Reported by Sarah Jeong (pved1@infothe.com)

Recent BP oil spill in Gulf Coast reminds people across the globe once again of the importance and necessity of renewable energy sources. Among a variety of renewable energy resources including wind power, biomass, hydroelectricity, geothermal power and nuclear power which contribute to the greener environment and meeting the growing needs of energy, the growth for solar energy is attractive. Efficiency led by technological breakthroughs and generous regulatory policies have resulted in an explosive solar development in many countries. Today, utility-scale solar is emerging as one of the hottest segments in the solar industry thanks to its competitive price.

Government Solar Policies

The U.S.

Supportive public policy is important for the power industry in general, not just solar or other renewable energy. It was key that the government enabled the utilities to participate in the PV incentives and it‘s critical that these incentives stay in place for the long term so the large projects can be executed with certainty. As an emerging market, utility-scale PV is certainly benefitting from government support, including tax credits and rebates.

Because much of the policy in the U.S. is handled at state and regional levels, incentives can vary considerably by location. While some states like California have attractive incentives and an aggressive RPS program, other states such as Georgia are still developing strategies to assist growth. Even without a federal feed-in tariff,  such as is found in many European countries, said Jim Morgenson, Senior Manager and Strategic Accounts at SMA America, the U.S. utility market is still very promising in the near and long term.

“The main reason for the explosive growth in the U.S. solar is the favorable tariff policies such as the proliferation of renewable energy portfolio standards in each state and tax credit,” he commented.

In addition to the current support by the government, Tim Keating, VP of Marketing at Skyline Solar, said he hopes for further investment.

“In the U.S., grants in lieu of claiming the Investment Tax Credit have been valuable and we hope that it will be extended into next year. The U.S. DOE’s loan guarantee program for projects is another key program that we see helping accelerate the adoption of solar in the near term. Longer term, the streamlining of approvals through U.S. federal lands will speed larger projects in the Western United States which has tremendous  opportunity.” Utility-scale solar as well as other solar segments is heavily dependent on governmental support and policies. The U.S. solar policies, famous for its abundant support from both the federal government and respective states, bring a bright prospect for the future.

“We are very optimistic that both the federal and state legislature support will continue through the coming years. Based on our communications with government contacts, an enduring support for clean energy is evident. Both our local and federal governments have emphasized the importance of energy independence from foreign oil,” said Robert Demos, CEO of Atlantic Green Power.

He also expected utility-scale solar’ growth in terms of production volume.

With the steady growth of utility-scale solar projects coming online, he added, the solar developers, manufacturers, and installers have become much more efficient at producing, installing, and designing solar projects. “The increase in production volume has increased efficiency, which historically has lead to a reduction of cost.” Government incentives and policies are the single most important factor driving the utility-scale solar market in the U.S. Financial incentives provided through state and federal programs have been a major driving force. Currently, key federal incentives include a 30% Investment Tax Credit (ITC) for solar energy projects for the next 8 years (through Dec. 31, 2016) and the Renewable Energy Grant program, where a cash grant may be taken in lieu of the ITC. Grants are available for eligible projects placed in service between 2009 and 2010 and there are already a group of U.S. senators working to extend the cash grants beyond 2010.

Europe-Germany

Germany, a traditional leading country with its generous and strong solar policies in the global solar industry, is facing Feed-in Tariff (FiT) revision, which may cause drop in solar business.

In Germany, commented Lars Podlowski, CTO of Solon, roughly only 10% of the solar market are utility-scale solar power plants, therefore, it is expected that most companies will compensate the drop out of this segment in Germany with business in other countries. “In the segment of rooftop installations, the industry is experiencing pull-forward effects--strong demand from residential homeowners who are trying to install their small-scale power plants before the reduction of the feed-in tariff rates. Based on our sales forecasts we only expect a small drop in demand after the extra reduction of the feed-in tariff. For the 4th quarter, we expect another rise of orders and a strong end of year business. Generally, we expect that greenfield installations in Germany will continue to shrink as a segment,” he continued on the effect of German FiT revision, especially in utility-scale solar segment.

“The new German feed-in tariff, as it is discussed right now, will exclude greenfield installations on lands that are suitable for farming. This is a serious threat for the segment in Germany as power plants on farmland will receive no more incentives through the EEG (German Renewable Energy Act),” he concluded.

