Boom Industry Solar Energy

Economics
International topics
May 24, 2005
Current Issues
Energy special
Boom Industry Solar Energy
•
With the growing use of solar energy the depletion of major fossil fuels that is
already in sight – first oil, later natural gas – can be stretched out. The
breathing space this creates (for instance for developing alternative
adjustment strategies) is ultimately thanks to the possibility we have, in our
closed, finite system of the earth, of "tapping" the sheer inexhaustible energy
resources of the sun with the aid of innovative technologies. The technologies
for "harvesting" this energy are wide-ranging.
•
Since solar power stations in space are still very much pie-in-the-sky and
commercial-scale solar towers are just in their infancy, only conventional
methods of exploiting solar energy – photovoltaic systems for generating
electricity and solar thermal technology for generating heat – can contribute
towards safeguarding energy supplies and environmental protection in the
medium term.
•
Driving the photovoltaic boom in Germany is the massive subsidisation with
which the government hopes to push the commercialisation of new energy
technologies. At the political level this is seen as a way of achieving energy
and environmental policy goals. The criticism levelled at this subsidisation
policy centres on the hugely inflated compensation payments for solar
electricity fed into the grid, the relatively low degression rate and the high CO2
avoidance costs.
•
Photovoltaic technology has global promise. World growth in newly installed
capacity is likely to average around 30% p.a. through to the year 2010, with
above-average growth in Germany, more or less average growth in the USA
while Japan trails a little way behind. Expectations that the chip industry's high
absorption of silicon could constrain the growth of photovoltaic technology
appear overdone. The following decade to 2020 should see global growth (at
least) in the low double digits.
•
In the world market for solar thermal energy only Asia and Europe have
played a significant role so far. At the country level China is clearly the most
dominant market. Global growth in newly installed solar collector area in the
years through to 2010 is expected to be in the region of 10% to 20% p.a. The
technology still holds enormous potential, especially in the high-population
sunbelt countries. One reason for this confidence is the expectation that in 15
to 20 years technological advances could well lower the cost of electricity from
commercial-scale solar thermal power stations from currently 15 to 20
cents/kWh to 5 to 7 cents/kWh in parts of the world where solar irradiation
intensity is high.
•
Given the high hopes that have been pinned on the future of solar energy by
government and large parts of the population the industry now needs to
deliver on its promises. If, going forward, the solar energy industry does
succeed in lowering the costs of energy production and CO2 avoidance
significantly this investment in the future should pay off handsomely for
everyone.
Editor
Hans-Joachim Frank
+49 69 910-31879
[email protected]
Technical Assistant
Sabine Korn-Berger
+49 69 910-31755
[email protected]
Deutsche Bank Research
Frankfurt am Main
Germany
Internet: www.dbresearch.com
E-mail: [email protected]
Fax: +49 69 910-31877
Managing Director
Norbert Walter
Author: Josef Auer, +49 69 910-31878 ([email protected])
Current Issues
May 24, 2005
The drawbacks of fossil fuels…
The exploitation of fossil fuels, in other words coal, oil and natural
gas, was one of the foundations for the evolution of industrial
society. It was the harnessing of these conventional energy sources
that paved the way for the rapid advances in civilisation over the last
two centuries. Meanwhile, as a glance at the three goals of energy
policy shows, the use of fossil energy sources now poses problems:
•
•
•
The combustion of fossil fuels produces CO2 emissions, the No.1
greenhouse gas. In the early stages of industrialisation scant
attention was paid to these problems for environmental
protection as the volumes were still very small. In recent years
"global warming" and freak climate phenomena have heightened
the awareness of these problems at the international level. The
only major industrial nation that still rejects the Kyoto process,
now that even Russia has changed its tack, is the USA (plus
Australia). Nonetheless, the launch of EU emission trading raises
hopes of a little more environmental efficiency and fairness.
An energy strategy focused on fossil fuels cannot guarantee
security of supply in the longer run owing to their essentially
unfavourable properties as resources. Since we cannot regenerate fossil fuels (at least in the foreseeable future), their use
inevitably leads to depletion of these resources. The results of
surveys on fossil fuel reserves and resources and how long they
will last are far from comforting. The estimated life of the
hydrocarbon fuels especially – above all oil but also natural gas –
gives cause for major concern. In the case of oil, global
production could already pass its peak in a few decades. If
production capacities become stretched and the "appetite for
energy", especially in the high-population countries of China and
India, continues to soar, appreciable price hikes are inevitable.
The supply situation is further aggravated by the fact that some
70% of the reserves of the conventional hydrocarbons, oil and
natural gas, are concentrated in the so-called "strategic ellipse“,
stretching from the Middle East to Western Siberia. Political
instabilities in the main producer countries harbour additional
1
supply risks.
In most cases fossil fuels fulfil the goal of cost efficiency in the
present market conditions. However, the rising price trend for the
ever scarcer hydrocarbons that is likely on a longer-term view
makes alternatives more attractive from an economic point of
view. The recent surge in the price of oil, the No. 1 energy
source, and of other fossil fuels is just a foretaste of what is to
come.
