GLG News by Mark Burger

Implications: Despite trepidations over the lapsing of US federal incentives, the domestic photovoltaic market continues to consolidate to take advantage of better economy of scale.  Photovoltaic installations in the US now number over 10,000 a year, growth that will continue to increase once new federal incentives are in place in 2009.  This consolidation will continue with publicly held companies like Real Goods as well as many privately held ones.

Analysis: Real Goods Trading Company (RSOL), best know for its online and paper catalog selling all manner of green products, is also building up its ability to install solar energy systems as well as promote and sell the products.  The latest acquisition is a company that does close to a megawatt a year of installations, translating to several hundred homes.

The terms "solar integrator" may include anything from a couple of guys with a pickup truck up to a Conergy or SunEdison.  Within the solar industry patois, an photovoltaic integrator can also arrange the financing of the system as well as the physical installation.  This is one of the prime factors of what will encourage the consolidation of the solar installation industry, one that will include solar heating as well as electric systems, and branch out to other "alternative" energy sources, like wind and biofuel.

Acquisitions of installers or integrators continuing in the U.S. is a sign that the industry expects the likely lapse of federal incentives after December 31, 2008 (barring a legislative miracle) to be more of a nuisance than a catastrophe.  It is expected that whoever is in the White house will propose restoration and improvement of solar and wind power incentives, and the measure will pass a new Congress minus a few of the neanderthal opponents who either retired, were defeated or indicted during 2008.

The new incentives, liable to be retroactive to January 1, could go in as soon as March.  If it's dragged out to June or later, that could cause problems for solar and wind power companies that are too small, weak or poorly managed to survive.  Nevertheless, industry consolidation will continue, and not just at the integrator end.  For integrators, the market is promising.  There are over 40,000 photovoltaic systems connected to the grid in the U.S., over 12,000 installed in 2007 alone, according to the Interstate Renewable Energy Council. 

This year alone may see anywhere from 17 to 20,000 new installations, depending on the mad dash to complete systems by the end of the year.  Besides California and New Jersey, significant markets have opened up in the Rocky Mountain, other Mid Atlantic, and New England States.  We are also on the verge of seeing major solar activity finally occur in the Great Lakes and Southeastern states as well.

Implications: This story on a US based installer setting up shop in Mediterranean Europe is a good example of the challenges of dealing with what was until recently two of the hottest PV markets in the world for 2009 - Spain and the United States.  The dynamics of what the changes in incentives will do and how companies like Premier Power will react will indicate whether any PV market setbacks will be minor and temporary, or significant and long lasting.  Both these markets' policies have been beset with short term mentality, and feast or famine incentives.

Analysis: This story about how a US based installation company is faring in Spain is timely based on the critical nature of these two markets for the global photovoltaic industry.  Spain and the US were expected to be the fastest growing markets for PV in volume for 2009.  Instead, the clipping of these two markets may throw this company and many others like it for a loop.

The Spanish market was expected to install up to 1,000 megawatts (MW) of PV in 2009; instead it is being capped at 300 MW, most of it ground mounted.  This is a far more serious reduction than the lowering of the feed in tariff rate which, previously at 42 euro cents per kilowatt-hour, may have been too high for such a sunny environment, versus a cloudier Germany.

Meanwhile, the US market, because of filibustering Senate intransigence, is likely to have the federal incentives lapse after December 31, 2008.  In some ways, this is not as serious as the Spanish situation, because early in 2009, a new President (whoever he is) and a new Congress (minus at least a few of the filibusterers) will have new incentives in place by spring or summer.  How much they are are less important than their longevity, which should be at least 7-8 years.  It seems the US (outside of California) is genetically incapable of making a renewable energy strategy for as long as a decade.

Premier Power is a mid-sized US installer, doing about 3,000 kilowatts (kW) of projects in California and New Jersey from 2005-07, according to the Prometheus Institute.  So they have the capability to crack the European market, especially the Mediterranean countries.

