Issue



The myth of infinite demand


09/01/2009







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Paula Mints,
Navigant Consulting, Palo Alto, CA USA

All industries, particularly during periods of strong growth, are vulnerable to believing in their own invulnerability. This is not really hubris; generally, along with the technical skills required, developing a technology or product requires believing that demand for it exists, and that it is cutting edge enough in form factor, design, function, cost, et al., to nullify the competition. Examples: Sony Betamax versus Video Home System (VHS) and practically all internet-based products during the dotcom boom (with obvious and vivid exceptions). Infinite demand does not exist for any good, not even toothpaste.

The term grid parity was knocked around often during the high growth years of 2004???2008, along with the promise that solar’s grid parity would bring with it the ability to sell everything you manufactured. New entrants envisioned a world with no barriers and just one small hurdle, getting to grid parity in a timely manner.

The photovoltaic (PV) industry does not exist in a vacuum however; it competes with conventional energy technologies (coal and natural gas), nuclear, and other renewables (wind), not to mention energy-efficiency technologies (primarily building materials such as windows). Energy efficiency and conservation are economical ways to control energy costs. Given the competitive landscape that includes less-expensive competitors all vying for a larger piece of the energy market, the answer to unlimited demand for solar is simply not as simple as achieving grid parity.

Grid parity is, from the start, a complex concept. It differs by global region, country, area of the country, and U.S. state, among other factors such as time of usage (peak usage for example), whether the competitive electricity rate is wholesale or retail, and customer type. Some commercial customers have negotiated rates, utilities in some countries offer discount rates to senior citizens and the poor, and some utilities deliver electricity at below the cost of production.

At solar conferences, grid parity is often presented as the primary goal for the PV industry. Unfortunately, this pronouncement ignores nuance along with educating observers (that is, potential customers) to believe in the industry’s version of Santa Claus. To be clear, grid parity is real; however, its power to render solar demand indestructible is up for debate. Moreover, the goal of grid parity is most often attached to module prices or lower module manufacturing costs. System price/cost is what matters, and often this is overlooked in the discussion.

Lower-cost electricity from PV technologies is a worthy goal and should not be ignored, but it is only one goal of many. Technological advancement in the solar industry is ongoing, and manufacturing costs continue to decline. Distributed solar energy offers a significant answer to energy security concerns, environmental concerns, and energy independence for consumers. In rural areas, solar is often the only answer for poor populations to improve their standard of living. Solar can and will continue gaining share in the global energy mix, and not just because of grid parity.

Even now, the myth of infinite demand lives on with many believing that this means growth of >40% a year for the foreseeable future. The PV industry needs stable demand, grid parity with conventional sources of energy (historic sources such as coal, as well as renewables such as wind power) as an equalizer, along with new business models that allow consumers to choose between buying electricity or buying a system ??? in other words, stable demand and the ability to compete on a level playing field with other energy choices.

Paula Mints, principal analyst PV services program and associate director, energy practice, Navigant Consulting, 3000 El Camino Real, 5 Palo Alto Square, Palo Alto, CA 94306 USA; PMints@NavigantConsulting.com.

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