… fuel opportunities for solar energy
Since we will not be able to do without energy in the future, and
given the drawbacks of fossil energy sources in the longer term, the
question is what viable alternative energy strategies are there. The
instruments for improving the global energy balance are manifold.
They include supply-side strategies. For instance novel concepts
such as the development of CO2-free coal-fired power stations could
remedy the present drawbacks of using fossil fuels. On the demandside energy consumption can be cut back by conservation efforts
1
2
See Auer, Josef (2004). Energy prospects after the petroleum age. Current Issues,
2 December 2004, Frankfurt am Main. Auer, Josef (2005). Energiestrategien für die
Zeit nach dem Öl. In dowjones/vwd, energy weekly, No. 1, 7 January 2005, p. 6-9.
Economics
Goals of energy policy
Cost
efficiency
Security of
supply
Sustainability
Environmental
protection
Emission trading
As part of the implementation of the Kyoto
Protocol emission trading has been launched
within the European Union in 2005. The emission
trading system creates a commercial basis for
reducing emissions of the greenhouse gas CO2
where this can be achieved the most cost
effectively. In this way environmentally effective
action is translated into economic benefit. Specific
reduction targets are allocated to each industry
and facility and emission certificates are issued
free in this amount for the first trading period. The
certificates can be traded, thus serving as a kind
of currency. If the company meets the targets
through its own cost-effective CO2 avoidance
measures it can sell the certificates it does not
require in the market. Conversely, a company has
to buy certificates in the market if it would cost it
more to carry through own avoidance measures.
Source: Federal Ministry of the Environment; see also Heymann,
Eric (2003). EU trade in CO2 emissions: 2005 launch deadline at
risk. In Deutsche Bank Research, Current Issues, 2 December
2003, Frankfurt am Main.
May 24, 2005
Current Issues
(for instance by households) and measures to enhance efficiency
(for instance in transport or electricity generation).
Resource properties of energy
sources
Renewable energies have the edge in the long run
As with fossil fuels, we cannot regenerate the renewable energy
sources such as solar, wind, hydro and tidal energy either but, in
contrast to fossil fuels, they do not become exhausted with use.
2
Moreover, the use of so-called renewables is CO2-neutral. Thanks
to their resource properties of non-exhaustibility and CO2 neutrality
alternative energies are essentially ideal candidates for making a
positive contribution towards the energy policy goals of security of
supply (by conserving essentially scarce fossil fuels) and
environmental protection.
Of course, the actual or potential contribution that is possible in the
given case depends on each country's specific natural conditions.
These are key factors that also determine the cost efficiency of the
respective alternative energies. In the case of solar energy for
instance the contribution this energy source can make to security of
supply and cost efficiency depends on the length and intensity of
sunlight exposure. For the wind energy "yield", on the other hand,
parameters such as wind velocity and constancy are key, while in
the case of hydro power the main determinants are the water
potentials (for instance rain/snowfall frequency and levels).
Solar energy industry uses different technologies
With the growing use of solar energy the depletion of major fossil
fuels that is already in sight – first oil, later natural gas – can be
stretched out. The breathing space this creates (for instance for
developing alternative adjustment strategies) is ultimately thanks to
the possibility we have, in our closed, finite system of the earth, for
"tapping" the sheer inexhaustible energy resources of the sun with
the aid of innovative technologies. The technologies for "harvesting"
the energy of the sun are wide-ranging.
Photovoltaic and solar thermal technologies are already established
technologies. However, the spectrum is still broader, ranging from at
present still pretty futuristic ideas such as the construction of huge
solar towers (so-called convection power stations) to putting solar
power stations into orbit close to the earth:
•
Photovoltaic systems use solar cells to capture the sun's energy
and convert it into electricity. Photovoltaic technology is used
among other things for domestic applications (solar roofs) and in
a wide range of consumer articles (for instance as a power
source for pocket calculators and outdoor lamps). In remote parts
of the world that are beyond the reach of electricity grids but
have ample sunshine photovoltaic technology is the only
possibility for providing a basic power supply, as the core
element of solar home systems (SHS), which enables many
people to enjoy the achievements of civilisation such as
information (for instance through radio reception), communication
and hygiene (clean water). The World Bank is therefore
furthering the spread of this technology in less developed
countries. Stand-alone solutions like SHS not only serve as
"bridges to civilisation" but are also in use in sparsely populated
2
Biological energy resources (e.g. rapeseed) are only exhaustible if they are over-used.
If the depletion rate is held below the natural regeneration rate the sources do not become exhausted. Bio energies such as energy-producing plants have the big advantage over fossil fuels that they are CO2-neutral if the whole life cycle is in balance.
