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How, Why and When Guide to Set up your own Solar Energy Business

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I receive a lot of inquiries regarding how to enter the solar industry . Note the Solar Business is one of the fastest growing industries in the world right now clocking over 50% yearly growth since 2000. In 2010 the solar panels sold globally grew by 150%  and another 30-40% in 2011. The fast falling prices of solar panels and the falling costs of solar electricity means that it will continue to grow at rapid rates in the future.

So how does an entrepreneur get into the solar business. Note there are already lots of people who have made their fortunes in the solar industry . Some of their are solar developers while others are solar manufacturers while others are involved in supplying materials to the solar industry.

Main avenues of getting into the solar industry

1) Manufacturing of solar panels,cells, wafers in  a factory and selling them

2) Manufacturing other system parts of a solar system such as solar cables, solar inverters, solar glass, encapsulants, racking systems etc.

3) Solar Development that is setting up a solar power plant by financing it and selling the plant or the electricity

4) Solar Installation – This involves installing a solar system on a house or a commercial establishment. This involves wiring, putting up the panels ,procurement etc

5) Solar Distribution – The solar industry works in the traditional way where manufactuers sell to wholesalers who in turn sell to retailer.

Which Part should you get Into

Manufacturing of Solar Panels and Components is not possible as the industry is heavily oversupplied by Chinese players. Unless you have a tremendous innovation, forget manufacturing as big companies have taken this segment over. The age of startups in solar manufacturing is over. There are possibilities of getting into associated into solar ancillaries like making racking systems but I would not be on it.

Solar Installation is possibly the best business for a small entrepreneur to get into as large companies don’t derive the benefits of scale, capital and technology too much in this part of the solar supply chain. In fact the largest number of solar companies exist in the solar integration and solar installation part of the supply chain.

Solar Distribution is also a good business if you already have infrastructure and working capital to invest into. Solar Panels as a product is going to be as common as a TV or a Refrigerator in the future. In fact some of the major conglomerates like Samsung and LG are already making silicon solar panels and selling them . So are companies like GE . You can be a wholesaler and make good money on a growing segment.

Feel free to give your suggestions and feedback. I have included some of my prev article snippets which might help.

APPENDIX

HOW TO SET UP A SOLAR PLANT IN 10 STEPS

1) Site Identification - Identifying a Suitable Site for Building the Solar Plant.Note the Area should not be heavily forested and have easy access to the Roads and the Power Grid.

 2) Preliminary Financial Analysis - Preliminary Financial Feasibility with inputs like the Land Costs,Solar Insolation,Interconnection possibility with the Power Grid Operator

3) Land Leasing or Buying - After Step 2 has passed,then begins the Acquisition of the Land through Lease or Ownership.

4) Basic Engineering Design/Technology Selection – An Engineering Layout is prepared along with the Selection of the Technology and Vendors of Solar Equipment

5)Permitting – Various Permitting Procedures need to be followed in this Step.This is specific to an Area and can be quite cumbersome.For eg. in the USA the permitting involves very heavy costs forming almost 15-20% of the cost of a Solar Project.

6) Power Purchase Agreement – A Power Purchase Agreement (PPA) needs to be signed with the Power Utility who will buy the Electricity

7) Selection of EPC – A System Integrator or a Solar EPC Contractor is selected.In case an EPC Contractor is selected then Solar Panels ,Mounting and Inverters needs to be purchased if the Contract is not a Turnkey One

8) Financing of the Solar Project needs to be done.Note Solar Power Plants require a high initial investment with very low O&M costs.In general 60-80% of the Project is Debt Financed.

9) Testing and Connection to Grid - After the Solar Plants is built,Testing of the Plant has to be done before it is connected to the Power Grid

10) Ongoing O&M – A Solar Plant has a life  of between 25-30 years and requires minimal maintenance and monitoring.Solar Inverters have to be replace after 10-15 years.In case a Solar Module fails,it needs to be replaced as well as it degrades the performance of other Solar Panels.

 

1) Solar Panels

What are the Different Types of Solar Panels

Size

Solar Panels come in all sorts of sizes,colours and power.Solar Panels of 20-40 Watts are typically used for applications like a Solar Lamp,Lantern and products using small amounts of power.For Putting Solar Panels on the Roof for Generation of Electricity,sizes vary from 150 Watts to 300 Watts.