Having been on both sides of the dealer table in solar, this writer understands that there is a certain degree of elasticity in incentives, that prices can rise or fall contingent merely on what cash is available on the table.  The great challenge to policy makers is setting an incentive level that's market oriented - enough to stimulate the market, encourage efficiency.  There is seldom enough expertise or political fortitude to set the level appropriately, and it usually requires frequent re-calibration. 

The Spanish and New Jersey incentives are examples of excessive incentives.  The proof of this has been New Jersey installation costs have been consistently higher than California's and Spain's over Germany's.  The learning curve of industrial infrastructure development accounts for only part of it.  What is an appropriate incentive?  What ever the balance point is where the incentives aren't used up by buyers.  That's where flexibility is required to optimize benefits.

While there is a cap in feed in installations in Spain for 2009, there is another incentive that may benefit installers like Premier Power, and that is the requirement that all new building construction and substantial rehabilitation in Spain requires some kind of solar installation, either PV, thermal or both.  This is also a Portuguese requirement and the standard may crop up in French and Italian localities.

By the way, in the ongoing battle of getting nontechnical articles to use correct terms, the reported New Jersey garage installation is most likely 400 KILOwatts, not megawatts. 

Implications: Feed in tariffs, a way to provide measured funding for photovoltaic and other renewable energy systems, has been successful in bringing these technologies to market.  Paying only for performance, requiring outside financing, steadily reduced rates and caps on rate impacts have enabled solar and wind power to ascend.  Execution of tariffs often lead to political controversy as this Spanish article describes.

Analysis: The change over from producing electricity on a large, centralized scale from seemingly endless piles of ores in the ground to small, distributed systems that harvest energy on an instantaneous basis is tough for economies and societies to swallow.  The transition is costly and tangible benefits are not realized for a long time.  Those benefits have to be articulated by a political leadership that can sell it to a receptive public and not cut and run when things get tough.

Thus was the photovoltaic market created in Germany.  A rare opportunity to combine economic development, environmental improvement and energy security was beginning to be realized at the end of the first decade of the 21st century after over 10 years of reasonably consistent policy and support.  Germany is the first country to generate over 1% of its electricity from photovoltaic power and has the largest workforce in the world in manufacturing and installing solar power.

The Feed In Tariff rate instituted by Germany in the late 1990's set a premium rate that would be paid for photovoltaic (as well as other forms of renewable) electricity over a period of twenty years.   This allowed two controls - first, it recognized that instituting a new technology was costlier than centralized, polluting power plants, but would only pay for what was produced, not provide a grant or rebate for an installation that may not work well or at all.  Secondly, it encouraged financing of the system and mitigated the upfront cost that grants would cause to foster a large market. 

In addition, a cap on the cost that the tariffs was placed to minimize impact on German ratepayers, and the tariff for new systems was lowered each year by, initially 5%, then 8-9%, to encourage more cost effective technologies and installations.  This enabled Germany to be a world leader in PV, in spite of ideological sniping about the German PV industry being subsidized by as much as 60 million euros per year, while conveniently ignoring far larger handouts to the coal and nuclear industries.

The feed in tariff has been replicated in Europe and elsewhere in the world, with Spain having the among the highest feed in rate as well as largest market size.  this has enabled Spain to rocket up to third place in the PV market, nipping at Japan's heels and bypassing the inconsistent US.  The rates and market size were so high, that much of the more expensive German product that couldn't compete domestically against lower cost products like First Solar (FSLR) have gravitated to Spain, taking advantage of up to twice as much sunlight as well as higher rates.

This has caused considerable controversy in Spain over what level to set the tariff and what would be the limit on how much would be installed at that rate.  The rates are likely to be decreased in the next Royal Decree due out in mid-September, but a more important question is how much product will be supported over how long a period of time.  That is what will sustain market development.

