New report from Citigroup: Solar energy is here to stay
A solar panel installation on a rooftop in Aurora, CO.
Solar power is here, and it isn’t just environmentalists
saying it anymore. A research division of Citigroup, the massive
multinational bank that probably doesn’t share Greenpeace’s worldview on
many issues, does agree with us on one point: solar energy is poised to
explode in the US.
Citi Research published the report, called “Rising Sun:
Implications for US Utilities” in August (hat tip to Marc Gunther, who
referenced it in a great piece
for Yale Environment 360.) It slipped under the media radar, which is
unfortunate because the analysis is phenomenal and offers great hope for
the clean energy revolution here in the U.S. The report isn’t available
online, but here are a few of the key points it makes:
- Solar is growing extremely fast in the US.
- That growth is driven almost entirely by pure economics, not environmental concerns.
- The big utilities can’t seem to get either of the above two points through their skulls yet.
- Solar financing is the next political frontier to watch in the US.
Here’s each point in greater depth: Solar is growing like gangbusters. Citi’s analysts don’t mince words:
Our viewpoint is that Solar is here to stay and very early in the growth cycle in the US.
They note that solar panels costed an average of $75/watt
in 1972. In 2012, that number was down to less than $1/watt (the number
is even lower now, closer to $.65/watt in some places.)
The report compares that rapid decrease in cost to Moore’s
Law, the famous theory which postulated in 1965 that computer chips
could double in performance every two years. That prediction turned out
to be uncannily accurate, which is the basic reason for why you’re
reading this on a laptop, tablet, or smartphone right now. A similar
phenomenon is happening now with solar costs, which have shrunk reliably
and quickly.
As a result, two thirds of all the solar power in the world
has been installed since 2011, and that number will double again by
2015, Greentechmedia reported. Citi’s analysts noted that this solar growth has exceeded almost everyone’s expectation:
The biggest surprise in recent years has been the speed at
which the cost of solar panels has reduced, resulting in cost parity
being achieved in certain areas much more quickly than was ever
expected.
The biggest driver of solar growth will be economics, not environmental concerns.
The most exciting thing about this solar boom is probably
the hope that it provides for everyone who depends on a healthy planet
(AKA, everyone.) Solar growth means less burning of coal, gas and
eventually oil, the main causes of the climate change that is already
causing extreme weather here in the US and around the world, and
portends much uglier effects like increased conflict, rising sea levels,
ocean acidification and fresh water scarcity down the road.
However, the report notes that those environmental concerns
aren’t driving solar growth – and that’s actually a good thing. For
solar to go mainstream, it has to become a money saver for more people
and businesses, which is exactly that’s happening.
What is clear to us is that the perception of solar as being inefficient and requiring material subsidies is no longer accurate – a concept that is not being fully appreciated by the utility sector, in our view. As we clearly display in the below sections, Solar is already cheaper than electricity at the plug in many countries, with others very close behind including the US with several states already displaying “socket” or retail parity (i.e. Georgia, Arizona, and New Mexico).
In other words, in many parts of the country, especially
the Southeast and Southwest, it’s cheaper to install your own solar
panels, and then generate most of your electricity for free, than it is
to keep paying a utility for all of your power every month.
The report notes that the most promising trend for
expanding the pool of people who could go solar is the growth of new
ways to finance their solar installations. While the panels are getting
cheaper every year, many people still don’t have the cash on hand to
afford them upfront – even though it will be cheaper over time. But new
financing models are making them more affordable. The analysts write:
Distributed (DG) or off grid generation at the residential and commercial scale level could be set to take on a greater piece of the solar generation pie. Much of this we attribute to the emergence and expansion of third party financing…
Meanwhile, solar is getting cheaper in all of those ways
against a backdrop of rising fossil fuel prices that are destined to
keep rising:
At the same time, the alternatives of conventional fossil fuels are likely to gradually become more expensive (assuming that the ‘lowest hanging fruit’ in terms of reserves are exploited first).
Sunshine is free though, and the cost of the panels needed to harness it are getting cheaper every quarter.
Utilities still don’t get it.
The Citi analysts write:
While we expect the same trend in the US [of declining solar costs and rapid growth], we find that many utilities have had issues trying to grapple with this concept.
Duke Energy, the country’s largest utility, provides a
great example of a company that is at best grappling with how to respond
to these changes, and at worst failing to appreciate them altogether.
Greenpeace has been campaigning alongside Duke’s ratepayers to convince
the company to switch from fossil fuels to solar energy. But Duke’s own
plans in North Carolina show that it plans to keep its head firmly in
the sand. The company predicts that by 2032, the share of the
electricity it generates from wind and solar energy in the Carolinas
will be… wait on it… 3%! That estimate seems almost laughable in the context of Citi’s estimates.
The next frontier to watch: third-party solar financing
Citi reports that the big factor that will determine where
solar gets cheapest, fastest, in the U.S., is the maturity of
third-party solar financing markets. Third-party financiers could be
banks, solar leasing companies, or innovative new crowdsourcing efforts
like the one at SolarMosaic – any business that can help people better spread out the investment in solar panels over the lifetime of the system.
Third-party financing availability is a grab bag in the US.
It’s legal in 22 states, illegal in six states where utilities have
pushed state governments to ban it in order to protect their own
monopolies, and on hazy legal grounds in the other 22 states. Here’s a map giving the lay of the land.
This is the next frontier to watch, and new battles are cropping up already
in places like Iowa and Wisconsin. The electricity buying public is
getting angrier, as evidenced by growing ratepayer protests in places
like North Carolina against Duke.
Utilities are taking more out of people’s pocket every day for
electricity created by coal and gas plants that are making their kids
sick and causing global warming. As more people see that they could have
the option to stop giving all their money to a company like Duke, and
start financing solar panels, the political pressure on states to open
up their borders to solar financing companies could grow almost as
quickly as solar installations have been.
When Citigroup, one of the largest banks in the world, is
saying that the clean energy revolution is reaching full speed, it’s
time the utilities start to listen. They can’t stop the solar growth,
but they can choose whether they’ll try to slow it down or try to
embrace it. It will be better for their customers, their businesses, and
certainly for the planet if they choose the latter.
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