COMMENTAR Y
Solar: The Third Industrial Revolution Commodity markets cannot ignore new technologies CHRIS BRODIE, FOUNDER, KROM RIVER TRADING AG
T
oday in the age of information overload it is hard to separate the genuine long-term economic developments from the noise.
Commodity specialists, like many investors, have been transfixed by oil and gas fracking and so the unblinking eye of the markets has really been focused on the wrong events. The world is undergoing the “Third Industrial Revolution” which will impact every country on the planet both economically and geopolitically. While it has been happening slowly, it is picking up momentum at an exponential rate in time with the speed of its technological development. This feels like the start of the internet: many had heard of it but few understood its impact.
The first industrial revolution was based on coal, the second on oil, and the third is based on solar power. There are three “Big Leaps Forward” for solar energy: technological improvements in the efficiency of solar energy generation; the development of flexible delivery hours by solar energy generators, using utility-scale energy storage; and the development of cheap and efficient batteries for vehicles. The first two have already happened and on their own they are revolutionizing global economies; the third will happen in the next few years and will expand the revolution.
Technological development in solar power has meant it is becoming cheaper to generate solar electricity. In many areas, like Western Europe, solar energy generation is dependent on subsidies. However, in high-irradiance, high-energy-cost areas the cost of solar-generated energy is already well below the cost both of retail electricity prices and other means of producing electricity like oil and coal generation with carbon capture. Solar generation capacity is being installed due to subsidies in low-irradiance areas and simple economics in high-irradiance areas. The ongoing development in solar power technology means we are faced with a supply of clean cheap power with almost unlimited reserves which will reduce the future price of all current types of energy and change the locations where energy is produced.
There are two main types of solar power generation. The first is Concentrated Solar Power (CSP) generation plants which use reflectors to heat a medium, usually molten salt as salt liquidizes in high temperatures. This is then harvested of its heat by steam turbines for power generation. Photovoltaic (PV) generation is where solar radiation is converted directly into electricity by solar panels using photovoltaic material. The important economic difference between PV and CSP solar power generation is that utility-scale CSP produces energy less efficiently than PV and then sells that energy at the low bid price to the
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distributor for transmission to retail markets. Retail PV generation, having produced energy more efficiently, displaces high-priced retail energy normally bought by the retail customer from the energy distributor. Typically PV panels are not used in utility-scale generation parks but on retail buildings, replacing electricity demand at source as well as feeding power into the grid. The reason for PV being used at the retail end is that it is more economically viable on a small scale, while CSP is used in large utility-size production, as when it is combined with Thermal Energy Storage (TES), CSP is more flexible in delivery. TES flexibility enables the less efficient CSP generation to compete with more efficient PV production by enabling CSP to release more power at peak consumption (high-priced) times of day. Crucially, PV on a utility-scale lacks the ability to store power for peak demand release.
More efficient, lower-cost generation The first Big Leap Forward for solar power is the fall in costs which has occurred in the last five years and continues to develop. In high- irradiance (sunshine-rich) areas, the ability of solar generation to deliver power to retail users below the cost of many existing forms of utility scale power generation is driving its development. The economic drive from solar comes first from better technology increasing solar panel efficiency, and secondly from cheaper parts, so more power and therefore money from fewer dollars per installation.
The result has been a doubling of global solar power generation capacity every two years since 2006. Since 1972, for every doubling of installed solar capacity, the price of solar panels fell by 22%, although this was accelerated by the collapse in panel prices after 2008. Walmart is currently using 20% renewables today, and this is planned to rise to 100% by 2020 not for reasons of green marketing, but because it is economic to do so. In 10 US states rooftop solar is cheaper than utility power, and this will be true by 2017 in 23 states. In the US, unsubsidized PV-produced energy should be cheaper than unsubsidized retail electricity supply in most US states by 2020 – not just in the high- irradiance states as the situation exists today. So expect high solar generation capacity growth rates. The reason I am sure of this is that while most PV has an efficiency of about 17%, new Concentrated PV (CPV) has been developed with an efficiency of well over 40%, so it is just a matter of waiting for the engineers to build it more cheaply for both CPV and the economically viable solar area to expand.
Simultaneous sunshine no longer needed The second Big Leap Forward in solar power has been the development of flexible delivery of solar power resulting from the introduction of TES. TES enables CSP generation to deliver power at
a different time from when it is produced. The medium which CSP generation uses is molten salt, which stays liquid well over 1,000 degrees, enabling the CSP generation system to be low- pressure and therefore low-cost. The molten salt is then put into a reservoir or ‘heat sink’, enabling power to be generated after the sun has set and during bad weather. Importantly, TES also enables CSP to release more power than is being generated by the sun at any time of day. In effect TES is a utility-scale battery. TES has given CSP the ability to produce power overnight – CSP/TES generation plants have already produced electricity for 24 hours straight. This enables PV generation, when too much power is produced, to use the flexibility of the grid as its battery – to seem to charge into the grid when TES acts as the battery for CSP power displaced by PV generation.
The case for solar power does not need to be made politically as it has already been made economically; huge investments into the area are already ongoing. The US Department of Energy (DOE) has produced a report titled “2014: The Year of Concentrating Solar Power” as 2014 is seeing a fourfold increase in total US-based installed CSP generation capacity, with 1,250 megawatts (MW) of generation capacity being installed during the year, at a cost of $5 billion. Other countries are also advanced, with Australia having so much retail PV generation that the state of Queensland, with 1,100MW of installed PV, has seen peak demand power prices turn negative on days with low power demand. PV rooftop solar is now the fourth-largest generator of electricity in Queensland.
Other countries are also taking solar seriously. One of them is South Africa, which has approved 64 renewable projects since 2011 worth about $10 billion. Another country in Africa which is spending a similar amount to South Africa is Morocco, which is planning to install 2,000MW of solar generation capacity, 18% of its electricity demand, by 2020. Increasingly we will see new solar generation displace fossil fuel demand. For example, Saudi Arabia is currently generating 50% of its electricity by burning oil. In May 2014 Saudi Arabia used 680,000 barrels per day (680kbpd) of oil for power generation versus 547kbpd in May 2013. However, between 2011 and 2032 Saudi Arabia plans to install 41,000MW of solar generation capacity split between PV and CSP. Likewise India is now planning to install 20,000MW (also known as 20 Gigawatts, 20GW) of solar generation capacity.
Solar power generation will continue to expand at exponential rates for a number of reasons. Firstly, economically competitive solar technology already exists and is getting better. Further technological development in the efficiency of solar energy
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