Economics
exhaustible
renewable
non-renewable
nonexhaustible
biological
energy resources
natural gas
mineral oil
coal
uranium
tidal power
solar energy
hydroelectricity
wind energy
Source: Deutsche Bank Research
Future concepts for solar energy
A convection power station or solar tower can
be regarded as a special application of solar
thermal technology. The concept uses the characteristic of hot air to rise. The energy of the sun
heats the air beneath a glass collector roof and
this rises through a chimney. Surrounding air
flows in from the edge of the glass roof, is heated
and also rises. The turbine installed in the chimney converts the energy from the air current into
electricity via a generator. The actual "motor" is
the energy of the sun as it creates the convection
current. A pilot plant was in operation from mid1986 to early 1989 in Manzanares (Spain). The
technology has promise for the future, especially
in the deserts of Asia, Africa and Australia where
solar irradiation intensity is high.
The idea of setting up solar power stations in
space emerged with the advances in space
travel. Essentially, this involves capturing the
sun's energy in space and transmitting it to earth.
Initially, the idea was to use microwaves to transmit the energy; today, research engineers prefer
laser technology since, among other things, this
requires far less material to be transported into
space, which cuts costs. Although many highprofile agencies, firms and institutes (such as
NASA, EADS, DLR) are looking into the possibilities of power stations in space it will certainly
remain a vision for the present. However, there is
a possibility that smallish energy or solar satellites
might be launched in the next decades.
3
Current Issues
parts of industrial nations such as Canada, the USA and
Sweden, for instance as an (additional) power supply source for
lodges and holiday homes.
•
Central to solar thermal systems are solar collectors. The
collectors convert the energy from the light radiated by the sun
directly into heat by exploiting the greenhouse effect which the
solar collector produces, just like a glasshouse or conservatory,
when the sun's rays hit a glass surface and generate heat.
May 24, 2005
Development of the photovoltaic
market in Germany
Annual installed capacity
400
MWp
300
250
200
Surge in photovoltaic demand in Germany
2004 was a landmark year for photovoltaic (PV) technology in Germany. According to statistics published by the German Solar
Industry Association (BSi) the newly installed capacity of gridconnected photovoltaic systems surged by 140% to 360 megawatts
(MWp). By contrast, the buildout of stand-alone systems (for
instance on remote farms or mountain huts) stagnated at 3 MWp.
The main reason for the boom in grid-connected systems is the
significant hike in the regulated rates of compensation for solar
electricity fed into the grid under the amended German Renewable
Energies Act (Erneuerbare Energien-Gesetz or EEG for short). As a
result of the considerable investment in new systems the total
installed capacity of grid-connected PV systems soared by over
four-fifths to nearly 800 MWp in 2004. This lifted Germany into first
place globally in terms of newly installed capacity, putting it ahead of
Japan for the first time.
150
100
50
0
1990 1992 1994 1996 1998 2000 2002 2004
Sources: IEA, BSi
Development of the photovoltaic
market in Germany
Total installed capacity (stock)
900
MWp
800
700
600
On the back of the buoyancy of the German market there has been
a strong expansion of production capacities for solar cells, solar
modules and inverters. BSi puts the number of jobs in the PV
industry at 20,000 at the end of 2004.
500
400
300
200
Share of PV electricity generation still very small
Total primary energy consumption in Germany last year was unchanged versus 2003 and was dominated by the conventional
energy sources of mineral oil, natural gas, nuclear energy, pit coal
and lignite. Renewables hiked their share of the static overall energy
mix from 3.1% to 3.6%.
Photovoltaic technology is mainly used to generate the secondary
energy source electricity. In 2004 not only photovoltaic systems but
also all the other major renewables such as wind energy, hydro
power and biomass saw stronger use for electricity generation than
the year before. All in all, the share of renewables in gross electricity
consumption has risen to 9.3% (2003: 7.9%). Including the
electricity generated by waste incineration plants close to 56 billion
kWh was generated by renewable energy sources in 2004.
Despite the absolute growth in PV electricity generation from 333
GWh in 2003 to 500 GWh in 2004 photovoltaic systems only
accounted for 0.9% of the total electricity generated from renewable
energy sources. This is far less than the share of wind energy
(45%), which for the first time contributed more to electricity
production than hydro power (38%).
High subsidies to boost market acceptance of PV
Driving the photovoltaic boom in Germany is the massive subsidisation with which the government hopes to push the
commercialisation of new energy technologies. At the political level
this is seen as a way of achieving energy and environmental policy
goals.
4
350
Economics
100
0
1990 1992 1994 1996 1998 2000 2002 2004
Sources: IEA, BSi
Primary energy consumption in
Germany 2004
Pit coal
13.4%
Lignite
11.4%
Nuclear
energy
12.6%
Mineral
oil
36.4%
Natural
gas
22.4%
Other
0.2%
Source: AGEE
Renewables
3.6%
May 24, 2005
Current Issues
Milestones behind the rapid upswing in Germany were the Stromeinspeisegesetz, a law promoting electricity from renewable sources
and regulating its uptake in the grid passed in the early 1990s, the
introduction of the Renewable Energies Act (EEG) and the "Solar
energy from 100,000 roofs" programme launched in 1999. After the
phasing out of the 100,000 solar roofs programme in 2003, the
Photovoltaic
Preliminary
Law
(Photovoltaik-Vorschaltgesetz)
introduced at the beginning of 2004 brought a first improvement in
the rates of compensation for the uptake of solar electricity in the
grid. As from August 2004 the rates are regulated by the new
Renewable Energies Act (EEG): for systems installed on buildings or
noise protection walls up to 30 kW the rate is 57.4 cents/kWh, for
systems up to 100 kW 54.6 cents/kW and for systems from 100 kW
upwards 54 cents/kW. The rate for facade-integral systems is
slightly higher, with a peak rate of 62.4 cents/kW, while that for other
systems is a "mere" 45.7 cents/kW. This covers a term of 20 years.