The governmental incentives are indeed a very important engine of the solar industry. As the solar energy becomes more and more popular throughout the world, the incentives mean an increasing expense for each government. Nancy Komrowski, Director of Communication of Heckert Solar AG, shared her view on the government incentives by saying, “I think the governments of some countries, where solar energy is already used in an intensive way, will reduce their incentives step-by-step. On the other hand, energy from the usual suppliers will get more expensive in the future. Consequently, solar energy will stay a rewarding alternative despite declining feed-in tariffs or other incentives.”

Asia-Korea

Asia is getting more and more attention from all over the world as a key player in the global solar industry.

Korea is also experiencing changes in government policies for solar, from feed-in tariff to RPS, said Jeong-hoon Seok, Renewable Energy Team Manager of LST Energy.

“I think the whole solar industry including utility-scale solar will shrink from the second half of 2010 to the first half of 2011. Currently, the government supports 541 won for use of conventional buildings, 579 won for use of general site per 100 kW. The industry players expect at least 15% of decrease in tariff in 2011. Some concern that the cut in tariff might result in problems such as poor construction,” he explained.

On the other hand, according to Joong-yang Keum, Sales Manager of Dasstech, the key factor in government support policy is not the amount of money for the tariff, but the effective way of spending it.

“Recently announced RPS which will replace the current FiT from 2012, has less budget compared to the previous measure. The only thing I hope for is that the government has a lot of effective and detailed measures for the Korean PV players to get the bigger fruits out of less support.”

Asia-India

India just announced its National Solar Mission (already being dubbed ‘Solar India’) which sets a target of 20,000 MW of solar energy by 2022, with the plan broken down into 3 phases. This is one of the most aggressive solar policies set by any country. The primary incentive program is a national FiT (country proposed FiT of Rs17.91 or US$.38 for plants coming online 2010-2011). The government is currently finalizing the incentive guidelines for Phase I.

“A national policy for solar over 10 years shows a strong commitment by the Indian Government,” commented Raj Prabhu, Managing Partner of Mercom Capital Group. “However, because India has introduced such an aggressive mission, a near perfect execution in Phase I will be essential in order to convey a sense of confidence within the industry and with investors who look for certainty,” added Prabhu.

Prices Vary

The cost of utility-scale solar can vary based on location. A number of factors are involved including environmental conditions, transmission capabilities, available incentives and other market conditions.

Overall, it is expected to see a decrease in the cost of utility scale solar generation in the near and long term. As the power generation industry becomes more comfortable with, and more cognizant of PV’s benefits, adoption will speed, resulting in higher volumes, larger installations and reduced costs. PV’s benefits go beyond economies of scale, with one clear example being grid management functionality such as Power Factor Correction, traditionally requiring a hardware solution such as a capacitor bank which can now be obtained through the PV inverter with no additional hardware. Utility scale solar generation has the potential to be the fastest growing segment of the PV industry capturing cost decreases coming from large-scale systems and realizing the benefits of optimized grid management for improved grid stability, said Morgenson.

As PV installations have increased at a rapid pace over the years, the costs have also come down significantly (sub US$4 per watt installed). In the U.S., states with the largest PV markets also appear to have lower average costs than states with smaller markets, which gives credence to the theory that state and utility PV policies can affect local costs.

PV modules are roughly 50% of the installed cost of utility-scale solar. Costs of PV modules have dropped significantly in the last few years--just over the span of 6 quarters from 3Q2008 to 1Q2010, prices of modules have fallen from approximately US$4.00/watt to approximately US$1.80/watt. This is a significant development that will help fuel the market.

2010 is unique, observed Prabhu, because the demand is outstripping supply. A lot of module vendors are in a ‘sold out’ position which has helped prices stabilize or even increase a few percentage points, due to the tremendous demand coming from Germany before its July 1st FiT announcement. “That said, it looks like module prices will continue to fall in 2011,” he added.

Sarah Kurtz, Principal Scientist, PhD, National Renewable Energy Laboratory (NREL) said, “We have heard that at least one large project was completed for US$3/W installed. I think that prices will continue to drop, but not as quickly as from 2008 to 2009.” There will be a few tiny down drops in prices, Komrowski said, but not the expected huge price cut. This results mainly from rising cell prices.

