Friday, October 9 , 2015, 1:51 pm | Fair 88º

Tam Hunt: Are We Halfway to Market Dominance for Solar?

By Tam Hunt |

Solar power is on a tear. Cumulative solar photovoltaic electricity production is about to reach 1 percent of total global electricity production, according to a new report from the International Energy Agency.

In just a decade, solar power has gone from being an interesting pipe dream for greenie types to a mainstream source of power, due to its increasing cost-effectiveness in many countries around the world. This is a remarkable evolution and demonstrates well why CitiGroup recently stated that the “age of renewables” is upon us.

I’m going to even further in this article, however, and argue, as I did recently with respect to electric vehicles, that this 1 percent global solar penetration is far more important than you might think.

Only 1 percent, you say? That’s tiny. Right. But that 1 percent is actually halfway to the goal of market dominance when we consider the recent growth rates of solar and the likely growth rate for solar in the future. Yes, 1 percent is halfway toward market dominance and I’ll explain why below.

Global solar PV capacity, annual and cumulative (International Energy Agency data)
Global solar PV capacity, annual and cumulative (International Energy Agency data)

Ray Kurzweil, an American inventor and entrepreneur, discovered the Law of Accelerating Returns by studying numerous technology adoption curves. The classic example concerns computing power. Moore’s Law holds that computing power will double about every two years for the same cost. Sixty years after Gordon Moore, Intel’s former CEO, made this observation, the law holds true, though we’re actually doubling now about every year. Kurzweil discovered, however, that Moore’s Law is just the latest paradigm keeping a much longer trend going, as the chart below shows.

Ray Kurzweil on the five paradigms of increasing computing power.
Ray Kurzweil on the five paradigms of increasing computing power.

So how can 1 percent of all global electricity sales suggest in any way that we’re on the road to a world dominated by solar? Here’s why: 1 percent is halfway between nothing and 100 percent — in terms of doublings of capacity. That is, there are seven doublings from 0.01 percent to over 1 percent and also seven doublings from 1 percent to 100 percent. One double is two, which doubled is four, etc., reaching 128 after seven doublings.

Kurzweil’s best example of the counterintuitive nature of his law is the Human Genome Project. This was a government-funded effort to decode the entire human genome in about 15 years. Well, halfway through the project the effort was only at about 1 percent completion. Many observers wrote off the effort as a failure that couldn’t possibly reach its goal. Kurzweil, however, wrote at the time that the game was won because 1 percent was halfway to 100 percent in the terms that actually mattered: the rate of improvement in sequencing technology.

And he was right. The Human Genome Project finished slightly early and helped to bring down the costs of genome sequencing technologies by orders of magnitude, as well as dramatic reductions in the time it takes for sequencing. We can now pay about $1,000 to sequence our own genome in a matter of days.

Applying the Law of Accelerating Returns to Solar

The average global growth rate for solar over the last five years has been 34 percent. NPD Solarbuzz projects 50 GW installed in 2014, for a growth rate of 27 percent, giving a six-year average of 33 percent. IEA calculates that solar PV will produce 160 terawatt hours in 2014, or 0.85 percent of global demand. Seven doublings of 0.85 percent gets us to 108 percent. So what is the doubling time at 33 percent? There’s a simple cheat formula: 72/growth rate = the rough doubling time. So 33 percent leads to a doubling rate of a little more than two years (2.2 years).

Seven doublings of 2.2 years equals 15.4 years, at which point we would reach a solar penetration of over 100 percent of current global electricity demand by 2029. (Of course, global electricity consumption is going to increase in that time, but for simplicity’s sake I’ll keep my analysis to today’s consumption.)

Will this happen? Of course not. The growth rate will surely slow, as it has already in the last couple of years. This is to be expected: new technologies often see rapid growth rates as they catch on and then the growth rate slows as higher penetrations are reached. If solar continues to grow in coming years at an average rate of “only” 15 percent, we reach about 8 percent of current global electricity demand by 2030. This is good but not great, considering the magnitude of the problems we face in terms of our fossil fuel energy use.

So are we going to see a declining rate of growth, steady growth or perhaps even an increasing rate of growth as solar becomes even more affordable in more and more countries? The IEA report highlights the fact that only about a dozen countries were responsible for the vast majority of solar PV growth in 2013. Will this revolution spread quickly to other countries or will the solar revolution catch on fire around the world? So far, it’s been a European, East Asian and North American phenomenon. Will the rest of Asia, Africa and South America catch up soon?

My hopes are certainly on solar catching fire around the world now that it has become so cheap. And, being as objective as I can, I think this is the most likely outcome, particularly with worries about major fossil fuel exporters like Russia and Saudi Arabia ever present. We can expect Europe’s transition to renewables to find renewed vigor now that Russia has shown increased aggressiveness in its backyard. While the center of gravity in PV installations in 2013 swung sharply toward Asia (China and Japan were by far the largest two markets in 2013), my feeling is that we may see it swing back toward Europe in 2015 and later as policymakers in Europe see the light on increasing their dependence on renewables as an alternative to continue dependence on Russian fossil fuels.

Time will tell what the rate of growth is in future years, but we can rest assured that solar will play an increasingly strong role in power grids around the world now that costs are so low and the stigma against solar is all but gone. It also seems fairly clear that solar power and other renewables are on a path to becoming by far the most prevalent form of power in most countries in the next few decades.

What About the United States?

We can’t forget our own backyard in this discussion. Major investment banks are finally starting to see the potential for solar in the United States, including Morgan Stanley and Citigroup. The United States became the third largest installer of PV in 2013, behind only China and Japan. We installed almost five gigawatts of solar, enough to power more than 1 million homes. The United States also regained the top spot in Ernst & Young’s Renewable Energy Country Attractiveness Index in 2013. Combined with the increasing realization that solar PV is now affordable and natural gas prices are only going up (natural gas is at about $4.50/mmbtu now, sharply up from a few years ago), we can expect to see far more solar in the United States, too. And that’s a very good thing.

As solar reaches higher penetration in various countries and grids, integration issues will become more pronounced. I’m currently living in Hawaii, on the Big Island, where solar penetration is already over 10 percent — perhaps the highest in the world. This is because electricity costs are sky-high here. High penetration of renewables can be managed in various ways but energy storage solutions are the most promising long-term solution. We are already seeing jurisdictions like California, Germany and Japan investing heavily in energy storage so it is reasonable to believe that we’ll see a declining cost curve for storage technologies similar to what we’ve seen with solar. The X factor regarding storage is when this declining cost curve will take effect — in the next few years or further out?

Summing up, under Kurzweil’s Law of Accelerating Returns, we have reached, after more than 40 years of development of solar PV technologies, the halfway point to market dominance. We are likely to see the second half of this journey take less time than the first half. Cost will probably not be the hurdle as we move forward because we are already at the point of cost-effectiveness, or on the verge, for solar in comparison to alternatives. Rather, integration issues and the stranded costs of existing energy infrastructure will be the larger hurdles.

Far-sighted policymakers should recognize the potential for solar and energy storage to provide a complete power solution in the coming decades, and be very careful in approving new long-term contracts for fossil fuel power production, because ratepayers may very well be on the hook for stranded costs for these new facilities as the solar revolution continues to work its magic.

— Tam Hunt is owner of Community Renewable Solutions, a consultancy and law firm specializing in community-scale renewables. Community Renewable Solutions can help developers navigate this complicated field and provide other development advice relating to interconnection, net metering, procurement and land use. Click here to read previous columns. The opinions expressed are his own.

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