energy & resources
A new dawn for solar energy
China's advancement in solar-technology production has reduced prices to a point that allows a worldwide scale-up of green energy
The assembly lines at Jinko Solar whir with the precise efficiency of a high-tech Chinese factory. Workers and robots work side by side, tending machines that take wafer-thin squares of black silicon, imprint and infuse them with chemicals before placing them onto large frames. Far from here, the completed modules will be erected in empty fields and atop buildings, facing the sun and pumping out electrons.
There is nothing particularly revolutionary in this. The first patent for solar electricity from silicon is now more than six decades old. The revolution lies in what factories like this one in Haining, China, have accomplished: they have made solar power cheap.
Once among the most expensive ways to produce power, the cost of solar cells has, after a year of extraordinary price declines, now come tantalizing close to a threshold where it is cheaper to generate electricity from the sun than coal, even without government subsidies. That threshold, known in the industry as grid parity, has long been an unattainable fantasy, even as the cost of new solar installations gradually eroded.
In 2016, however, that cost tumbled an astonishing 27 per cent, enough to now tip some countries into a place where solar projects are winning open-bid electricity contracts over other forms of power. "To put it bluntly, we've seen pockets of countries, and pockets of markets, that I would say have reached quasi grid parity," where "solar has outbid other technology competitors," said Gurpreet Gujral, a Macquarie analyst who covers solar stocks. Solar prices, he said, have become "incredibly competitive."
Solar power, of course, has a number of disadvantages. Outside a revolution in electrical storage, solar's obvious inability to generate power in the dark will keep it from ever dominating entire electrical systems the way coal, natural gas, nuclear and even hydro do to supply base-load power. In a high-latitude country like Canada, solar faces an even greater disadvantage in winter months.
But in a growing number of places, costs have dipped to a level that stands to allow the sun's energy to provide a much larger percentage of the electrons on global grids, a milestone that has underpinned a series of seemingly incredible claims from visionaries and tech companies in recent months.
In November, Elon Musk, the billionaire promoting a vision of solar-powered houses and electric cars, said he expects solar roofs will soon be as cheap as existing roofs, in addition to generating electricity. Google intends to be fully powered by renewable energy next year. Industry leaders in Spain have said their country will one day run entirely on green power. "I think people are going to tell me we're crazy but I'm pretty sure we'll arrive at 100 per cent," Miguel Ezpeleta, director of Renewable Energy Control Centre at Spanish clean-power giant ACCIONA Energy SA, told Australian media earlier this year.
Deutsche Bank says solar power is becoming price-competitive in 80 per cent of countries. In bidding wars around the world, the declining cost of solar electricity is already making it "an unfair fight" that other forms of electricity can't win, said Tim Buckley, director of energy-finance studies at the Institute for Energy Economics and Financial Analysis in Sydney, Australia. "2016 marked a massive globalization of where grid parity is rapidly approaching, if we haven't already exceeded it." The cost of solar electricity is heavily dependent on factors outside the technology itself, including labour and land costs for installation. For that reason, solar will remain an expensive alternative in countries such as Japan for a long time to come. In Canada, too, solar panels make up less than a quarter of the total outlay for large industrial projects, muting the impact of even a dramatic reduction in technology costs.
Still, for a country with a government keen on slashing carbon emissions, it's a shift with sweeping potential benefits. Ottawa is already banking on cheap renewable power to underpin its greenhouse gas reduction plan. "Wind and solar are becoming as competitive as more traditional sources of power," Environment Minister Catherine McKenna said in a recent interview.
But even among climate skeptics, the price of harvesting energy from the sun has fallen so precipitously that it is likely to be a major energy source regardless of national policy. U.S. President Donald Trump has pledged to end tax breaks for renewable energy, which he called "so expensive," in favour of reviving the coal industry. The math is unlikely to be on his side.
In the next five years, the U.S. Energy Information Administration has calculated, new solar installations in the United States will become nearly 40-per-cent cheaper for every megawatt-hour than the cost of a new coal plant built to modern requirements, including carbon capture and storage.
Similar numbers are already being seen elsewhere. In recent bidding rounds in South Africa, new solar installations have come in 40-per-cent cheaper than coal. In Mexico, the cost of building solar power fell by a fifth between two bidding rounds this year alone; it's now competitive with natural gas-fired electricity. In Chile, a solar project won a bid earlier this year at a price half that of a competing coal plant. Chile is building such cheap solar power that the government has promised to cut electricity prices for families and small businesses by 20 per cent over the next five years.