Type and Color

There are also 2 different types of Crystalline Silicon Panels – a) Monocrystalline b) Multicrystalline Panels.In general Monocrystalline Panels give higher amounts of power and cost more.Solar Panels generally come in blue color though black color can also be found.

Thin Film Panels

 Thin Film Panels are generally used for Building Integrated Photovoltaic (BIPV) applications where the Panels are integrated as a part of the Building Structure.This is in not prevalent in India as of now but will become quite pervasive in the future.

Solar Panel Efficiency Technology and Range

Solar Panel Efficiency can be as low as 7% for amorphous silicon technology to as high as 18% for mono-crystalline silicon technology.Note some of the solar panels used in spacecraft have cells which have conversion factors ranging as high as 40% but those are niche applications.Solar Panels made by First Solar using the Cadmium Tellurium Technology are in the range of 11-12% while the CIGs technology which is being used to make solar panels by a number of companies like Miasole,Solyndra,TSMC and other have the range between 10-13% currently.Note Solar Panel Efficiencies are constantly increasing for all technologies each year.

Solar Panel System Costs

Solar Panels Costs

Solar Panels cost for the cheapest solar panel manufacturers in around 80c-100c/watt and they retail for around $2/watt of residential customers.Note for utility large scale buyers of solar panel buyers,the cost is much lower.Solar Panels Costs have trended down quite in the last 3-4 years except in 2010 when they went up as solar panel demand increased by more than 150% .Solar Panel Costs are the biggest component of a Solar System Cost.The costs for Solar Panels  are lower for Thin Film Solar Panel for example First Solar Panels are much lower in cost but have lower Solar Panel Efficiency .Solar Panels in general cost between40-60% of the total system costs

Solar Inverter Costs

Solar Inverters cost around 50c/watt for small buyers of solar systems but can cost lower for large kilowatt inverter sizes and for scale buyers.Solar Inverters are a crucial component of a solar system and make up around 10% of the solar system costs.Here is a list of major solar inverter brands

Solar Installation Costs

These are the costs paid to the installers/electricians to connect solar panel systems and the balance of systems (BOS) to the grid or the customer installation.Solar Installations costs can vary between 10-20% of the total costs

Balance of Systems (BOS)

Balance of System components are the solar mounting systems,wires,cabling etc which are needed to mount the solar panels at the right inclination to generate the maximum energy while wire and cabling is needed to connect the solar panels to the inverter and each other.Note BOS can form between 15-20% of the Solar System.Again note the percentage of costs are an indicator and can vary substantially depending on the technology used,region etc.

Permitting,Inspection,Regulation,Other  Costs

Most Solar Panel Installations get a government subsidy in most parts of the world and involve a lot of paperwork,regulation,inspection etc.These can vary substantially depending on where the solar panel installation takes place.In USA the red tape involved is quite cumbersome and can form upto 30-40% of the total costs in the worst cases.In Germany which is the world leader in solar energy,the process is very smooth and can be done at 5% of the total system costs.

Solar Panel Sizing and Calculator

Calculating how many Solar Panels you need is quite tricky as it depends on the Solar Panels Efficiency,Design of the Solar Array,the place where you live etc.

1) Solar Panels Efficiency – Some Solar Panels are more efficient.For example Solar Panels made by Sunpower and Sanyo are the most efficient which means they require less area.For space constrained homes,they are the best bet but they cost more per watt hour of electricity generated.Click on the heading of this paragraph to understand more about Efficiency.

2) Sun Light or Solar Insolation – This measures the amount of sun light that your solar panel installation recieves.Typical Solar Insolation is  around 1000-1500 watt hour per year.This means that if you install 1 watt of solar panels you will get 1-1.5 units of electricity per year.You should first calculate how much electricity you require per year.If you require around 7200 units a year you would need to install a 5 kilowatt or 5000 watts solar array.You can find out the solar insolation you receive from free websites like a) www.nrel.gov/rredc/pvwatt if you live in the USA and b)re.jrc.ec.europa.eu/pvgis/countries/countries-europe.htm if you live in Europe.These websites also give you information about the solar insolation/radiation you live

3) Design of the Solar Array – This is very important in ensuring that you get the most power out of your solar panels.The design of the solar array should always be done by a good solar installer.Note this is a fragmented industry but you can find more about the big solar installers in the USA here.You should ensure basic stuff such that there is no shading of your solar panels,the roof does not leak,the materials used are good.Also having a good solar inverter is important.Nowadays you can get individual solar microinverters for each solar panel as well.Note almost 1-520% of the power generated by your solar panels is wasted in converting from DC to AC.