A side question in this debate is the accusation that feed in tariff rate is responsible for much of the increase in the cost of electricity in Spain, something not borne out by the facts reported in the article.  Estimates are that the feed in tariff adds 150 to 300 million Euros since institution in 2003-4 to the cost of electricity in Spain, but overall cost increases of electricity in that same time period are on the order of 14,500 million euros.  This has been a common theme criticizing solar and other renewables, where fast buck artists in the "free market" criticize smaller-scale and higher priced renewables, while ignoring the fundamental and accelerating costs of incumbent electricity generation. 

Implications: The Pickens Plan is not bad in itself, being grounded in the reality of changing markets and led by a businessman who has actually invested in the process.  What may be more important is that the Plan could shake the monopolistic grip that fossil and nuclear energy has on our infrastructure and thought process.  That alone may enable renewable energy markets to grow once the suffocating deadwood of incumbency is cleared.

Analysis: The issue of a grand plan or allowing market forces to work in the likely shift from nonrenewable to renewable energy is daunting.  Individuals, businesses and communities continue to squeeze on the sands of cheap energy even as it oozes away between their fingers.  An enormous infrastructure, backed up well entrenched bureaucracies and well-heeled interests continue to resist, stall and delay.  Talking heads preach "allowing the free market to work" and "not having the government pick winners and losers" while they belly up to subsidies, protectionism and ignoring long term costs.

Nevertheless,  like declining sports, business and political dynasties, the days of the Big Four (oil, natural gas, coal and uranium) are starting to come to an end, but it's a song that will take decades to play out.  In the meantime there are so many "plans" to achieve energy "independence" that if I had a dollar for everyone on out there, I could retire.

Pickens' plan isn't bad, compared to most.  It recognizes the cheap energy joy ride is over, recommends a proven technology and grudgingly recognizes that an shift in fossil fuel, like petroleum to natural gas, is a bridge  that will take a while.  More importantly, Pickens is not an ivory tower wonk of the sterile left or right, but a hard headed businessman who has put his money where is mouth is, identifies ways to overcome barriers and communicates his plan to the public in a way that doesn't insult our intelligence.

Still, it's a plan, and one that will have to ride up against market and monopoly forces, both public and private.  The high voltage transmission infrastructure has to be improved, externalities like pollution have to be better priced in to the market and just not ignored.  There will be a plethora of competitions - what wind power companies will dominate, how will wind compete against solar in intermittent markets, which energy storage technologies will win out and so on.  No plan will accurately predict that any more than no prognosticator can pick all the playoff winners of a league and how they'll finish.

There was a similar time in US history when, in the first two decades of the 20th century, the fledgling automobile industry had a competition between gasoline/diesel engines, steam and electric motors.  Gasoline/diesel won out by superior speed, range and cheaply available fuel.  At that time there was no complex, unified, interconnected and regulated infrastructure to compete against.  Railroads were in their own world, the highway system didn't exist and social factors were not on the radar.  The most important thing that the Pickens Plan can do is help shove the Big Four oligarchy off their thrones and get their boots off the new technologies' and markets' necks.

Implications: The media is saturated by energy companies promising a painless path to continued cheap supplies, and cleaner to boot.  Meanwhile, T Boone Pickens has burst upon this complacency with a campaign that act as a wake up call to drastically shake up how we guzzle our fuel.  What ever one thinks of Mr. Pickens' motivations, or the impact of his nailing his theses on the door, it should shake up the public and decision makers who still intone "I can't hear you, I can't hear you...".

Analysis: Much of the public and decision makers still ignore the elephant of vanishing cheap energy in the hope that someone or thing will come to the rescue or that the pachyderm will just go away.  Now the elephant has roared in the form of T Boone Pickens, a man who should know a little something about the increased scarcity of petroleum and natural gas.  He has placed one foot in the future with massive investments in wind power development, helping Texas become the number one US state in power production.  He keeps his other foot in fossil with natural gas extraction, calling for a massive shift of this energy source to transportation usage in the US. 

One can quibble with Mr. Pickens with whether this is really a good idea.  Going from one fossil fuel to another for transport may be likened to the futility once described by Abraham Lincoln of shoveling fleas from one side of the barn to the other.  But the campaign being orchestrated by Mr. Pickens should give us a jolt.