However, the rate depends on the year when the system is first
taken into operation and for newly commissioned systems there are
yearly reductions (degression). Normally, the rate of degression is
5% p.a. The aim of the degression is to encourage continuous
efficiency enhancements and cost reductions. Besides the
inducements of the Renewable Energies Act, the Reconstruction
Loan Corporation (KfW) also offers attractive financing terms for
photovoltaic systems.
Contribution of renewable energy
sources to electricity generation*
%
10
8
6
4
2
0
2000
2001
Essentially, a degression of the subsidisation makes sense. Its
level is open to debate. A higher degression would have the
advantage that it would provide a stronger inducement than today
for companies and researchers to improve the technology. In a few
years' time at the latest, when more experience has been gained
See for instance Alt, Helmut (2005). Teure Energieträume. In Brennstoffspiegel,
02/2005, p. 43.
Economics
2004
Electricity generation from
renewable sources 2004*
Other
16.7%
Hydroelectric
power
37.6%
Photovoltaic
0.9%
Wind
energy
44.8%
* Total: 55.7 TWh
Source: AGEE
The new EEG: Solar irradiation
energy
System
Rate of com-
Capacity
pensation
(ct/kWh)
(kW)
On
57.4
up to 30
buildings
54.6
30 - 100
or noise
54
from 100
protection walls
Facade-
62.4
up to 30
integral
59.6
30 - 100
systems
59
from 100
Other
3
2003
Source: AGEE
The criticism levelled at PV subsidisation in Germany centres not
least of all on the level of the regulated prices for solar electricity fed
into the grid, the structure of the degression and the CO2 avoidance
costs:
Admittedly, today's electricity prices do not anywhere near reflect the
external costs of electricity generation (such as environmental
costs). If these were included, this would certainly narrow the price
gap versus photovoltaic electricity. Nonetheless, this does not alter
the fact that, with solar energy, the method of electricity generation
which, in our not very sun-blessed industrial nation with its dense
population and close-knit power grid, is the furthest removed from
competitiveness is receiving the most subsidisation.
2002
* Based on total gross electricity consumption
Criticism of PV subsidisation in Germany
The average household in Germany currently pays around 17
cents/kWh for its electricity. Of this amount, government taxes
account for roughly two-fifths and grid costs for two-fifths. The actual
generating costs therefore only represent about one-fifth, in other
words 3.5 cents/kWh. If we assume that the fuel input cost in the
German power station mix is around 2 cents/kWh and the
photovoltaic electricity fed into the grid only substitutes this input,
the enormous price difference and subsidisation is clearly
manifest. The price for solar electricity from a typical solar roof
(system up to 30 kW) is as much as 57.4 cents/kWh, in other words
almost 30 times the electricity industry's normal fuel input costs at
3
present.
12
45.7
systems
Source: BMU
5
May 24, 2005
Current Issues
about the actual pace of technological advance in the industry, the
structure of the degression should be reviewed again and revised
where necessary.
Until such time a major driver behind the strong rally in listed solar
technology stocks since the beginning of 2004 will remain intact.
This is the expectation that the companies can increase the
efficiency of new cells by more than 5% p.a. thanks to technological
advances coupled with strong volume growth. This in turn will boost
the companies' profitability over time and justify a higher market
4
valuation. Of course, the flip side is the real political risk of the
degression rate being hiked (for instance as a result of changed
political majorities in the lower house of the German parliament).
An important argument for the buildout of photovoltaic technology is
the environmental benefits from the substitution of traditional energy
sources and the resulting reduction of CO2 emissions from electricity
generation. Here, the criticism centres on the, by comparison, very
high CO2 avoidance cost of photovoltaic technology. Today, the
modernization and the construction of new power stations is one of
the most cost-efficient ways of reducing CO2 emissions. Relatively
low specific CO2 avoidance costs are being achieved for instance
through retrofit measures and the construction of new lignite, pit coal
or natural gas power stations (also outside Germany). Retrofit
measures are undertaken to refurbish generating capacities that
would otherwise need to be closed for obsolescence reasons, but
they can also be used to enhance the efficiency of plants that are
still in full working order. Compared with other renewable energies,
too, the CO2 avoidance costs of photovoltaic technology, which are
in the region of 500 euros per tonne of CO2, are a multiple of those
for wind energy (60-70 euros) or hydro power (roughly 40 euros).