"Because these technologies now are ever more cost-effective, the market is playing a much larger role in their rollout, as opposed to purely subsidies, government programs or even pollution-reduction efforts," said Anders Hove, Beijing research director for the think tank Paulson Institute. With the cost of new solar, "we are way below some of the wildest dreams" from only a few years ago. "It is very dramatic what's happened in the last six months alone."
In some regions, particularly South America, governments have given solar bidders a slight boost by pricing contracts in U.S. dollars, which allows bidders to access U.S.-denominated financing at better rates. But in places as disparate as Ontario and India, manufacturers are installing their own solar panels in parking lots and on rooftops, knowing they can make homegrown juice cheaper than what comes in from the transmission towers. Tenders in the Middle East, meanwhile, are setting new records. "We are talking about 2.4 cents a kilowatt-hour for the United Arab Emirates. The average American retail price of electricity, which is one of the lowest in the world, sits at 12 to 14 cents," said Mr. Buckley.
Most of the responsibility for tilting the playing field belongs to China, and in particular its sprawling industrial plants like the one in Haining run by Jinko Solar, a giant in an industry dominated by Chinese firms. Here, in a cluster of hulking factory buildings that sit next to a small research and development centre, Jinko is using smarter manufacturing techniques, faster machines and greater output volumes to steadily chip away at costs.
It is a game of inches. This year, the Haining plant will churn out a completed solar cell every 1.8 seconds. Next year, it aims for one every 1.6 seconds. More robots mean the work force will be 8-per-cent smaller in a year. And the year after that will, again, bring more advances advances like it – incremental steps, but they add up. Three years ago, a single production in Haining might pump out 1,600 solar cells an hour. Today, it has topped 4,000.
"We have fewer and fewer workers, and the automation is improving," says Wang Pan, the company's director of production.
"Put it together and it's a big change," Jinko chief scientist Hao Jin says.
It's a turnaround for an industry that, just four years ago, was in the midst of an ugly reckoning. In the wake of the financial crisis, places like Spain dramatically cut generous power rates guaranteed for solar producers, gutting the local industry. Chinese solar companies defaulted on bonds and so many went bankrupt that trade media maintained death lists. In 2013, the Wharton School released a public-policy document entitled "Why Is the Sun Setting on China's Solar Power Industry?" The sector, it said, "is reeling, dogged by too much capacity, too little demand and punitive trade tariffs." Solar stocks, such as Canadian Solar and First Solar plunged and have gone through wild swings since then.
Now Canadian Solar, founded by a former Ontario Hydro research scientist, tells investors it expects solar power to go from 0.5 per cent of world electricity today to more than 10 per cent by 2030. Canadian Solar has posted an annual profit each year since 2013.
Jinko – already the world's largest manufacturer of solar modules – has cleared a sprawling field for expansion next to its existing factory in Haining. Its third-quarter revenues were up 39 per cent, enough for a small profit.
The Chinese industry owes its new footing to an explosion in demand, a fortuitous drop in the price of a key raw material – and relentless innovation.
Every year, the efficiency of solar cells improves by roughly half a percentage point, meaning each new generation of panels squeezes out more electrons from the same surface area. But Jinko is also using better-quality silicon that is easier to handle. It has tweaked machines to level of productivity not even their makers thought possible. It has imported techniques from the semiconductor industry, like an ultra-clean manufacturing environment and new chemical treatments for silicon. "We just borrow the idea," says Mr. Hao.
Cheaper materials – prices for polysilicon, the main ingredient in solar cells, have cratered – and roaring demand haven't hurt, either.
The industry will install 76 gigawatts of solar capacity across the world this year, Mercom Capital Group estimates. That's equivalent to more than half the entire capacity of the Canadian electrical sector, and up by half over the year before. The sheer increase in volume has been a major contributor to manufacturing efficiency.
Here, too, China plays a singular role. Not only are its factories slashing costs, but its energy companies will install fully 40 per cent of the global total this year.
There is a downside to this. China may be enabling seemingly impossible pricing – but it has done it at a steep price, which has fuelled irrational exuberance. Its 30 gigawatts of expected solar construction this year have little to do with market economics and everything to do with subsidies. A national feed-in-tariff program has made China among the more expensive places on earth for solar power – but among the most lucrative markets for companies generating it.
It has led to a bizarre situation, where firms using Chinese-made solar panels are bidding 2.4 cents a kilowatt-hour for projects in the Middle East, while at home the Chinese government is paying 12 cents.
The program has led to vast amounts of excess power, particularly in China's sunny but sparsely-populated far west, where a solar construction spree has not been matched by adequate transmission capacity. So much renewable energy has been built so quickly that in some months, 70 per cent of potential wind and solar power goes to waste.