Behind this campaign is looming evidence that natural gas will soon follow petroleum as a peaking energy source, first in the US, then in rest of the world.  Followed by experts like Matthew Simmons of Simmons & Company International, price signals, through the noise of subsidies, is the canary in the proverbial coal mine.  Natural gas prices remain well north of ten dollars a million BTU's (MMBTU), even if the price should collapse.  Liquified Natural Gas (LNG) costs $18-20/MMBTU, if you can even get the stuff, as more shipments bypass the US to Japan and China, who will pay just about anything.  And there has been no serious weather related disruptions since 2005, when Hurricane Katrina took out a third of Gulf of Mexico natural gas extraction.

The comfortable assumption of fossil and even nuclear fuels plentifully and cheaply lasting centuries is collapsing like an overworked bullpen in the heat of a pennant race.  Premises based on an affluent global economy of a few hundred million Americans. Europeans and Japanese wilt when two billion or more people want motor transport, air conditioning, hot showers and cold drinks.  Technological advances of enhanced recovery reveal that these miracles come at a huge financial price, as well as increased geopolitical tension as more consumers fight over fewer resources.

The auto industry is entering a period of competitive propulsion systems similar to the early twentieth century when steam, electric, gasoline and diesel vied for supremacy.  Gasoline won out, trailed by diesel, due to superior speed and range. 

Now the battle will commence anew with electric reappearing, hydrogen, bio-fuels and natural gas aligned with variety of hybrids.   Who will win out will depend on marketing and manufacturing will as well as technology.  We are likely to see natural gas, already a niche fuel primarily for fleets, be one of many "bridge" fuels in the next decade or two until an eventual winner comes along.

Implications: We are mesmerized by the present high price of oil, but that's only a part of the picture.  Natural gas and coal prices, water scarcity and a steadily declining large household base will essentially spell the beginning of the end of the housing, vehicle and development sprawl.

Analysis: The LA Times article is a good primer, but easy and convenient focus on the cost of a barrel of oil is only the beginning of the change in resource scarcity that will require the real estate industry to drastically change, or perish.

Natural gas, the primary energy source of home heating and hot water, remains well above $10 per million BTU's and is likely to stay there, as cheap supplies are drying up, and the fundamentals of far more costly imported liquified supplies or any shift to transportation (if Mr Pickens has his way) will make this energy source eventually unaffordable, especially to large, leaky homes built on cheaply acquired land at the end of long commutes.

This natural gas scarcity will impact fertilizers and pesticides that nourish the relatively vast monoculture lawns that householders will find increasingly untenable to maintain, especially after paying the gasoline, heating, water and electric bills.  Global demand for energy has made coal a universally fungible commodity, also being pulled upward in price, which is taking uranium fuel along for the ride.

Any significant growth in fossil or nuclear power plant construction will also result in more and more water required to cool these behemoths.  Water is essentially being mined from aquifers with many, like the Ogalala in the Great Plains, approaching the point of collapse.  The problem is exacerbated in the West and Southeast, which has until recently experienced the largest population growths along with attendant amenities of McMansions, SUV's and vast lawns where hardscrabble existed.  Electricity costs around the nation and world have been rising 10-15% a year, with the US average above ten cents a kilowatt hour for the first time.

One resource that has not increased are large, affluent households that could afford the status quo of 2,500 square foot or larger ranches miles from anywhere.  Average household size has been dropping for years, despite immigration, legal or otherwise.

What this adds up to is that large houses far from transit or town centers surrounded by broad lawns will become increasingly unviable.  The present housing value collapse and growing unemployment will require the real estate and building industry to do one of two things.  Build smaller, greener and closer together, or perish.

Implications: I am finding a slight case of irrational exuberance seeping into the photovoltaic prediction industry.  The latest is a prediction reported in the Financial Times of a fivefold increase of photovoltaic production by 2010.  The industry will grow nicely, but not at this frenetic rate.