Obviously, this is likely to improve along with advances in
photovoltaic technology. Still, the other methods of electricity
production will become more efficient, too, so it is likely to be some
time before photovoltaic technology can close the gap in terms of
CO2 avoidance costs.
Another argument in this connection is that the first price of an EU
emission right for the emission of one tonne of CO2 to be fixed in
the trading of EU emission certificates, launched on 13 March on the
European Energy Exchange (EEX) in Leipzig, was only 10.40
5
euros , which is a very small fraction of the CO2 avoidance costs of
photovoltaic technology. And it is also well below the comparable
avoidance costs which can be assumed for the construction of new
fossil-fuel power stations in Germany.
This places a question mark over the prospects for photovoltaic
technology in the medium term. Strong growth will allow the advantages of mass production, such as economies of scale, to be
exploited. In addition, an expanding market makes it easier to
finance research and development. And declining costs for PV
systems on the back of advances in technology and higher volumes
will lower CO2 avoidance costs. Despite the criticism we expect to
see strong growth.
4
5
6
See Conergy AG, Sunny days ahead! Deutsche Bank Equity Research, 21 February
2005, p. 4. Even BSi estimates that the "proposed cost reduction of 5% p.a. can be
comfortably absorbed by growth in production in the medium term” (Gute Perspektiven für die Solarstrom-Branche: In BSi press release, 15 March 2005).
See Emissionshandel an der EEX erfolgreich gestartet. EEX press release, 9 March
2005.
Economics
Specific CO2 avoidance costs
Nuclear
energy
7-11
Lignite**
14-16
Natural
gas**
14-21
Pit coal**
15-19
Hydro
33-43
Wind
60-70
Photovoltaic
EUR/t CO2*
500-600
0
200
400
600
800
* Figures for German electricity production;
2004 prices
** New capacities
Source: RWE Power
Mass production lowers costs
May 24, 2005
Current Issues
Outlook for global growth promising
The world market for photovoltaic systems is dominated by
Japan, Germany and the USA. Japan was the market leader in 2003
in terms of installed capacity with a share of 39% of the world
market, followed by Germany (25%) and the USA (11%).
Photovoltaic technology has good global growth prospects in the
medium term, with stimulus coming from virtually all the particularly
relevant economic regions of the world:
•
In Germany the growth in new installations is expected to
average around 40% p.a. in the period from 2004 through 2010.
Key to this forecast rate of growth is the boost provided by the
amendment of the Renewable Energies Act in 2004 (see above).
However, the momentum could be dampened until some way
into next year by a certain tightening of the supply of silicon. We
assume that even if there were to be a change of government in
September 2006 this would not toll the end of state assistance
for solar energy but only bring an adjustment of the degression. It
is also quite possible that the regulated prices for solar electricity
fed into the grid might be lowered.
•
Japan is likely to see average growth in new PV capacity of
around 25% p.a. over the same period. Japan's energy policy
has been promoting environmental protection for some time,
wants to reduce reliance on energy imports and attaches
considerable importance to observing the Kyoto Protocol. So
solar energy enjoys high priority. The relatively high electricity
prices in Japan compared with other industrial countries make
alternative sources of power an attractive proposition. However,
the reduction of government grants for smaller photovoltaic
systems is dampening the trend. In the coming years a boost
could come from new government programmes for large solar
6
power stations. At least, according to the Ministry of Economics,
Trade and Industry (METI), Japan aims to source one-tenth of its
energy needs from renewables by the year 2030; with half of that
7
coming from photovoltaic systems.
•
In contrast to Germany and Japan, the USA has not opted so far
for a policy of promoting solar energy at the national level but has
left it at the initiative of the individual federal states. After the
Bush Administration was confirmed in office last year, and given
signs of first shifts of accent in energy and environmental policy,
it is likely that new (statutory) initiatives for promoting
photovoltaic technology at the federal level are in the offing in the
months ahead. Promoting PV is consistent with the USA's
climate strategy since it prefers the technology track to
international treaties. All the same, the federal states will
continue to account for the bulk of the state assistance in the
medium term; California, New Jersey, Pennsylvania and Colorado count as the biggest sponsors. The growth in new
installations is expected to average around 30% p.a. through
2010.
With the expected dynamic pace of build-out in the three countries
which today already account for three-fourths of the world's total installed PV capacity, a continuation of the global market growth is
6
7
Market share of photovoltaic
systems* 2003
Other
25%
Japan
39%
USA
11%
Germany
25%
* Basis: installed capacity
Sources: Solarbuzz, LRP
Promotion of PV is consistent with US
climate strategy
Spain, South Korea and China hold
promise for the future
See Doi, Shintaro/Michael Rogol (2005). Wann enden die guten Zeiten? In Photon,
March 2005. p. 22/23.
See Ikki, Osamu (2004). Japan´s new PV business vision. In IEA, PV Power. December 2004, p. 2.