Speaking of solar system cost, Keating noted, “Without subsidies, U.S. LCOE at utility scale for best of breed solar systems are now around US$18-US$20 per kWh.” As for the price, the global solar industry has been experiencing cost decrease because of advances in terms of efficiency and overcapacity during the couple of recent years.

“After the big cost cutting in the last two years, we expect for 2010 and 2011 only a minor further decrease in price for large-scale power fields.” stated Podlowski.

The U.S.

In the U.S., the state by state Renewable Portfolio Standards (RPS) have been slow to create actual deployments. Even in states like California with high RPS standards are aggressive 20% by 2010 with a potential 33% by 2020. “We see the utilities having difficulty meeting these implementation deadlines. Large centralized installations get tied up with environmental, permitting and transmission issues. This difficulty is not because the industry can’t meet the need. For example, locations that have attractive feed-in tariffs, the industry is able to respond quickly to fill the demand, stated Keating. One innovative approach, he continued, has been PG&E’s 250 MW program for Independent Power Producers in California where PG&E guarantees to purchase agreements through a reverse auction process. We are now seeing the completion of the installations under this program which are located near substations and so they can be completed on a more predictable basis versus 100+ MW installations.

Prabhu, however, remains optimistic about the future. “The health of utility-scale solar in the U.S. is very good. The U.S. installations grew about 40% to 484 MW in 2009 thanks largely to favorable policies and incentives. 2010 is shaping up to be a banner year where some optimistic forecasts are predicting 750-1,000 MW in 2010,” he continued.

Morgenson expressed agreement with the opinion. “Utility-scale solar is just beginning to emerge in the U.S. and North America in general. Although the U.S. is currently far behind Europe in terms of generating capacity, utility PV should have a very bright future here as power generators and distributors realize the benefits of utility-scale PV deployment,” he added. “The U.S. market is seeing increasingly large scale projects going in the ground every day. We are currently seeing common systems sizes of 20, 40 or 50 MW. From there, it’s a short distance to even larger system sizes and eventually mega projects.” The PV markets in U.S. are largely fueled by utility-scale projects. As of May 2010, there were around 12 GW of utility-scale PV projects announced, under construction or under development. This activity is largely due to the 30% ITC and cash grants announced by the government followed by some aggressive incentives and policy making from state and local governments.

As these projects are being announced, there is also significant activity in the development of domestic manufacturing.

At current rate, the U.S. can emerge as the number 1 PV market as Germany slows down in a few years.

Project financing was the largest challenge in 2009 and financing a project will be the 2nd most significant factor (after incentives) that will determine the pace of growth of the utility-scale solar markets.

India

Meanwhile, India seems to need more time. Utility-scale solar in India is still in its infancy and at a policy-making stage. The world is curiously watching for the final policy to be announced.

Solar in India is not just a clean alternative energy source as it is in the U.S. and Europe; solar is emerging as another source of energy to combat India’s power shortage crisis. It is estimated that 400 million people in India have no access to power. Solar is seen as a way to bring power to its rural communities which have never had access to power through utility-scale development.

Further, India currently subsidizes electricity to the tune of about US$10 billion per year. These subsidies have to be phased out in order to reflect the true cost of electricity, which in turn will help in the development of utility-scale solar as a viable option to their power crisis.

Germany

Apart from suffering a significant cut in FiT for Germany, the general interest in solar energy especially for residential rooftops stays on a high level. According to Komrowski, it is only a matter of time until nearly every residential building is featured with some kind of solar installation.

Technological Trends

In the segment of large scale powerplants, one of the most important technical trends is the integration of the solar farm to the whole electricity grid. This means, for example, that the utilities directly can control the power field with regard to reactive power.

“This is why we currently introduced a new innovative tool for remote control and monitoring for solar power plants. This Web-based monitoring, control, and reporting system was specially designed for use in the energy provider and large-scale power plant sectors,” Podlowski said. “It delivers real-time, 24-hour information on a power plant’s vital data--from the current output to the components and detailed analyses. Rapid detection of potential malfunctions in the power plant operation can help to minimize downtimes while maximizing yields,” he explained.