Analysis: I do expect photovoltaic solar (PV) to reach a production level of 15-20 gigawatts (GW) a year.  The upper level of that rate would supply about 1% of global nameplate capacity.  If one assumes a 20% capacity factor globally, one would need up to 100 GW of production to generate each percent of electricity.  Fundamental increasing demand and cost of electricity, especially daytime peak electricity suited for solar, will provide a bedrock that any sizable, well run PV company will benefit from, subsidies or no subsidies.

I just don't expect it to be reached by 2010.  A global growth rate of 40% per year will be hard enough to sustain.  In looking at Prometheus Institute's numbers of output from 2006 to 2007 that were published last March, to go from 3,700 MW to 15,000 MW by 2010 would require a PRODUCTION, not CAPACITY, annual increase of 167%.  Prometheus reported one German company (Ever-Q) five Chinese companies (Yingli, JA Solar, Solarfun, Gintech and Trina) and one Taiwanese company (Gintech), who achieved that production percentage increase, and they have done it once.  Only Yingli's increase involved over 100 MW more year to year.

Huge increases of production rates are minefields of quality issues.  Underwriters of long term installations will likely be nervous about the durable (20 years or so) quality of quickly expanding crystalline production, especially with significant amounts of metallurgical feedstock in them.  Underwriters are also just accepting the long term performance of the two primary thin films, cadmium telluride (CdTe) and amorphous silicon (aSi).  Whatever the output of copper indium germanium diselenide (CIGS) or the other new technologies will be, the jury is likely to be out on their long term stability for a while.

One only has to look at the wind power industry to see a slowly declining increase of production due to limitations of skilled labor and materials.  A 40% growth of photovoltaic production will result in almost 5,200 MW in 2008, 7,200 MW in 2009 and just over 10,000 in 2010 and almost 20,000 MW in 2012.  That is a more likely scenario, if one assumes an overdue shakeout in 2009.  Those numbers are nothing to sneeze at.

Implications: Hawaii has broken new ground in becoming the first state to require solar water heaters in new construction.  This policy joins an array of others employed by states and localities to develop renewable energy markets in lieu of federal paralysis.   It will not be a magic bullet with federal incentives threatened with expiration after 2008, but it will help keep some markets going.

Analysis: While Washington fiddles with a renewable energy policy, state and local governments have rolled up their sleeves to get serious in implementing their own developing markets in solar, wind and related technologies.  There are an array of actions, which can be monitored at North Carolina State University's Database for State Incentives in Renewable Energy (www.dsireusa.org).  These include Renewable Portfolio Standards, net metering and interconnection standards and an array of grants and rebates.  Newer instruments, like feed in tariff rates borrowed from Europe, have begun to appear in a few states and localities.

One instrument that has not been employed on a widespread basis in the US is mandating the installation of solar energy systems on buildings.  This has been employed in countries like Israel for decades, and instituted for new construction and substantial rehabilitation in growing markets like Spain and Portugal.  It has appeared in a few local small and medium jurisdictions in Oregon and California.

Now Republican Governor Lingle has signed into law the first mandatory statewide requirement for solar energy systems in the US.  Nearly every new home constructed in Hawaii will have to have a solar water heating system.  This will result in about 4,000 or so units a year added to the estimated 65,000 installations already in existence, bout a $25-30 million dollar a year market.

This may be a sign of things to come in the U.S., if not right away  Hawaii is a unique state, with high energy prices and completely dependent on imported fuels.  Its mild climate is conducive for solar water heating, and with relatively few and homogeneous building codes, there was relatively little opposition from a typically parochial building industry.  Despite electricity prices averaging more than California's, photovoltaic systems were not mandated, likely due to a higher five figure cost for installations in lieu of a mid-four figure price for solar water heaters.

Nevertheless, measures like these will catch on in various states and localities, especially in the vacuum of Washington decision making.  The bad news is that this continues to fracture the US solar market. The good news is that these policies will sustain at least a base solar market in lieu of Washington's dithering.

