By Mike Smith for EnergyBlogs.com
James M. Crotty, Columnist for Forbes.com, recently wrote about Pace Global’s integrated approach to energy markets. We listened in as James asked some follow-up questions about Solyndra and the state of the solar marketplace:
The Solyndra story of fraud, misuse of the government’s $525 million in DOE funding, and the resultant loss of 1,100 jobs http://www.washingtonpost.com/politics/investment-in-failed-solar-firm-solyndra-raises-questions-about-nonprofits-purpose/2011/09/27/gIQAVByZ2K_story.html should not and does not define Solar. In conversations we've had with Scott Sklar, one of the pioneers in building Washington support for the photovoltaic technology, http://thestellagroupltd.com/and an early executive director of SEIA, we learn that stimulus support for nascent solar was required.
Forbes writer Crotty spoke recently with Timothy Sutherland, CEO of Pace Global Energy Services www.paceglobal.com about the economics of solar, the market demand, and the decline in government funding that will require private sector investment and market forces to win.
Are we in the midst of a solar bubble?
We’re not in a bubble in the demand-driven traditional sense of the term. We are, however, seeing a government-generated investment bubble, particularly in China, that has driven down world solar panel prices by 40% in the past year and in turn driven some U.S. manufacturers out of business.
And, if so, to what extent is this the fault of taxpayer-financed solar subsidies?
The U.S. federal subsidies of course have played a major role in shaping the U.S. solar market.
All federal efforts at creating “green jobs” in the photovoltaic solar industry are for naught however, as long as the Chinese government sees taxpayer-subsidized OECD solar power markets as a primary target for export growth. While the Chinese talk publicly about serving their domestic solar market, I suspect their enunciated goal of 50 GW of installed solar power by 2020 is masking the tens of billions of dollars of low interest/no interest government loans that have gone toward the astonishingly rapid build-up of the Chinese photovoltaic industry. It is now approaching a 50% global market share.
Most consumers and stock market traders assume that solar stocks are paired with the price of oil. The price of oil goes up, solar stocks rise in tandem. Is this linkage true? Or is solar better correlated with the price of natural gas, since both solar and natural gas feed into the electrical grid?
Actually, at this point in the evolution of the solar industry, any attempt to gauge enterprise value based on competing energy prices is misguided; although I’m sure it’s done. This is due to yet another aspect of the “bubble” phenomenon. The solar market is largely a creation of national governments around the world. There are competitive dynamics internal to that market, as we’ve seen with the recent failures of Solyndra and Evergreen Solar in the face of overwhelming competition from Chinese manufacturers as formerly high-tech premium products become commoditized. The retail market for photovoltaics, however, is largely the creation of national governments; any estimate of future market share and profitability of a private manufacturer of solar panels is critically dependent on assumptions about subsidy levels and continuity. When national policies collide in the global marketplace, we have casualties like Solyndra.
And since we have plenty of natural gas in America, perhaps this is the real driver of the current downward swoon in solar stocks?
The ability of U.S. gas producers to economically extract our vast conventional and unconventional natural gas resources certainly affects investor sentiment about the potential size, scale and timing of solar industry growth, but the effect is indirect. Ample supplies of natural gas, with its low carbon/high hydrogen chemical composition, places into question the longevity of government programs to subsidize solar development. I’d suggest to you, however, that our current national fiscal problems create as much or more doubt about the sustainability of energy subsidies as do the cost and availability of natural gas.Domestic oil and gas production levels will play a role in this complicated process, but are hardly the only factors.
What else would you like to add?
The U.S. must find its way on the world stage using cooperation and consensus-building as its tools of first resort with the use of diplomacy as an implicit reminder that cooperation and consensus require mutual accommodation and respect.