Relying on Chinese subsidies has made the entire industry vulnerable. China is trimming the price it is willing to pay for solar power this year, raising questions about the pace of future installations. In November, First Solar Inc. said it would cut a quarter of its work force.
And subsidies aren't just a Chinese problem. In an industry report last year, market research firm IHS said market competitiveness remains "a very minor driver of growth," estimating that of all the solar installed in 2015, just 2 per cent was unsubsidized. Even by 2018, the firm predicted then, "only 6 per cent of total global solar installations will be done without any incentives at all. Given the pace of price declines witnessed in the solar industry and the widespread hype regarding grid-parity, this is remarkably low."
China, too, has been accused of dumping by authorities around the world, and hit with tariffs on its solar products.
But it may also be worth giving China thanks. Without the demand it created, it's doubtful solar prices would have fallen to current levels. And rather than taper that demand, Beijing is working to raise it to even greater levels. Earlier this year, Chinese authorities said they intend to spend more than $470-billion on renewable energy between now and 2020. It's a project of staggering size even by Chinese standards (equivalent to some two-thirds the cost of building the U.S. Interstate system, a project that spanned four decades), and one with global implications.
"By its very aggressive policies to scale up solar energy, China has effectively subsidized the scale-up of green energy worldwide," Mr. Hove said.
Of course, there are limits to that influence. In Canada, solar installations remain dependent primarily on public subsidies through government-set rates – first in Ontario, which is halting that program, and in future in Alberta, which is embarking on its own project to get rid of coal.
But solar will only be able to truly compete with coal or natural gas when the combined cost of panels and electrical storage reaches a competitive price – and that remains a distant prospect.
Coal has environmental issues. But it "does deliver a reliable, cost-effective solution," said Dave Jesty, the managing director of project finance and infrastructure at Manulife, one of Canada's largest backers and investors in solar projects.
Solar, by comparison, is expensive to install, a distinct disadvantage in a country like Canada where labour is pricey. Even a modestly-sized solar installation requires thousands of holes in the ground to support a blanket of precision panels, Mr. Jesty said. The actual cost of solar panels might make up 23 or 24 per cent of a project; the remainder are transmission towers, land acquisition and installation and interest costs, legal fees and the like.
Solar faces potent competition in a Canadian electrical system that gets more than half its energy from cheap, clean hydro power. And there are financial obstacles, too, to building solar projects that compete on a purely commercial basis. Without a fixed government contract, there is simply too much risk to finance installation of a long-life solar project, Mr. Jesty said. "Typically what is required is a defined cash-flow stream," he said. "For us to invest there has to be an off-take contract in place."
Still, the cost revolution in Chinese factories has reached Canadian shores. In Ontario, companies are beginning to discover that they can erect their own solar installations "subsidy-free," said Thomas Timmins, a lawyer who leads the renewable energy group at Gowling WLG.
"I get calls every day from people who are operating manufacturing plants who are saying, we have a parking lot, we have a roof," he said. Their intent is to feed their own operations, rather than the grid, in order to reduce peak daytime electricity charges. And, Mr. Timmins said, "12 months from now, if you can put solar on your roof or in your backyard at your cottage, you will shave electricity costs," he said.
India, meanwhile, has become among the world's most eager solar adopters. It wants to build 100 gigawatts of solar capacity by 2022, equivalent to a third of the expected 2016 global total. KPMG has estimated that Indian solar projects will be 10-per-cent cheaper than coal, currently its largest source of power, by 2020. The country's government has said it has already reached that point.
"I think a new coal plant would give you costlier power than a solar plant," Indian energy minister Piyush Goyal said this spring.
Prices have fallen so low that industrial and commercial users can today generate their own solar power for 30-per-cent less than what they pay from the grid, Pramod Deo, former chair of the country's Central Electricity Regulatory Commission, said in an interview. "It is very attractive for them – and even for residential consumers who have large rooftops," he said. "It is because of the crash in solar prices."
And industry believes there is more to come. IHS predicts another decline in solar pricing of 14 to 38 per cent this year, saying that by 2020, solar prices are likely to be half what they are today. Individual solar companies have made similar predictions. That may prove overoptimistic.
"I wouldn't say it's a slam dunk," said Mr. Gujral, the Macquarie analyst. "These numbers are not definite. They're aspirations and targets," and based heavily on an expectation that polysilicon will continue to get cheaper. Mr. Gujral is not convinced that will happen.
What prices are unlikely to do, however, is rise again, which suggests that, at the very least, the gains made on Jinko's factory floor are here to stay.
"Once it goes down, it never goes back," said Mr. Hao, the chief scientist. And, he added, in university labs and his company's own engineering offices, they are working to bring next year's prices down even further. "We still have room for the technology to play," he said.