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The Energy Title …
by Paula Mints
Don Quixote by Honore Daumier via Wikimedia Commons
For decades the photovoltaic industry has been driven by its
beliefs, hopes, the availability of incentives, and what it is
willing to ignore in terms of market realities and technological
barriers. The apparent achievement of grid parity, even at
drastically low margins, was hailed a victory. Continued
deployment of multi-megawatt installations in the face of low
margins for developers and likely gigawatts of poor quality
installations has been regarded as proof of the inevitability of
the industry’s success.
Given the competitive landscape for energy technologies and the
short attention spans of many, it is courageous to continue the
slow, iterative process of technology development in the face of
naïve and easily disappointed investors and well-meaning
government investment in technologies that, in some cases, have
defied the laws of physics. The solar industry (and all of its
technologies) continues to push ahead on hope — and this hope is a
brave and necessary industry personality trait that must continue
to be nurtured.
Don’t Tread on my Unwillingness to Face the Facts
Though there are many examples of
companies/individuals/governments/investors persevering despite
facts that indicate a change in direction might be a good idea,
one of the best examples of unwillingness to fact facts is the
prolonged period of negative margins during the late 2000s.
From 2009 through mid-2013 aggressive pricing for PV cells and
modules pushed manufacturer margins to dangerously low levels
while losses pushed many companies into bankruptcy. Low
prices for PV technologies led to lower system prices, which were
celebrated as proof that the industry had achieved grid
parity. As PV manufacturers began failing these failures
were accepted as normal casualties of consolidation. Figure
1 below depicts average module prices (ASPs) and costs, along with
shipments and the delta between costs and prices from 2003 through
Figure 1: Module ASPs, Costs, Shipments and the Cost/Price
Delta, 2003 through 2014
Ignoring Political Risk, Margin Risk, Incentive Risk and
Economic Risk Just May be a Survival Technique
Strong markets in the solar industry continue to be incentive
driven. Denying this fact does not make it any less of a
fact. In the mid-to-late 2000s the FiT driven markets in
Europe surged, giving the region an >80 percent share of global
demand. During those days, incentive risk was largely
ignored. Following the retroactive changes that drove system
in some countries into bankruptcy, demand into Europe began
Currently, the incentive driven and government supported markets
in Japan and China, at a combined >50 percent of global demand,
are (essentially) providing a base on which the global solar
industry can seek out its next dominant market.
Expectations for strong markets typically ignore incentive risk
(the risk that an incentive will be reduced drastically or end
abruptly), political risk (in extreme cases war, in less extreme
cases tariff interference), margin risk (the risk that a sale will
result in loss instead of gain) and economic risk (the risk that a
change in the regional/country economy will trigger lower demand).
Monetary risk (the risk of currency devaluation as is the
case with countries in Latin America and India) can derail a
project’s profitability. It is common to assume that
unpleasant or unprofitable outcomes have a lower probability of
happening than do positive or profitable outcomes. It is
also normal to assume that today’s small regional or country
market will be tomorrow’s booming market.
It is difficult to hedge bets and develop a diversified portfolio
of markets to serve in an incentive driven industry. The
learned behavior of solar participants is to serve (or over serve)
the available market while assuming that another market will take
its place when it finally slows. Historically the industry
has been rewarded for this belief. No matter what, another
incentivized or supported market seems to come along to replace a
Figure 2 presents an assessment of 2014 global supply (shipment)
and demand shares for the PV industry.
Figure 2: Supply/Demand Expectations for 2014
Solar and the Don Quixote Principle
Figure 3 offers a picture of PV industry metrics from its
demand/supply inventory at the end of 2013, through 2014 and into
2015. These metrics include demand/supply inventory, capacity,
production, shipments, installations and defective modules.
Figure 3: Global PV Industry Metrics 2014 into 2015
In an industry surrounded by obstacles, well-funded competitors,
ill-thought-out government intervention (including poorly designed
incentive programs) and often irrational market behavior, it takes
a profound and steadfast hopefulness and belief structure to
continue developing and deploying solar technologies. The
need to celebrate decades of often significant growth in a vacuum,
that is, ignoring solar’s share in the overall energy mix is
understandable given the bone shaking disappointment
experienced by many participants. Amazing progress has been
achieved by ignoring daunting realities.
Don Quixote tilted at windmills, performed brave acts, fought
imagined and real enemies and saw his comrades as heroes — acts of
a demented mind or the courage of a man unwilling to be ordinary
and saw a world filled with potential. The solar industry
combines courage, willfulness, imagination and a determination to
ignore or remain ignorant of market and sometimes technological
The Don Quixote Principle is the willingness to persevere despite
real or imagined obstacles and villains with the goal of heroic
action and a more perfect world. Into this definition, the
solar industry and all of its participants falls quite neatly.
Paula Mints is founder of SPV Market Research, a
classic solar market research practice focused on gathering data
through primary research and providing analyses of the global
solar industry. You can find her on Twitter @PaulaMints1
and read her blog here.
This article was originally
published on RenewableEnergyWorld.com, and is republished
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