Implications: There is still a tremendous bias to find "the" answer to the challenge of providing cleanly, affordable and secure energy that is also profitable to investors.  Our centralized, command-and-control way of extracting and delivering non-renewable energy blinds us to the fact that even there, different energy sources feed into it.  It will be no different in how we will harvest and deliver energy from renewable sources - no one sources, or even one way of delivering from that source.

Analysis: Our convenience-obsessed and fast-buck driven world compels us to find a single answer to increasingly scarce and polluting energy usage.  I will start out by stating that there is none.  Even our present dig, drill and drain world used four major sources - coal, petroleum, natural gas and uranium.  These four served various niches.   Renewable energy - solar, wind and others - will do the same.

The focus (pun) on concentrated solar will also show its niche, but it will not be the only way.  Concentrated solar thermal for electricity generating will prevail in areas with high amounts of direct sunlight (insolation), such as deserts.  Use of storage media such as molten salts will also permit dispatching of energy to match peaks in late afternoons, instead of solar noon.

But concentrated solar thermal is still cyclical and will be offset by wind power and its developing storage systems for more temperate climates and different times of the year.  Solar photovoltaic systems will provide more instantaneous supply, both in distant as well as building based arrays.  Geothermal, bioenergy such as solid and gaseous fuels, will provide more baseline electricity.

Even concentrated solar thermal has three major variations - the parabolic trough, dish and the tower that is mentioned in the above article.  All three have advantages and disadvantages.  As society has a great choice of ways to satisfy energy needs, so will investors have a great choice in different technologies to meet those needs.

Implications: A call for a revolution in how we use energy is overdue.  But the "real" revolution will come when we learn as a society how to harvest it, not mine it.  That means going with renewables and efficiency, not traditional nuclear and fossil fuel systems that are just more of the same, and more expensive.

Analysis: The call for $45 trillion dollars of investment for clean energy to combat climate change is reminiscent of the French government's request to President Roosevelt in June, 1940 of "Send us clouds of airplanes!", when the Wehrmacht was rolling toward Paris, and which the US did not have quite at that time.

Going from complacency to panic is never a pretty picture, and this one is not.  I am certainly not doubting the need for a major transition of our energy infrastructure, but $45 trillion is an outlandish figure, even if one tries to build the battleship equivalent of energy, the nuclear power plant.  There is about two million megawatts of power systems in the world, double that for petroleum and natural gas fuel equivalents.  At 4 million megawatts, 45 trillion bucks would be over $11 a watt, which is likely if one goes for necessarily gold-plated nuke plants and other bloated monstrosities, not to mention the large annual amounts of increasingly scarce affordable fuel (yes, I'm including uranium) necessary to keep the behemoths running.

But going with a renewable energy equivalent of solar, wind, biomass, ocean and other green technologies, as well as strategic efficiency, would cost about half, or $5-6/watt, even with the large scale storage systems that would be needed for intermittent systems.  While $20-25 trillion is not a trifling sum, that amount spent on clean energy which won't leave behind radioactive poisons is manageable if phased in over 50 years.

Let's hope that a sense of urgency prevails before panic really sets in that causes good investment money to follow after bad.

Implications: The reasons why Big Oil does not invest significantly (say, 10% or more of their revenues) in solar and wind power is not conspiratorial.  It is more in the cultural makeup of an organization that is used to doing business largely one way (selling a consumable item) versus one that lasts a long time.  This is causing them to miss the bigger picture, of being in the energy business, not just the consumable energy business.

Analysis: The question of why doesn't Big Oil (or Big Coal) or any other Big Energy get into renewable energy in a meaningful way is one that's always hurled at me in conferences and conversations.  The catch phrase "conspiracy" always comes out, often hissed as if the accuser was afraid of being overheard.

Much as it would make my professional life easier and more remunerative if the conspirators can be discovered and neutralized by Agent Jack Bauer, I regret this is not the case.  This is a case of old fashioned corporate culture, where what made you successful may doom you to failure in the inability to change.

