Solar Energy on the Rise – 1/18/16

Solar energy has come a long way since the early 2000’s. Consumption and installed capacity have been increased significantly in spite of a notable downturn between 2011 and 2013 when dozens of solar companies faced bankruptcy. Solar has been held back by the financial crisis, cheap natural gas, and subsidy cuts but still global installations have risen, on average, by over 50% a year since 2006 to pass the 1% global threshold. Although such monumental growth is unlikely to continue as solar energy gains a larger share of electricity production even five more years of such growth would put solar at 5% or more of total production.

It is clear that solar energy has the potential to have a major impact on utilities in the near future though how soon is a matter of debate. Declines in costs of modules and other equipment (or “hard”) costs have fallen by more than 30% in just the last few years with room to keep going down. The area with more interesting possibilities is installation and service (or “soft”) costs. As the industry gains more clout with regulators and its customer base, the overall costs to consumers could fall by as much as half by 2020.

Cost reductions combined with regulatory pressures on “dirty” fossil fuel power plants make solar a potential replacement for traditional technologies not only in states with abundant sun and open like Hawaii, California, and Texas, but across the US as a means of residential and commercial power generation. Emerging markets such as India and China are especially suitable for solar as the countries seek to circumvent the expenses that come with expanding electrical grids into rural areas and managing air pollution from fossil fuel power plants. Solar is well-suited to such places since residences using roof-mounted PV systems do not require the same massive investments in transmission infrastructure.

Businesses are taking an interest in solar energy as a means of saving money and appealing a green-minded populace. Given the large amount of power consumed and roof space left unused by most stores, it shouldn’t be surprising to hear that Wal-Mart is preparing to switch to 100% renewable energy by 2020. And remote cell towers and hotels, for which connecting to the main power grid is prohibitively expensive, solar becomes a means to operate in previously inhospitable sites. As the oil glut continues to rage on, investment in renewables continue at least in part because the oil crisis illustrates how volatile fossil fuel prices can be. Relative to oil prices that can fall from $100 a barrel to $30 only to spring back up within a few years, solar is the very picture of stability.

As solar energy becomes more widespread, customers will find themselves in an interesting new relationship with electricity. The PV system will be one of the largest investments of the homeowner’s life; it will last decades and has the potential to be as profitable for the owner as it is for installer. As such, the relationship between solar company and customer should be a close and mutually beneficial one. Strong management will be essential as the industry integrates storage technologies, refines pricing strategies, and optimizes channel relationships.

It is difficult to say when solar energy will be our primary source of electricity production. It is much easier to say solar is already disrupting utilities around the world and will continue to do so.

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