Are We Closer to Grid Parity?

Are We Closer to Grid Parity?

The science and economics of solar energy

This article provides an overview of the solar energy industry demonstrating how the dynamics of improving efficiencies and economics of solar Photovoltaic (PV) devices expands the market for solar energy. Solar energy is gaining global attention as nations and communities seek to reduce energy consumption. Solar energy represents one of the most significant alternative energy solutions helping to eradicate our addiction to hydrocarbon fuels such as oil and coal. Yet, despite the tremendous success offered by solar energy, more research is required to sustain further deployment and bring solar PV costs closer to conventional fuel costs—cost parity with the electric grid.

BY MICHAEL S. DAVIES, CFA

Two key metrics are helpful in analyzing the solar PV market: solar efficiency and cost per

watt. To bring solar PV closer to grid parity, research is focusing on several fronts including, improving solar PV efficiency by integrating multijunction semiconductors, experimenting with rare elements, and reducing heat. In addition, PV suppliers seek to improve the economics of solar energy through lower costs where technology, economies of scale, and improving production processes, drive down solar cost per watt. Improving

efficiencies and declining costs of solar PV should enable broader deployment and expand market growth. In Figure 1, Green Econometrics is comparing the two important metrics in analyzing solar PV industry:

• Solar efficiency as measured by watts per square meter; and,

• Cost per watt generating electric. Solar radiation from the sun strikes the earth with a flux of 1,000 W per square meter so a solar panel rated at 18% efficiency provides 180 W of power per square meter. Cost per watt is inextricably tied to solar PV economics and a suppliers�� competitive advantage; therefore, efficiency and cost provide a framework to measure price performance between alternative energy solutions.

There are two basic approaches to solar PV: crystalline and thin-film materials. Solar PV modules convert radiation from the sun into DC electricity (or Direct Current), an inverter is required to transform the DC power into AC electricity (or Alternating Current).

The Economics of Solar PV

Crystalline is commonly used for rooftop applications because it offers higher efficiency requiring a smaller footprint in comparison to thin-film solar cells. However, advances with new thin-film materials such as CIGS (Copper, Indium, Gallium and Selenium) and CdTe (Cadmium Telluride or tellurium) solar cells offer a number of advantages over crystalline

silicon solar cells. For one, thin film has a cost advantage over crystalline because it uses less than 1% of the semiconductor material of crystalline PV. In general, crystalline PV devices have higher solar efficiencies, but cost more due to their material thickness. Crystalline solar PV material range 200 to 300 microns thick whereas, thin-film PV are usually about 1 to 3 microns deep contributing to its significantly lower production costs.

Thin-film PV, because of its lower efficiency in comparison to crystalline, requires a larger footprint currently making it less feasible for rooftop environments. Therefore, thin film is relegated towards large-scale applications while crystalline PV—because of its higher efficiency—is able to address broader market applications—large and small projects that could enable faster deployment and achieve large volume production and thereby lower costs. Both thin-film and crystalline approaches to PV benefit from volume production. One critical data point to consider with respect to the economics of PV is that cumulative PV deployment is approximately 1% of global electric usage. As further deployment of solar PV grows, significant improvements in cost are expected. Other factors to consider are supply constraints with respect to scarce elements, which could cause prices for those materials to increase and drive solar PV prices higher. There are several elements used in thin film PV production including CdTe, copper, Indium, and Selenium, (CuInSe), and CIGS. Because of their unique properties, tellurium and cadmium have been used in thin-film PV production since the 1980s. Tellurium is a rare metalloid element that is used in producing semiconductor materials because it does not conduct electricity.

Tellurium is recovered as a by-product of gold and copper mining and was primarily used to create metal alloys. Therefore, as a result of its limited historical use, tellurium mining has been limited and could result in production shortages to fuel solar thin-film growth.

Comparative advantages between countries may impact the economics of solar too. Some countries such as Germany and Spain, which account for 47% and 23%, respectively, of total PV deployment in 2007 could gain advantages through experience, while countries such as the U.S., may fail to fully embrace the potential benefits of solar energy. However, with the significant industry growth in both the production and deployment of solar PV devices economies of scale are starting to drive production costs lower as seen in Figure 2.

Phoenix, AZ-based First Solar (FSLR) achieved a milestone in the solar industry

with its announcement in 2009 of breaking the US$1.00 per watt price barrier with respect

to its solar thin-film production costs. Solar production costs below US$1.00 per watt should be viewed as a major milestone for First Solar by aligning solar PV closer to grid parity.

However, PV panels typically represent approximately half the cost of solar energy systems. In Figure 3, the total cost of installing a solar energy system including labor and supporting materials is compared.

As illustrated in Figure 3, the installation costs heightened by the cost of labor and support brackets holding the PV panels are a significant portion of total system costs. While thin-film PV enjoys significantly lower costs and is easier to install, the supporting brackets are sometimes more expensive. There are also considerations for tying the PV into the electric grid or battery system as solar PV devices only produce power when the sun shines.

High oil prices tend to drive stock prices for solar PV companies and have subsequently

fueled investment into silicon suppliers enabling them to ramp production capacity. The higher silicon production capacity has translated into an over supply of polysilicon used in the production of PV panels. The over supply of silicon has caused silicon prices to fall eroding the cost advantage established by thin-film suppliers such as First Solar and Energy Conversion Devices (ENER). As prices for silicon fall, the cost disparity between thin film and silicon PV will narrow and could give advantages to silicon PV firms such

as SunPower (SPWRA). Although these selected companies represent a small portion of the global PV suppliers, they do illustrate the position of some of the leading U.S. suppliers. The goal is to lower cost per watt while improving PV efficiency.