In addition, Demos pointed out 2 factors as technological achievements by saying, “I think both the efficiency of panels and the development of tracker systems have led to an increase in yield.” Speaking of the trend in Korea, Seok focused on the future of BIPV. “I expect BIPV will further expand based on the fact that the government actively support solar business with use of conventional buildings rather than one with use of general site.” Though crystalline modules take a majority of the Korean domestic market at the moment, thin-film and dye-sensitized modules are taking the stake gradually, continued Seok.

Komrowski agreed on Seok’s view on BIPV. One trend is, noted Komrowski, the roof-integrated installation.

In the meantime, Prabhu pointed out a need for diverse technologies. “Even though there are many technological advances, such as CPV and flexible thin-films, only PV and thin-film are primarily being used in utility-scale projects as other new technologies still have to prove themselves commercially.” Kurtz introduced a report as an answer to the trend. “Electric Power Research Institute (EPRI) recently released a report on CPV and is showing an interest in investing in these new, high-efficiency products, especially since increased investment and demonstration of capability is strengthening expectations of this technology. A number of the thin-film companies appear to be poised to repeat First Solar’s success as they improve efficiency and reduce cost, and many silicon products continue to reduce cost while retaining their strong reputation for reliable performance.” Keating pointed out concentrated solar PV as an emerging trend saying, “Concentrated solar PV is growing strongly because of the excellent economics in sunny locations and because the technology is scalable it can be used for distributed generation without the need for extensive environmental impact reports or new transmission lines.” Optimizing a utility scale PV solar system is complex and requires robust products with proven grid management features along with an experienced application engineering team that is utilizing the latest technologies and innovations. The application engineering impact can be significant to the bottom line of a project. It’s more than a spreadsheet exercise to drive lower costs, it’s an approach to higher performance driving down the LCOE throughout the service life of the power plant including operations and maintenance. The industry, according to Morgenson, is transitioning from thinking about kW to kVA and finally to hVA Hours over 20 years.

Reaching Grid Parity

So, how close the utility-scale solar actually is to grid parity with these technological achievement?

PV players talked with one voice that grid parity is depending upon locations where the electricity cost varies.

Utility-scale solar projects, said Demos, have a better chance to achieve grid parity depending upon the location of the solar project, the type and cost of the technology utilized for the project and the electricity market in the local grid.

Podlowski already witnessed grid parity in some areas. “Grid parity strongly depends on the region that you are looking at. In some specific areas like southern Italy grid-parity is already achieved due to the high electricity costs there.” “Experts are divided over the grid parity issue but I assume we would reach grid parity in 2015-2020 at the latest,” said Seok.

Grid parity will be realized, said Keum, caused by the rise of conventional energy cost and the drop of PV generation cost in 4-5 years. “One decisive factor is the portion of power generation by nuclear in the whole energy generation,” he stated.

Grid parity is relative to both retail electricity prices and solar insolation in a particular region. Hawaii, for example, has already reached grid parity as the electricity prices in that state are so high. Some parts of Italy have also reached grid parity because of the high electricity prices and favorable solar insolation rates. “We are still a few years away from reaching grid parity levels without subsidies. As long as the government policies and incentives remain supportive, demand remains robust and the financial markets remain healthy, grid parity will follow,” said Prabhu.

Kurtz followed Prabhu’s opinion. “In some areas, utility-scale PV is already at grid parity during peak demand times. Evaluating grid parity is not a black and white question; the number of hours of the year and the number of locations for which PV is at or below grid parity will continue to increase in the coming years.” Again, it’s based on location, incentive levels, regional power requirement and a host of other factors, said Morgenson. “In some locations, utility-scale PV is at or near parity today when considering it’s providing power during peak demand,” he stressed. “Solar’s Levelized Cost of Energy (LCOE) is already comparable with more established power generating methods in some locations and is looking better every day.” What also shouldn’t be overlooked is how solar power rates as an investment vehicle. If the cost developing a solar power plant provides a utility or investor with a robust ROI at low risk, the incentive to develop large projects will provide an additional driver towards greater PV deployment.

It is not very far away if the development continues in this way, grid-parity will be realized in just a few years, stressed Komrowski.

Keating agreed with Komrowski by saying, “We see technologies reaching grid parity in sunny locations in 2011-2012 where strong government support existing such as in the U.S., selected southern European countries and others.”

Sarah Jeong is Editor of InterPV. Send your comments to pved@infothe.com.