Economics
7
May 24, 2005
Current Issues
preordained. There is potential in Europe, especially in the sunnier
south. Spain, for instance, could assume the role of growth
locomotive in the medium term provided the incentives are attractive
enough. Other markets that harbour promise for the future are South
Korea and China, a country where energy is scarce in many parts
and photovoltaic technology could play quite an important role in the
electrification of rural areas. All in all, global growth in new PV
capacity of 30% p.a. through to the year 2010 is quite probable.
5.5
USD
4.5
3.5
2.5
1.5
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
0.5
Jul-01
The current plans for capacity expansion in the silicon industry
suggest that a possible silicon bottleneck should be overcome in
two to three years. The current development in the global electronics
industry, where business is slackening with the slowdown in global
economic growth, means that silicon demand from the chip industry
could turn out to be lower than expected. Another indication is that
memory chip (DRAM) prices have been on the decline again since
September 2004. The shortfall in demand from the chip industry
suggests that additional material will be available for module
manufacturers in the photovoltaic supply chain. Expectations that
the high take-up in the electronics and electrical industry will
constrain the PV market therefore appear overdone from today's
viewpoint.
Development of prices for
memory chips (DRAMSs)
Jan-01
In the past years the rising demand for photovoltaic systems in the
three key markets has been met more or less by the expansion of
local production capacities. The crisis at the US solar manufacturer
Astro-Power, which led in the end to its takeover by General Electric
and ensuing capacity adjustments, has turned the USA, which for
many years was a net exporter of solar modules, into a net importer.
Given the financial strength of the US customers this has opened up
a lucrative window of opportunity for exports by Japanese and
European suppliers.
Source: Bloomberg
Given the rising demand for silicon and the growing volume of
photovoltaic modules that need to be disposed of, the recycling of
spent cells will acquire greater importance in future, especially as
the cells can be recycled up to four times. And thanks to the
advances in solar cell technology it is possible to increase the
8
efficiency of the cell in its "new life".
Double-digit growth through 2020 likely
In the decade from 2010 to 2020 installed capacity is likely to
continue rising globally at a significant pace. In this period it is very
probable that photovoltaic systems will still not have been developed
to a level where they are commercially competitive in the advanced
industrial countries. However, thanks to improvements in the
technology and innovations they should have narrowed the cost gap
versus the established energy sources and technologies. All in all,
the decade to 2020 should see global growth in new installations (at
least) in the low double-digits which, for basis reasons, is lower than
in the present decade.
As state subsidisation is cut back the industry will need to leverage
every possibility for cost-cutting at its disposal. Potential drivers are
factors ranging from process optimisation through to economies of
scale from mass production and – not least of all – the improvement
of existing technologies and the exploitation of new ones. Some
trends are already foreseeable today. In the coming decades the
crystalline silicon cells that are dominant today (roughly 90% of the
8
8
See Janzing, Bernward (2005). Solarboom rückt Recycling gebrauchter Zellen ins
Blickfeld. In Handelsblatt, Beilage Technik und Innovation, 14 March 2005.
Economics
Development of the solar thermal
market in Germany
Annual installed collector area
1,000
'000/m2
900
800
700
600
500
400
300
200
100
0
1990 1992 1994 1996 1998 2000 2002 2004
Source: BSi
May 24, 2005
Current Issues
world market) are likely to lose more and more importance to thinfilm solar cells. In later decades thin-film technologies could draw
more or less level with crystalline techniques and allow considerable
cost reductions. It is also possible that alternative methods and
concepts might emerge that will revolutionise photovoltaic
technology.
A report just published by the European Commission presents a
vision for 2030 and beyond, with the projection that by then another
200,000 to 400,000 jobs could be created in the PV industry in the
EU (2004: 30,000). It claims that the cost of producing PV solar
electricity could well fall to between 0.05 and 0.12 euro/kWh by
2030 and be reduced further thereafter on the back of advances in
technology. But even on this ambitious vision PV would still only
account for 4% of the world's electricity production in 2030.
However, assuming that costs can be successfully reduced, it is
9
quite conceivable that from 2030 photovoltaic technology might see
stronger growth again on the back of its then much improved
competitiveness compared with alternative methods of electricity
production.
It is perhaps visions like this that have also inspired big "old
economy" energy players to invest heavily in the PV sector. Majors
like General Electric and Shell are well-known examples. Managers
in the traditional energy industry with strategic foresight have long
realised that, given the laws of nature, the era of fossil fuels is not
infinite. Their engagement in this sector is therefore not out of
curiosity but something that could well turn out to be a highly
lucrative investment in a market of the future. After all, without
energy, there is no future.
Moderate growth of solar thermal energy in Germany
The market for solar thermal energy in Germany is developing at a
much more modest pace than the PV market. Newly installed solar
2
collector area in 2004 came to around 750,000 m (+4.2%). The
main reason for the different pace of growth is that it receives far
less generous government assistance than photovoltaic technology.
The main support is a programme of government-sponsored market
incentives. In addition, individual federal states offer special financial
assistance and the Reconstruction Loan Corporation (KfW) provides
soft loans.