Solar Panel and Cell Dimensions

A Typical Solar cell of 0.5V and 3 Amperes has a dimension of 60mm x 30mm x 2.8mm (LxWxD) .Solar Cells in Bulk can be bought these days at very cheap prices of 70c/watt.Monocrystalline Solar Cells cost more at 85c/watt while its impossible to buy Thin Film Solar Cells.A Typical Solar cell of 0.5V and 8 Amperes has a dimension of 60mm x 60mm x 2.8mm (LxWxD)

A Solar Panel of 200-250 Watt normally has dimensions 65 inches x 4o inches  x 1.80 inches and weight of around 40-50  LBS or 20-25 kgs.Note Solar Panels made from Thin Film have much bigger sizes because of lower efficiency,however their thickness is lower and weight is also a bit lower than similar dimension polysilicon solar panel

2) SOLAR INVERTERS

Solar Inverter Costs and Prices

Solar Inverter Companies have much higher margins than the normal Solar Panel Companies as their costs are much lower than their prices.Solar Inverters have a cost beween 10-25c/watt while the wholesale selling Price can range between 30-40c/watt.However with the entry of Asian manufacturers,the margins and the prices of Solar Inverters are expected to come down rapidly.The current glut in the Solar Inverter Market indicates that prices may come down soon.

Main Solar Inverter Companies

SMA Solar – The Big Daddy of the Solar Inverter Market with a   40% Marketshare of the Global Market.This Germany company has become the most valued solar company in Germany beating out the old stalwarts like Q-Cells  and Solarworld.SMA Solar has managed to maintain its marketshare and grow as fast  with the global solar demand unlike some of its competitors.SMA Solar faces tough times ahead as the growing inverter industry attracts numerous competitors and it remains to be seen whether it can avoid the fate of Q-Cells.

2) Power-One - The US power management company has shown the fastest growth in 2010 and has increased its marketshare to around 13% to become the No.2 global player.Power-One is mainly concentrated in Europe and is now expanding to Asia and its home market of USA.

3) Kaco New Energy – Like SMA,this is also a German company though privately held.It too benefited from the strong growth in German solar market in 2009 and 2010 to become a large players.It is has not grown as fast as SMA but is still a big players

Solar Inverters vs Microinverters

Pros of Microinverters compared to String Inverters

  1. Reliability and Longer Life  – Micoinverters are more Reliable as the failure of a single piece affects only that solar panel and not the whole solar array of solar panels in case of Solar Inverters.Also the Mean Life of Solar Inverters are much more than the life of the Solar Panels compared to the 5-10 year life of String Inverters which have to be replaced.
  2. Productivity – Microinverters claim to have 5-25% more power production from solar panels as they manage to maximixe the power production from each solar panel (MPTT) compared to string inverters which MPTT the whole solar array.Microinverters give more accuracy  If a single panel is operating at a different point, a string inverter can only see the overall change, and will move the MPPT point to match. Shading of as little as 9% of the entire surface array of a PV system can, in some circumstances, lead to a system-wide power loss of as much as 54%
  3. Ease of Installation – Installing Solar Panels with Microinverters is easier and faster and leads to lower costs compared to Solar Inverters though there is still some dispute on this.
  4. Flexibility – Another benefit of the distributed microinverter design is the potential for installations to be expanded over time. An initial set of solar modules can be installed and additional modules added as needs and budgets grow without requiring the replacement of a large centralized inverter.
  5. Reduction in Lifecycle Costs - Installers are no longer limited by string design, marginal designs, co-planarity, and matched modules. Microinverters  reduce wiring time, and remove the need for DC switching points.
  6. Space and Heat of String Inverters – String Inverters occupy more space (though not a big problem) and generate a lot of heat which has to be cooled by used fans.
  7. Higher Power Inverters have to be used - Because of the limited range of power rated inverters availabe,solar panels have to generally use power inverters of greater size for eg. 800 W of Solar Panels will have to use 1 KW solar inverters wasting the 200 W

Disadvantages of Microinverters compared to String Inverters

1) Cost - Traditional Inverters cost between 35-50c/watt depending on the size,technology,brand etc. while microinverters typciall cost between 75-90c/watt again depending on brand,market etc.This is the biggest disadvantage of microinverter compared to solar inverters

2) Placement of Microinverters – Microinverters are place on the rack below the solar modules.This is said to cause problems as it is placed on the hottest part of the solar system and could lead to problems in case of high insolation areas

3) Not useful in utility solar power plants Solar Power Plants of more than 1 MW in size have not used microinverters as microinverters are more useful in power plants of smaller size where maximum power is needed and where there are problems of shading,debris etc.Also monitoring of small power plants is difficult.

