Solar power in the last few years has seen mainstream analysts, consultants and market research firms go massively wrong as they fail to understand the solar energy market. The massive decrease in prices of solar panels has led to a strong growth in demand driven by elasticity. Every year, analysts have underestimated demand for solar energy by a big amount. This has happened almost every year for the last 4-5 years and has been documented by greenworldinvestor ( see below).
Solar Energy Future Growth Vastly Underestimated by Policymakers and Analysts
Solar Energy is currently the amongst the costliest form of energy generation and except in niche applications is not economic without some sort of government subsidies. However growth in solar energy has been one of the fastest in the past decade upwards of 50% CAGR as costs have declined and technology improved manifold. Solar Energy forms just 0.1% of the the total energy supply of the planet currently and analysts and decision makers don’t think that Solar Energy can form a big chunk in the future as well. However I differ strongly in that aspect. The main reason for my very bullish opinion on Solar Energy is based on the simple fact that Solar Energy is the only form of Energy whose costs are declining rapidly on a secular basis. In a world facing the prospects of “peak commodity”, solar energy remains vastly abundant and it remains upto human technology to capture it at the lowest costs. That is starting to happen with around $80 billion to be invested on Solar Energy in 2010 much more than any other form of Energy. A Huge Amount of Research is being performed in private labs around the world as world industrial and technology giants compete with each other to become the most efficient and lowest cost provider.
Solar Energy Cost Curve Declining Continuously
As you can see Solar Energy costs have decreased continuously over the past decades and continue to do so at even a faster pace with powerful global companies like TSMC, GE, Samsung, Hyundai, Siemens, Toshiba, AUO, Honda etc entering the field. Solar Energy can already compete with other forms of energy in high radiation, high electricity places like Italy. By 2015, expect Solar Energy to compete with Fossil Fuel Energy in most places on Earth. Solar prices decline of 10% annually in the next few years are considered as a base case by large solar companies in their business models. Note I think PV and CPV Technology will beat Solar Thermal Technology in the future because of a variety of reasons.
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 Electricity Demand, it is much higher because it will expand that Capacity.
Crisil which is a S&P subsidiary (of the AAA US sub-prime crisis fame) has come out with a report saying that 13-14c/Kwh costs for solar power is risky for companies to bid during solar auctions. Like others it is woefully short on details and analysis. The report fails to look at:
a) Chinese crystalline solar panel costs are going down by 20% in 2012. Note prices are down by almost 50% in the last year
b) There exists a massive oversupply which will not end in 2012 itself despite growing demand
c) It is hard to find a sustained period in which solar panel prices have increase from previous levels except for a quarter or two
d) Demand is getting destroyed in Europe facing a fiscal/monetary crisis which helps keep the prices down
e) Protectionist policies in US will force Chinese solar panel prices to keep to a low level
f) First Solar which is the leading thin film solar player has already got costs at 11-12c/KwH. Chinese solar companies can build plants with even lower costs.
While the infrastructure project risks in India are already there.