In 2004 solar thermal energy accounted for just over 4% of heat
sup-plies from renewable energies, putting it in third place after bio
solid fuels (86%) and bio waste (6%). According to BSi statistics the
solar thermal energy industry employed as many as 10,000 people
last year.
Development of the solar thermal
market in Germany
Total installed collector area
million m2
7
6
5
4
3
2
1
0
1990 1992 1994 1996 1998 2000 2002 2004
Source: BSi
Heating supply from renewable
sources 2004
Solar
thermal
4.2%
GeoBio
thermal waste
2.5%
5.9%
Other
1.6%
Bio solid
fuels
85.8%
Source: AGEE
Newly installed collector area 2003
Other
15%
Europe
11%
In the coming years sales of solar thermal energy systems are likely
to lag behind those of PV systems in Germany. However, stimulus
could come from stronger marketing efforts and a closer integration
with the plumbing and heating industry.
The industry could receive a boost if it were able to win political
acceptance for some kind of "heating law" for the promotion of
renewables. However, the chances of such a law being enacted in
the foreseeable future are fairly slim given the present controversies
over the subsidisation of solar electricity under the Renewable
Energies Act. All the same, from considerations of climate protection
solar thermal energy deserved far greater attention since a solar
9
China
74%
Source: Sarasin, Solarenergie, Nov. 2004, p. 32
See European Commission (2005). A Vision for Photovoltaic Technology for 2030 and
Beyond. p. 25-27.
Economics
9
May 24, 2005
Current Issues
collector avoids about twice as much CO2 as a comparable PV
10
system for the same surface area. This is mainly because thermal
collectors are much more efficient in terms of energy yield.
There is little public awareness, too, that solar thermal technology is
already making a tangible contribution today towards alleviating the
CO2 problem. If the volume of world energy produced from solar
collectors were translated into GW as the common denominator,
solar thermal energy would already contribute 60 GW – and thus
considerably more than wind power (40 GW) or photovoltaic
11
systems (1.8 GW).
World market for solar thermal energy holds promise
In the global market solar thermal energy has so far only played a
significant role in Europe and Asia. The most recent statistics show
that, of the world's newly installed capacity, 77% was in Asia and
11% in Europe. At the country level China is clearly the most
dominant market: in 2003 this country, with its high population and
chronic shortage of energy resources, accounted for almost threefourths of the world's newly installed solar collector area.
Furthermore, some 60% of the collectors produced worldwide are in
use in China (Europe: 22%). The market success in China comes as
a surprise, since there have been virtually no government
incentives. By contrast, the successes in the main solar thermal
energy markets in Europe, Germany, Greece, Turkey and Austria,
have been on the back of government support programmes.
Newly installed collector area
2003
IL
52.3
AT
20.5
15.1
GR
DE
9.1
AU
8.5
CN
7.4
TR
6.1
CH
3.7
DK
3.5
m2/1,000 inhabitants
2.2
JP
0
20
40
Sources: Koldehoff, 2004; Sarasin, Solarenergie, Nov. 2004,
p. 33
Solar irradiation intensity by country
Mean values for selected locations
kWh/m2/a
Globally, solar thermal energy still has enormous growth potential.
This will be immediately apparent if it is borne in mind that China still
has a lot of ground to cover viewed in per capita terms. On this
2
measure Israel tops the league with 52 m per 1,000 inhabitants; but
other countries such as Austria (21) and Greece (15) are also well
12
ahead of China (7). Obviously, the average levels of exposure to
solar radiation are a key factor here.
In 2003 global growth in newly installed solar collector area was just
over 20%. In the period from 2004 through 2010 growth rates in the
region of 10% to 20% p.a. are expected. One reason for this falloff is
the high subsidisation of PV technology in the industrial countries. In
countries like Germany potential investors are currently inclined to
opt for cheaper PV systems rather than for the more energy-efficient
solar thermal systems. Nonetheless, the technology still has
enormous potential, especially in the high-population sunbelt
countries.
In a few years' time advances in technology could already make
electricity from solar thermal power stations attractive also in price
terms. This is the conclusion drawn by an EU-sponsored study
conducted by researchers in Germany, France, Israel, Russia and
Spain. In 15 to 20 years the current cost of electricity from
commercial-scale solar thermal power stations of 15 to 20
cents/kWh could well fall to 5 to 7 cents/kWh in parts of the world
where solar irradiation intensity is high. Only in these regions does it
make sense to install the large mirror systems that can bundle the
11
12
10
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
DE
AT
CN
GR
ES
Source: SoDa Services for Professionals in Solar Energy and
Radiation
Mean air temperature by
country
In the capital cities
Attractively priced solar thermal electricity
10
60
See Fawer-Wasser (2004). Solarenergie – ungetrübter Sonnenschein? Aktuelle und
zukünftige Aussichten für Photovoltaik und Solarthermie. Sarasin Studie, November
2004, p. 38.
See Conergy AG, Sunny days ahead! In Deutsche Bank Equity Research, 21
February 2005, p. 59.
See ibid.
