(UtiliPoint - Mar. 17)

By Ken Silverstein Director, Energy Industry Analysis

Solar energy may start to sizzle now that General Electric has said it would acquire AstroPower, the largest manufacturer of solar equipment in the United States. While the buyout is financial peanuts for GE, proponents of solar power say that the participation of one of America's biggest companies is a sign that solar power is gaining increasing acceptance.

Solar energy is still a fledgling concept, with only 742 megawatts of solar cell annual production worldwide. But, if major manufacturers get excited about the power source and start making investments in it, then improvements in technology will accelerate and costs should drop. And, when coupled with the push to curb global warming and for utilities to go green, solar energy may heat up. Some utilities may find a pay-off if they forego some fossil fuels in favor of the energy source that harnesses the sun's strength.

“Having options is always good,” says Scott Sklar, president of the Stella Group, a firm that helps commercial and government customers use clean energy generation. Solar energy, he adds, generates electricity during peak usage and at a time of day when the cost of fossil fuel is expensive. “This will help air quality because midday power is the dirtiest power. And solar power is good for power quality.”

According to Solarbuzz, a San Francisco-based solar energy consultancy, world solar photovoltaic (PV) market installations rose from 562 MW in 2002 to 742 MW in 2003. Germany's solar production increased by 76 percent. That market, along with Japan's and the United States', accounts for 75 percent of the world's solar PV market. Japanese manufacturers increased their share to 49 percent of world production while the U.S. share fell to only 12 percent. The total market value is pegged at $4 billion.

Meanwhile, the U.S. Department of Energy released its annual ranking of utilities and green pricing programs. Such offerings allow consumers to choose wind or solar power as options by paying a little extra each month as part of their utility bills. The utilities then contract for a certain percentage of green power and it's transmitted along the grid, although users don't know what type of power they are receiving. More than 500 utilities in 33 states offer green energy programs.

When ranked by total sales, Austin Energy is the leading utility. It is followed by Portland General Electric, Sacramento Municipal Utility District, PacifiCorp and Xcel Energy. When ranked by customer participation, Lenox (Iowa) Municipal Utilities is first. It is followed by the City of Palo Alto, Calif. Utilities, Moorehead, Minn. Public Service, Holly Cross Energy (Colo.) and Montezuma (Iowa) Municipal Light and Power and Orcas Power and Light Cooperative (Washington state).

“Our customers have told us that they would be willing to share in the cost of obtaining power made from renewable resources,” says Pat Davis, spokeswoman for Florida Power & Light, which just implemented a voluntary solar power program that cost interested customers an extra $9.75 per month.

Positive Signs

Here's how solar power works: Once the sun's radiation travels to earth, the challenge is to capture it and to generate power with solar panels made of silicon material or a system using heated fluids by concentrating the sun's energy. The two most prevalent forms of solar technology are photovoltaic systems and solar thermal systems.

Those systems commonly turn sunlight into direct current electricity that can be used in direct current appliances or converted into alternating current with an inverter. Systems with "grid-intertie inverters" can be hooked up with an electric power system's distribution system grid. The typical cost to install a system is around $10,000 per rated kilowatt, which is about 10 times more expensive than a coal plant and 20 times more expensive than a gas facility. But solar panels produce electricity when it is most needed—during peak periods—and can therefore cut up to 75 percent off utility bills.

Moreover, solar power plants have almost no carbon dioxide, sulfur dioxide or nitrogen oxide emissions tied to them. Over a 20-year life, a 100-megawatt solar plant would avoid emitting more than 3 million tons of carbon dioxide and 140 tons of nitrogen oxides when compared to the cleanest combined cycle plants available today, says Solar Developments, an online solar equipment supplier.

Photovoltaics is currently accepted in niche markets that include creating electricity for oil rigs, road signs and satellites. But it is a long way from gaining popular appeal because of its cost—a factor that forces the biggest manufacturers that include BP and Shell Oil to rely on government subsidies. So why is GE interested in this market? While the energy source supplies less than 1 percent of the fuel mix in the U.S., the annual market growth for solar equipment has been 24 percent on average per year over the last decade here. And the prognosis can only get better if tougher environmental standards are implemented and the cost of natural gas remains high.

GE, meanwhile, is already involved in renewable markets. The company bought Enron's wind unit two years ago and says the division will make a $100 million profit this year. It also sells gas turbines—an enterprise that produced $20 billion in revenues last year. A foray into solar energy is a logical next step. And it's one that didn't cost much: GE will pay $15 million in cash and assume $3.5 million in debt from AstroPower, in a deal expected to close by month's end.

Strong Commitment

It all comes atop news that construction is to begin this year in Goettelborn, Germany, on the world's biggest solar power plant. That facility, which is anticipated to cost $43 million and is to be built by City Solar AG, will generate 7 MW. Right now, the largest solar plant is in Regensburg, Germany, which produces 4 MW while the second biggest is in Tucson, Ariz., generating 3.78 MW.

“We're in line for our best year yet,” says Steven Westwell, CEO of BP Solar, in an interview with the New York Times. The company has been in the solar business for 30 years and expects to turn a profit this year, he said. Solar PV installations are projected to be in the 35,000 megawatt range by 2025, although proponents say that could double if the government offered more financial support and became a buyer of solar technology.

Solar power is likely to remain a small part of the global energy mix but it could play an increasingly important role. GE's entrance is a positive sign. Its commitment along with the innovations that it could bring to market may induce others to enter—a precursor to falling prices and increased market share. And that will allow everyone to breathe a little easier.

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