In some areas, things are moving in the right direction. Rationalization
has left fewer and stronger players on the field. Demand is still growing
at more than 20% per year. Photovoltaic (PV) cell production grew 32%
between 2002 and 2003, amounting to $5 billion in sales. But to put that
in perspective, 2003's growth of around 600 MW in solar capacity was equal
to the output of one combined-cycle gas turbine plant or a relatively
small coal plant.
Cost reduction is taking solar power toward parity with conventional
power. Indeed, the cost of installed systems has dropped more than
six-fold in 20 years. Generally, however, we're still looking for a
halving or more of installed cost to enable solar to have mass market
potential.
Building the market and building scale require government support now, by
way of incentives and policy. It's instructive to examine how these
requirements have been interpreted in different countries. Though a market
guarantee program, for example, Japan has nearly completed a journey most
countries have only just begun. Japan produces 60% of the world's PV cells
and has the highest annual growth rate, at 45%. Installed capacity has
grown from 31 MW in 1994 to nearly 1,000 MW today. Prices are nearing
break-even on a life-cycle cost basis and are half what they were 10 years
ago. A robust supply chain is emerging, with solar suppliers no longer
manufacturing totally in-house.
With the exception of Germany, where incentives have created a large and
viable market, the rest of the world is fragmented, with many different
models, some more successful than others. The current framework -
characterized by an unpredictable mix of government and private
shareholder support - must be revamped if solar is to compete in mass
energy markets.
We need to see cost reductions in technology, manufacturing and business
processes. We need higher profile and larger marketing campaigns to make
solar a mainstream consumer product to create customers within markets. We
need market stimulation by governments. These factors taken together will
enable the industry to build scale.
Obviously, from a corporate BP perspective, we want to create a thriving
business for our solar products. But that can only happen if we operate in
a thriving market. And we cannot create that alone. As mentioned earlier,
we see only Japan as being within reach of having a fully functioning
large-scale solar market. The U.S. market, by contrast, is small in
proportion to the country's size, influence and wealth.
While there has been support at the state and federal levels, the United
States needs to be much more consistent and long-term in its thinking. The
market needs to move to the next level and become big enough to keep
growing. Today, the reverse is happening, with PV production declining by
20% from 2002 to 2003. California has been a bright spot, but short-term
delays can threaten business even there.
The key for BP Solar, as an investor in the solar industry, is to have a
way to manage risk while investing at scale. The industry can no longer
invest efficiently in 10 MW lumps. If we can develop a portfolio of
markets, we can take bigger steps within an acceptable risk framework. The
danger is one of creating a business that favors marketers but discourages
manufacturers. Marketing investment can be switched on and off. But
manufacturing has to be based where there is minimal market volume risk.
In the United States today, some $500 million of public money is being
spent, but on a raft of different and disparate initiatives. Our vision is
of a market in which the players from the private and public sectors have
a unified strategic commitment for renewable energy, including solar, and
a coherent program to implement it.
So what do we see as the priorities for policy-makers? Essentially, we
don't want to be too prescriptive on the nature of the regime, feed-in
tariffs, capital allowances, and other incentive mechanisms, but we do
look for support that is predictable, consistent and long-term - at both
the global and local level.
That's what we need if we are to have the confidence to build
infrastructure, achieve scale and sustain employment. Consistency will
nurture this industry, but boom and bust will finish it off.
All of this points toward a point of inflection - a breakthrough moment,
the "tipping point" - where solar achieves parity with other energy
sources. At that point, the industry will have the strength and scale to
compete on equal terms in the grid. It will have built the foundation for
significant investment - the kind of expansion required for solar to make
a real impact on greenhouse gas emissions reduction.
BP's aim is to build a profitable and sustainable renewables businesses,
consistent with our shareholders' and society's dual interests in
profitability and sustainability. We can accelerate the manufacturing and
marketing. But this requires a corresponding acceleration in long-term and
consistent public sector support.
About the author...
Steve Westwell is President of BP Solar and Group Vice President, Gas,
Power, and Renewables, BP plc
The information and views expressed in this article are those of the
author and not necessarily those of RenewableEnergyAccess.com or the
companies that advertise on its Web site and other publications.