Economics
in °C
Germany
8.8
Austria
9.3
China
11.7
Greece
18.0
Spain
13.9
Source: Federal German Statistical Office
May 24, 2005
Current Issues
rays of the sun and heat steam to temperatures of up to 600
13
degrees Celsius for driving the turbines.
To harness the sun's energy to meet the world's growing demand for
power and energy at affordable cost has been a dream of mankind
for centuries. Should such plants come on stream in Spain in 2007
14
or 2008 , this could usher in a new era of solar energy production in
parts of the world with high sun intensity. A fly in the ointment,
however, is that, at least for the time being, the technology will
continue to be of little attraction for countries like Germany where
solar intensity is low.
Conclusion: Solar industry needs to deliver on the
high hopes that have been placed in it
Glossary*
The rising price of oil and other fossil fuels in recent years is just the
beginning of a new quality of shortage on the world energy markets
that is looming on the horizon. Oil prices of over 50 dollars per barrel
on a sustained basis will lend considerable momentum to the quest
for alternative energy sources. The investment in solar energy by big
"old economy" energy players says much about its promise for the
future.
kW
Kilowatt = 1,000 Watt
GW
Gigawatt = billion Watt
kWh
Kilowatt hour, unit of electricity
consumption = 1,000 Watt for a
period of one hour
kWp
Kilowatt peak = 1,000 Watt peak
output
Solar energy is not just competing with the traditional fossil fuels but
in the longer term also has to hold its own in competition with other
new energy sources. At present the level of subsidisation, especially
for photovoltaic technology, is still extremely high in Germany. This
only makes sense if the research and development efforts succeed
in improving its competitiveness in the coming years. Given the high
hopes that have been pinned on the future of solar energy by
government and large parts of the population the industry now
needs to deliver on its promises. However, if, going forward, it does
succeed in lowering the costs of energy production and CO2
avoidance, this investment in the future should pay off handsomely
for everyone.
Peak output
The electrical performance of a
solar cell varies according to
environmental conditions, especially light intensity. On photovoltaic systems peak output is the
maximum possible output of a
solar generator under standard
conditions. This is measured in
Watt and is stated in Wp (Watt,
Peak).
*For further definitions and explanations refer for
instance to the glossary at www.solarserver.de
Author: Josef Auer, +49 69 910-31878 ([email protected])
13
14
See DLR (2005). European Concentrated Solar Thermal Road-Mapping. Roadmap
Document, February 2005.
See Solarstrom wird preislich interessant. In Handelsblatt, 3 March 2005.
Economics
11
Megatopic Energy
Availab
le faste
r
by e-m
ail!!!
T
he growing scarcity of fossil energies must be addressed with intelligent, future-proof strategies. In
the longer run, securing energy supplies will be possible only with a broad range of measures. The
needs of the moment call for the use of all available levers – the diversification of energy carriers and
technologies and the mobilisation of all conservation, reactivation and efficiency-boosting strategies.
Energy prospects after the petroleum age
Current Issues
December 2, 2004
Infrastructure as basis for
sustainable regional development
Current Issues
June 3, 2004
Silicon as an intermediary between
renewable energy and hydrogen
Research Notes No. 11
May 5, 2004
Liberalisation of the German gas industry under pressure to increase competition
Current Issues
Traditional monopolies:
growth through stronger competition
Frankfurt Voice
My home is my power plant Can hydrogen lead the way to decentralised energy supply?
Frankfurt Voice
October 8, 2003
May 7, 2003
December 19, 2002
All our publications can be accessed, free of charge, on our website www.dbresearch.com.
You can also register there to receive our publications regularly by e-mail.
Ordering address for the print version:
Deutsche Bank Research
Marketing
60262 Frankfurt am Main
Fax: +49 69 910-31877
E-mail: [email protected]
© 2005. Publisher: Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Federal Republic of Germany, editor and publisher, all rights reserved. When
quoting please cite “Deutsche Bank Research“.
The information contained in this publication is derived from carefully selected public sources we believe are reasonable. We do not guarantee its accuracy or
completeness, and nothing in this report shall be construed to be a representation of such a guarantee. Any opinions expressed reflect the current judgement of
the author, and do not necessarily reflect the opinion of Deutsche Bank AG or any of its subsidiaries and affiliates. The opinions presented are subject to change
without notice. Neither Deutsche Bank AG nor its subsidiaries/affiliates accept any responsibility for liabilities arising from use of this document or its contents.
Deutsche Banc Alex Brown Inc. has accepted responsibility for the distribution of this report in the United States under applicable requirements. Deutsche Bank
AG London being regulated by the Securities and Futures Authority for the content of its investment banking business in the United Kingdom, and being a member
of the London Stock Exchange, has, as designated, accepted responsibility for the distribution of this report in the United Kingdom under applicable requirements.
Deutsche Bank AG, Sydney branch, has accepted responsibility for the distribution of this report in Australia under applicable requirements.
Printed by: Druck- und Verlagshaus Zarbock GmbH & Co. KG
ISSN Print: 1612-314X / ISSN Internet and ISSN e-mail: 1612-3158