3) Top Solar Companies

1) First Solar – the US based Cadmium Tellurium (Cd-Te) is the lowest cost panel producer in the world today if you don’t include any penalty for low efficiency.Even if you penalize the Cd-Te Technology for its lower efficiency vis-a-vis the higher efficiency crystalline technology,First Solar is clearly the leader with a core cost of 74c/watt.The company has a roadmap of  reducing the cost to 52c/watt by 2014 and given its track record it seems quite achievable.

2) Sharp – Sharp,the Japanese Electronics Giant was the largest solar company in the world by revenues in 2009,however it risks losing its top 5 place in 2011 as Chinese companies ramp up capacity at a much higher rate.Sharp has been shielded from the fierce competition in the solar panel market as the domestic Japanese market has also grown sharply.Japan is a tough market for foreign companies to crack like other sectors and that has allowed Sharp to prosper despite much higher costs and lower margins.However,Sharp has not been able to grow fast enough in 2010 with major Chinese companies seeing upwards of 100% growth

3) Suntech – Suntech was  the world’s biggest producer of solar panels in 2010 and was one the first companies to set up operations in China.Its example was followed by a host of other Chinese companies.Suntech has been slow to expand compared to the fast growing small companies in China and has lost marketshare to them.It has started to vertically integrate in order to meet the low cost challenge from Trina and Yingli

4) Yingli Green Energy - Yingli Green Energy is one of the oldest Chinese companies and is completely integrated from polysilicon.The company has been expanding rapidly and has one of the lowest cost structures in the industry.

5) Trina Solar - Trina Solar is one of the lowest cost manufacturers of Solar Panels in the World right now and also sells it at a very low price.This is the reason that the company in a span of few short years has manged to acquire a 10% global marketshare.The prices the solar panels being sold are around $340 per 200 watt module.

6) JA Solar - JA Solar unlike the others mainly produces solar cells instead of solar modules.The company is one of the lowest cost producer of solar cells in the industry and has recently expanded into producing modules as well.The company has shown the fastest growth in 2010 and looks to be a world leader in the future.

7) Motech - This Taiwan producer of Solar Cells was one of the biggest in 2007 but has gone down the ranks.TSMC bought a stake in this company after it faltered post the Lehman crisis.The company seems to be recovering ,however it has seen newer rivals like Neo Solar,Del Solar and Gintech expand more rapidly.

8)Gintech - It is the biggest solar cell producer in Taiwan and has shown amazing growth since its inception.Gintech like JA Solar producers mostly solar cells.

9) Hanwha Solar One - The Company which was recently acquired by South Korean Chemicals Giant Hanwha also makes one of the cheapest panels and sells it a very low price.The quality is also quite good and with strong parentage behind it,the solar panels made by the company.Again like Trina Solar,it has very low cost Chinese manufacturing capacity.

10) Canadian Solar – The Company sells a wide variety of solar panels unlike other producers.The Solar Panel Selling Price is also quite cheap.The Company is headquartered in Canada with factories in China and Ontario.

11) Sunpower - Sunpower produces the highest efficiency crystalline solar panels in the world.This is a US company like First Solar and has a strong system installation business as well.A offspring of Cypress Semiconductor,it faced tough times due to its higher costs.However seems to be on a recovery path.Failed to expand as rapidly as the Asians in 2010.

12) Renewable Energy Corporation – It is Norwegian manufacturer of mainly polysilicon and wafers.It suffered like other Europeans from the declines in solar panel prices.Has moved manufacturing to Singapore to lower its cost.Fell down the rankings due to tough competition.However is completely integrated.

13) Solarworld – Biggest German producer of solar panels,the company is one of the few to still have operations in Europe and USA.The company has been battered by low cost competition .

