Ed Crooks BP on solar power: the industry hits back

Tony Hayward, chief executive of BP, had some harsh things to say about solar power at an energy conference in La Jolla, California.

While he believes that solar power could and probably will pay off one day – he is on the record arguing that the second half of the 21st century will be the “solar century” – he does not expect the present generation technology ever to be commercially viable without subsidy. To reach the solar industry’s Holy Grail of “grid parity” – competing on level terms with fossil fuel generation – it will need a fundamental technological breakthrough, he argued.

Now the solar industry is hitting back.

Coming on the day that the world’s biggest solar power deal was announced, between BrightSource, the solar company, and PG&E, the California energy supplier, his comments may have seemed badly timed. (BrightSource uses concentrating solar power, with mirrors focusing sunlight to heat water, rather than the photovoltaic cells produced by BP.)

But that announcement only really served to prove Mr Hayward’s point. Solar power in California benefits from generous state and federal tax breaks, and governor Arnold Schwarzenegger has set a target of deriving 20 per cent of the state’s electricity from renewables by 2010.

However, Jeremy Leggett, founder of the UK solar power company Solar Century, points to an industry study arguing that photovoltaic solar electricity will be as cheap as conventional electricity by 2013.

Costs per watt peak, approaching £4 per Wp [watt peak] installed now and below £2 per Wp installed by 2020, are falling rapidly today as recent constraints in the upstream PV supply chain unwind. Beyond this, PV has a long-term cost-down prognosis, driven by the nature of the manufacturing process for crystalline silicon PV and also by substitution to thin film…

Grid parity will occur in around 2013 for residential customers, and around 2018 for commercial installations, based on current projections. PV grid parity is usually assumed to happen beyond 2020 in the UK..
Generally there is a good and ever improving investment case for solar PV, particularly at the residential level; PV is an investment grade technology due to its long life, reliability and predictability, and is seen as a valuable and low risk asset class for investors of many different types.

That line about “as constraints in the upstream PV supply chain unwind” is the key one: as the industry has slowed in the downturn, over-supply has sent prices of solar cells tumbling. That is good news for generators, who are indeed seeing their economics look more favourable as their costs fall. But it is grim for manufacturers such as BP, who are seeing both the volume and value of their sales declining. You can see why Mr Hayward is not feeling very cheerful about solar right now.