Case 53: Solar without subsidies

The market

The photovoltaic (PV) industry generated $82 billion in revenue in 2010, more than doubling in monetary value in just one year. New PV installations reached a record 18.2 gigawatts (GW) in 2010, representing growth of nearly 140% over the previous twelve months. The European market accounted for 14.7 GW, representing 81% of global PV demand. Germany, Italy, and the Czech Republic were the three leading European countries, followed by Japan and the United States. Such rapid growth requires capital. Companies in the PV supply chain successfully raised $10 billion in equity and debt financing. As a result, generation capacity increased from 9.9 GW in 2009 to 20.5 GW in 2010, with thin-film production already accounting for 13.5% of total output. China and Taiwan account for just under 60% of global production. Suntech Power, headquartered in Wuxi, China, is the world's largest producer.

The German government, the leading market for photovoltaics, added 7 GW in a record year in 2010, bringing the total to 17 GW. This is equivalent to 17 large power plants, generating a total of 130,000 jobs at a total subsidy cost of $9 billion, nearly $1.3 billion per gigawatt and €70,000 per job. Incentives established in 2000 by the German Renewable Energy Sources Act guarantee above-market feed-in tariffs for solar installations for 20 years from the installation date. This generous support has helped reduce the cost of photovoltaic systems. The price of silicon modules fell by 38% in 2009 and 14% in 2010 compared to the previous year. With expanding demand in Asia and North America, factory prices are expected to fall by 50% over the next five years compared to 2010 levels.

According to Greenpeace, the fossil fuel industry received approximately $100 billion in government subsidies last year in G-20 member states. Fossil fuels and nuclear power have enjoyed generous government support for decades. Coal has been subsidized in Germany since 1965, and solar energy only began to receive significant tax support a decade ago. However, the annual subsidy for coal in Germany was capped at €2 billion ($2.8 billion) in 2010, and the government passed legislation phasing out all subsidies by 2018. German subsidies for renewable energy (wind, solar, biogas, etc.) amounted to $17.9 billion, meaning that renewables receive a substantial share of government support.

Innovation

The complex wiring system makes the price of photovoltaic panels uncompetitive, while the cost and supply of silicon are not an issue. Although Leonardo da Vinci predicted the use of solar energy as early as 1447, its market penetration has relied on fiscal measures that are ultimately paid for by the consumer, either through increased taxes to cover public debt or through higher tariffs for green energy. The fact that solar energy generates only direct current (DC) while the electrical grid operates with alternating current (AC) means that all electricity produced by PV requires inverters. Since the sun shines for a maximum of only 5 hours a day year-round, PV requires backup batteries. The combination of batteries, inverters, and intermittent sunlight means that current solar energy technologies will depend on government support equivalent to that given to non-renewable energy sources. Stefan Larsson has conducted research projects on maximum reflection concentrators. One of his goals was to make solar energy viable in the Arctic and Antarctic. He and his team concentrated sunlight 3.5 times using reflectors that also track the sun's movement throughout the year without the need for expensive heliostats. The reflector's geometry is designed so that all the light hits the heat-absorbing tube. His designs make it possible to produce both heat and electricity in the coldest corners of the world. He then fine-tuned the reflector to deliver the best performance when the sun is lowest in the sky. This innovative approach achieves consistent energy output over a wide range of temperatures, which, combined with its modular design, makes it suitable for hot water production, district heating, solar cooling, water treatment, desalination, and… electricity generation—all at the same time. Mr. Larsson then founded Solarus AB and, while perfecting the technology of combining multiple functions into a single panel with his team, he also dedicated considerable time to securing a supply chain for raw materials, recycling carbon fiber from the aerospace industry, and gaining access to silicon ribbon manufacturing technologies. It is this combination of multifunctional solar cells and the use of recycled carbon fibers that allows Solarus to offer solar energy on the market at a lower cost than fossil fuel-based energy supplies without requiring subsidies. Furthermore, Solarus has developed a business model that envisions dozens—and eventually hundreds—of local manufacturing plants generating local jobs. The combination of ingenious geometric designs, the recycling of discarded high-tech materials, a decentralized production model, and the ability to compete in the market without subsidies (while welcoming any assistance) makes it a prototype of the blue economy.

The first cash flow

Sweden is a world leader in district heating, where water is heated centrally and distributed through pipe networks. This system is less capital-intensive and more energy-efficient than individual water heaters, which currently consume 30 percent of all electricity used in homes. Solarus has committed to powering a district heating system with 2,400 square meters of solar thermal collectors, achieving a cost price of just $0.025/kWh over a 10-year period with government subsidies. Without subsidies, district heating would still cost only $0.07/kWh, and when considering the full lifespan of the solar thermal collectors, the unsubsidized energy price is as low as $0.02/kWh—equal to or even lower than subsidized nuclear, coal, or diesel fuels.

The opportunity

The market potential for Stefan Larsson and his team at Solarus AB is enormous. Each panel produces 300W of electricity and 880W of heat, which in a sun-poor country like Sweden translates to 264 kWh of electricity and 660 kWh of heat per panel. This multifunctional system provides electricity, hot water, heating, and cooling through a heat exchange system, relying on uniform installation on the roofs of buildings with a minimum surface area of ​​200 square meters. This makes buildings energy-neutral. A house could become energy self-sufficient (in Sweden) with 8 to 12 panels covering hot water, electricity, and room heating. The low weight, ease of installation, weather resistance, and ability to operate in diffuse sunlight, combined with the use of recycled composite materials, have reduced the traditional payback period from 3 to 5 years to just 6 months. The low cost, high efficiency, and minimal heat loss of the Solarus system enable the use of solar humidification-dehumidification (HDH). While this was the standard system for water desalination and purification decades ago, it was very energy-intensive and was superseded by reverse osmosis. Now, it appears that HDH based on the solar technologies described can provide the constant heat above 100°C needed to accelerate evaporation and condensation. While the construction cost would be equal to that of any existing installation, operating and maintenance costs are reduced tenfold, proving that innovations in solar energy will outperform fossil fuels and nuclear power even without subsidies. Fortunately, subsidies will always be the norm, further accelerating the shift in favor of solutions like Solarus. Knowing that it can be manufactured locally from recycled materials should allow entrepreneurs around the world to sit on the edge of their chairs, while governments on the verge of bankruptcy could still provide some support without having to do all the things the German authorities have had to do.