Figure 4 was based on data from Solarbuzz, one of the leading solar energy research firms, and shows the cost per kilowatt-hour for several types of energy. According to the U.S. Department of Energy (DOE), the average grid-supplied electric cost is US$0.11 per kilowatt-hour (kWh). According to Abound Solar (formerly known as AVA Solar), even with solar PV cost falling below US$1 per watt, the system costs after installation are still closer to US$5 a watt.

For example, a solar PV system in New York City captures approximately 1,489 hours annually of sunlight generating 1.5 kWh of power for each solar PV watt installed and 29 kWh over the expected 20-year life of the PV panel (1,489 hours times 20 years divided by 1,000). Solar PV at US$5.00 per watt equates to approximately US$0.17 per kWh (US$5.00 a watt / 29 kWh) and is still higher than grid parity at a cost of US$0.11 per kWh. More research is required to lower production costs and improve solar PV efficiency.

Pushing Solar PV Efficiency

Some approaches to improving solar PV efficiency, include focus on semiconductor band gaps, multi-junction semiconductors, and tracking systems. To understand solar PV efficiency we are providing a brief and oversimplified analysis of the physics behind solar energy, including an overview of semiconductor band gaps and new technological approaches to optimize solar energy conversion efficiency.

Semiconductor band gaps refer to the discrete energy bands required to excite an electron and free it from the outer shell of an atom. For certain elements, there is a corresponding photon wavelength of light that frees the electron while the rest of the energy produces heat. The energy band gaps in photovoltaic semiconductors are different depending upon materials used. Specifically, the band gap refers to the separation between the valence band, where the electrons are shared among the atoms in the material, and the conduction band where electrons are free to travel as electric current. In crystalline material, the energy bands are split between the conductive band and the valance band. When the material absorbs light, the electrons become excited to the band gap threshold level, beyond which the electrons are able to jump to the conduction band and in the process, create electrons and positively charged holes that in turn generate electric current.

The minimum energy required to free an electron in metal is significantly less than

that of semiconductors. For metals the energy bands are more or less continuous, the valence band and the conductive band overlap. The separations of energy bands in crystalline materials results in gaps between the energy bands and hence band gaps. In general, the more direct the band gap, the more efficient the band gap material.

Thin film is a direct band-gap semiconductor and crystalline silicon is an indirect band-gap semiconductor. The direct band gap properties of thin film enable the material to generate significantly more electricity per unit of material. A 1-micron thick film of thin film can generate a photoelectric field close to a crystalline silicon wafer 200-300 microns thick.

With a host of physics equations, models, and laws, one can calculate the energy band gaps for different semiconductor materials.

Figure 5 illustrates the efficiencies for different elements used to produce solar PV devices. In addition, one can alter the band gap of the material through, heat, pressure, or introducing impurities into the material (doping the material) to change its physical properties. Research is ongoing to improve efficiencies through doping the PV material with different elements and introducing new materials. These processes seek to narrow the band gap of the semiconductor and thereby improve their efficiencies.

For a single junction solar cell, the upper limit of efficiency is approximately 30% and is referred to as the Shockley-Queisser limit. There is also a thermodynamic limit of about 83% when other technologies are applied such as multi-junction semiconductors. Multi-junction semiconductors employ two or triple junction semiconductor materials to capture excess photon energy. Please see ��Detailed Balance Limit of Efficiency of p-n Junction Solar Cells�� (W Shockley and HJ Queisser, Journal of Applied Physics, 1961).

Semiconductor materials have limited efficiency because excess photon energy generates heat and not electric current. Figure 6 provides an overview of technologies that may significantly enhance solar PV efficiencies.

One of the mechanisms that could help to improve solar PV efficiency is to combine electric production with heat production for solar hot water. Patented in 1994 the National Institute of Standards and Technology (NIST), the system uses solar PV to generate electricity that is then dissipated through electric resistive heating elements.

There is degradation of solar efficiency as temperatures increase so the efficiency of solar PV can be enhanced through lowering the temperature of the panels. By using excess heat to produce hot water the panels operate at a lower temperature subsequently improving the efficiency of the solar PV as well as the efficiency of whole system producing both power and heat. The technology can be licensed through the Technology Partnerships Division of the NIST.

Despite lower PV panel costs and improving efficiencies, we are still not at cost parity with hydrocarbon fuels such as coal and oil. Research studies on improving solar energy efficiency are embracing numerous fronts including concentrators and multi-junction semiconductors to impact ionization and spectral conversion. A good overview on solar energy is presented by the DOE��s National Renewable Energy Lab (NREL) at www.solar

2006.org/presentations/forums/f33-nozik.pdf and is entitled ��Third Generation Solar Photon Conversion��.

There should be considerable excitement given the potential that greater efficiency should drive solar energy costs lower. When PV cells with installation costs fall below US$3.00/watt or US$0.115/kWh, solar energy should be at grid parity with conventional electric rates in the U.S. at approximately US$0.11/kWh. The bottom line is innovative research has the potential to offer the disruptive technologies that could significantly change the economics of delivering an energy solutions to all nations.

Michael S. Davies, CFA, is founder of Green Econometrics (http://www.greeneconometrics.com/). As a technology analyst, Davies�� career spanned Wall Street and Silicon Valley with management roles in marketing, finance, and technology. Davies founded Marketing Strategies Int��l Inc providing market research to Apple Computer and has been featured on

CNBC, CNN, and Bloomberg. Davies possesses an MBA from University of California, Los

Angeles and BA in Economics from Columbia University, New York City and is a Chartered Financial Analyst.

For more information, please send your e-mails to pved@infothe.com.

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