

solar industry. Here is a graph that describes the take-off of solar energy production in France over

the past few years.


(Source: estimations SER-SOLER, d’après ERDF, EDF-SEI

Evolution of the grid-connected projects in MW (France))

These figures have again doubled at the end of 2010. This explosion can be seen under two angles.

On one side it’s good for the electricity mix and it goes towards the European regulation. On the

other hand this costs a lot of money to the consumer and in a time of crises politicians want to save

money and avoid a green bubble. That leads us to our third part: the uncertainties.

III. III. Uncertainties

I identified three major uncertainties in the development of the solar industry:

1. Political will

The development in Europe is solely based on the Feed in Tariffs (FIT) these are set by every

government. In order for the industry to take off some countries like Germany and Spain set some

very high FITs a few years ago. The demand exploded and the tactic fired back. Spain was the world

leader in installation in 2008 with 2,5 GWp installed. The FITs were drastically cut and in 2009 only 69

MWc were installed (a 93% decrease) (2). A whole industry and many investments were rendered

useless in one political move. The same is likely to happen in France; the government issued three

different laws reducing the FITs in less than a year. Half of the jobs created during the last 3 years are

likely to vanish. (3)

2. External shocks

Two external factors could greatly influence the expansion of the solar industry:


A. ENVIRONMENTAL CATASTROPHY

An event like the nuclear accident in Fukushima in Japan changes the opinion from people on the

energy concerns. The solar energy, even if it can’t be the only energy source (due to the impossibility

of storing it) is a reliable option once the costs will go down enough. The risks of accident are very

low and the implementations of big scale projects are severally controlled by authorities.

B. TECHNOLOGICAL BREAKTHROUGH

I already discussed this part the first part. It’s a low probability high impact case so we have to keep

in mind that it could happen.

3. Alternative energies

The solar industry has many alternatives. The expansion of other renewable energies (wind,

geothermal…) could hinder the development of the solar industry. The decision might be a cost-

based decision and right now the solar kWh is more expensive than the wind kWh

(Source: AEO, EPA, EPRI, NREL, McGowin, DeMeo et al. US. Energy Background Information August 2010)

Other than the cost side, other alternative energies have advantages the capacity factor are higher

for the wind energy (20-40%) (4) for hydro (44%) or even nuclear (90%) (5)

IV. Natural position for players in the industry.

For me there are 3 strategies that will lead to success in the long term.

1. Be close to decision making centers


The companies who are ‘insiders’ of the political decisions have a greater chance to shape the future

of the industry. They can use their lobbying skills to change the political decisions. In France, a

company like EDF Energie Nouvelles (a subsidiary of EDF), takes advantage from the fact that it is EDF

who buys back the ‘sun-produced’ electricity to make their projects advance quicker, and to get a

guaranteed FIT. (6)

2. Aim at ‘Sun Belt’ countries

The ‘Sun Belt’ countries are the majority of the countries located between the 35th degree North

latitude and 35th degree South latitude

(Source: EPIA: Unlock the Sun Belt Potential of Photovoltaic Second Edition October 2010)

They are sunnier than most of the developed countries and thus provide a huge potential for growth.

Very large projects can be designed in order to maximize the sun potential. But the solar energy can

also be used to provide electricity to villages that are too far away from the grid. The following graph

shows how much more efficient those countries are compared to where the solar industry is

booming now.


(Source: EPIA: Unlock the Sun Belt Potential of Photovoltaic Second Edition October 2010)

This discrepancy can be reduced by using a more clever way to use the sun. The ‘Sun belt’ countries

are usually low cost countries, thus the panels could be produced and used in one country: this offers

a huge potential for many companies.

3. Vertical and Horizontal Integration

Another strategy is to control the whole process of production from the silicon extraction to the

installation of the systems. Companies using this strategy will make big economies of scale. Other

companies like Conergy and Inventux also started a horizontal integration: they produce their own

inverters (a complementor) in order not to be dependent on a possible shortage of inverters.

IV. V. Winning Strategies

1. Size matters

The barrier to entry is quite high. The initial investment in capital is quite high and it’s a time-

consuming process: it takes an average of 18 months to complete a production plant. Of course no

revenue is made during that time-span and the panels can’t be tested and improved. Therefor the

established players have a big advantage.


2. Multi-activity

Companies who already are big players in the energy industry will also be good competitors. For

instance BP, Bosch, Sanyo are now producing solar panels. The can streamline their income with

other products when the solar industry takes a hit (like in Spain in 2009). They’re also less dependent

of the erratic decisions of politicians in their energy policies.

3. The run for economies

The ultimate goal is grid-parity: the first company that will be able to produce solar energy at the

price of every other energy will be a huge player in the energy market. When approaching this grip

parity those companies could get passed the FITs (and sometimes the caps set up by governments)

by installing their panels and not connect them to the grid (self-sufficient plant…)


References:

(1) First Solar: corporate datasheet: MD-5-601 NA 28FEV11

(2) Source: EPIA: Global Market Outlook for Photovoltaic until 2014 May 2010 Update

(3) (http://www.lefigaro.fr/flash-eco/2011/03/08/97002-20110308FILWWW00548-solaire-la-

filiere-se-sent-bernee.php).

(4) (Renewable Energy Research Laboratory, University of Massachusetts at Amherst.

http://www.ceere.org/rerl/about_wind/RERL_Fact_Sheet_2a_Capacity_Factor.pdf

(5) (Nuclear Energy Institute.

http://www.nei.org/resourcesandstats/documentlibrary/reliableandaffordableenergy/graphi

csandcharts/usnuclearindustrycapacityfactors/

(6) http://www.francebtp.com/environnement/e-

docs/00/00/CE/5F/document_articles.php?titre=photovoltaique---edf-energies-nouvelles-

aurait-floue-la-concurrence

http://www.lefigaro.fr/flash-eco/2011/03/08/97002-20110308FILWWW00548-solaire-la-filiere-se-sent-bernee.php

http://www.lefigaro.fr/flash-eco/2011/03/08/97002-20110308FILWWW00548-solaire-la-filiere-se-sent-bernee.php

http://www.ceere.org/rerl/about_wind/RERL_Fact_Sheet_2a_Capacity_Factor.pdf

http://www.nei.org/resourcesandstats/documentlibrary/reliableandaffordableenergy/graphicsandcharts/usnuclearindustrycapacityfactors/

http://www.nei.org/resourcesandstats/documentlibrary/reliableandaffordableenergy/graphicsandcharts/usnuclearindustrycapacityfactors/

http://www.francebtp.com/environnement/e-docs/00/00/CE/5F/document_articles.php?titre=photovoltaique---edf-energies-nouvelles-aurait-floue-la-concurrence



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