14) Panasonic/Sanyo – Sanyo is the producer of high efficiency solar panels and like Sharp sells mostly in Japan and USA.With buyout by Panasonic is looking to sell integrated energy  efficiency/energy storage/solar energy home solution.

15) LDK Solar - This is the biggest producer of solar wafers that are used by crystalline solar panels.Is expanding rapidly into other parts of the solar supply chain and could break into top 10 solar panel producer in the next couple of years.

16) Renesola – Very similar to LDK Solar in operations and structure.It is expanding into other parts of the supply chain.This Chinese producer is a very low cost producer of wafers.

17) GCL Poly – Has become one of the biggest producers of polysilicon and wafers in 2010 from zero in 2008.Is expanding rapidly but not getting into production of solar cells and panels.

4) Advantages of Solar Power

Solar Energy is the only form of Energy whose costs are continuously declining compared to other forms of Energy.This is one of the biggest advantages of Solar Power over other renewable and non-renewable forms of energy.Solar Energy costs have declined by over 50% in the last 2-3 years even as Coal,Oil,Gas and other Energy costs have gone up.While Wind Energy costs have declined in  the last year the overall trend is increasing as the costs of copper and steel go up.This is one of the main reasons why solar energy demand has gone up by 150% in 2010.With solar costs going down by another 10% each year over the next few years,expect Solar Energy to grow at a further fast rate in the future as well after growing at 50% CAGR over the last decade.Here are some of the advantages of Solar Energy over other non-renewable energy forms

1) Environment Friendly – Solar Energy does not lead to any major mining activity,does not lead to significant GHG emissions,does not lead to health hazards like thermal power

 2) Declining Costs - Solar Costs are declining at a rapid pace and are rapidly approaching grid parity in most parts of the world.The use of semiconductor techniques ensures that the costs should continue to decline in the future as well

3)No Fuel and Low Maintainance - Solar Energy does not require any fuel like Wind Energy and the Operation and Maintainance Costs are extremely low.This is a huge advantage in these days when gas and oil disruptions are causing energy insecurity.Libya,Russia are all examples

4) No Pollution and Deaths- Solar Energy does not lead to pollution disasters like the BP Oil Spill and Coal Deaths which are directly related to Dirty Energy Productionl.

5) Almost Unlimited Potential – Solar Energy Potential is almost infinite compared to the limited and peak features of other forms of  energy like Wind,Geothermal,Oil,Gas and others.Only Nuclear Energy has potential similar to Solar Energy

6) Size Advantages - Solar Installations can be installed in various sizes with as little as 200 Watts and as big as a 1000 MW.This is not possible for other energy forms which require a minimum large size such as Coal,Nuclear etc.

7) Quick Installation - Solar Energy can be installed very quickly.Small residential installations can be installed in as low as 3 days.This is much faster compared to other  energy sources

8 )  Grid Independent – Solar Energy finds the most use in non-grid areas where it can be installed with batteries for energy storage.It is a much cheaper form of energy for non-grid applications than other forms.It is giving competition to Diesel Gensets being used.

Solar Energy will see massive growth in the future which has led to most of the MNC conglomerates getting  into this sector.TSMC,GE,Siemens,Areva,Toshiba,AUO,Honda are some of the companies making large investments into solar energy.

5) Why Solar Energy Future Growth will be much faster than everybody thinks

Why Solar Energy is Being Underestimated

I am surprised by the extent that solar energy growth is being underestimated by analysts and policymakers.Solar Demand has exceeded forecasts by a wide margin in the last 3 years.Despite doomsday scenarios Solar Energy grew by almost 40% in 2009 and should grow by more than 100% in 2010.While this is on a low base,you have to factor in that solar energy is still being subsidized.Think of the growth possibility when solar energy costs decline another 50%.While all countries have underestimate the penetration of Solar Energy,I am taking the example of India which had been praised for its  ambitious plan of generating 22 GW by 2022 .I think solar energy will easily be 3-4x of that capacity by that time as India has a huge potential  in solar energy.Bloomberg one of the most respected analysts in the Green Space has forecast 4.2% of US Energy Demand from Solar by 2020.This again is too low in my view.Once Solar Energy reaches low enough costs,then energy demand as a whole will expand just at the advent of LED lighting will expand the whole lighting market.The Potential of Solar Energy is not restricted to the Global Electircy Demand,it is much higher because it will expand that Capacity.

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PG

Abhishek Shah

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