The following is based on observation, largely when I worked for a photovoltaic manufacturer that was in partnership with an oil company making solar electric products.  In focusing on wind and solar power, fossil fuel companies should ideally be positioned to take advantage  transition to renewables.  They are used to risk taking, waiting a long time for their return and have large cash reserves to fuel their patience.
 
But they have one major drawback. Big Oil makes money selling products to consumers that are, well, consumed.  Making something that will last decades is not a process they are used to.  BP and ExxonMobil do not make oil rigs, or pipelines, they buy this equipment and use it to extract a consumable product.  It would not be surprising to see BP exit the solar manufacturing business in the near future, as Shell essentially did.  That does not mean they won't be involved, but would revert to being project developers.  They are more comfortable culturally to install 100-300 megawatt scale wind farms (or solar farms) than building their pieces.

Who will be successful in the solar and wind manufacturing industries?  From a cultural perspective, companies that are used to the idea of selling products that last decades to consumers.  For a while, Sharp, Kyocera and GE were the leaders, but they have another problem, which brings up the next success requirement - pure players, companies whose making of solar and wind power systems are of prime importance.  Sharp, Kyocera and GE have been slipping in the photovoltaic market because photovoltaic is still a small percentage of their revenues.  Clean energy is bucked down the corporate bureaucracy to the second or third tier, where requests for capital expansion and serious marketing budgets languish.

At the present, making many different products distracts from emphasizing a few.  So companies like QCells and Suntech grow rapidly on the solar side, and Vesta and REPower on the wind side while the conglomerate giants hem and haw, and lose market share.  Maybe this will change in a decade or so, like auto makers are making the painful transition away from the guzzling lifestyle.  But protests at shareholder meetings are unlikely to have a significant impact, except for distracting window dressing.

Implications: The annual US Department of Energy report on wind power spells out details on the American achievement of 5,329 megawatts (MW) of capacity in 2007, the largest increase of any one country, and placing the US ahead of Spain and behind Germany in the Number 2 slot.  The report, issued by Lawrence Berkeley Laboratories, shows which turbine manufacturers benefited the most, cost trends and an evolving diversification of the ways wind projects are owned and financed.  Hopefully, this report will encourage Congress and the Administration to continue supporting incentives past 2008, allowing for the new President to craft a more more strategic plan to continue this market growth.

Analysis: The US wind power industry continues to show growth and maturity in its record breaking 5,329 megawatts (MW) of capacity added in 2007.  This report was produced by Lawrence Berkeley Laboratories for the US Department of Energy.  The interesting question will be whether Congress and the President has the wisdom and will to extend the Production Tax Credit law beyond the end of 2008, enabling the new Administration to craft a more strategic approach.  Or, will US policy toward renewables continue to be attention deficit disordered, while the incumbent fossil and nuclear power industries waddle along on their tens of billions of dollars of annual subsidies.

Some of the highlights of the report are as follows:

- As of 2007, over 1% of US electricity is generated by wind power, going from 0.8% in 2006 to 1.2%.

- The 5,300-plus MW capacity addition represented 35% of new nameplate capacity growth in the US from all sources.  Factoring in capacity, this amount would reduce the effective delivery to somewhere in the 15-20% level of new capacity, depending on how base load and mid-range plants are classified.

- Xcel Energy has the largest wind capacity in its service territory of any utility (2,635 MW) and is the highest percentage of electricity generated by wind of any investor owned utility (IOU), at 9.3% of sales.

- GE Wind remains by far the largest turbine installer in the US, at 2,342 MW.  But despite more than doubling growth from 2006, its market share has slipped from 47 to 44%.  Other old line companies have seen their market share slip as well; Siemens from 23 to 16% and Vestas from 19 to 18%.  Gamesa has been the biggest beneficiary of market share growth, from 2% in 2006 to 11% in 2007. Mitsubishi went from 5% to 7% and Clipper made its debut in 2007 at 1%.  Suzlon remained at 4%.

- The growth in market turbine size sold in the US has begun to level off in 2007, averaging 1.65 MW from 1.6 MW in 2006.   While turbines larger than 2.5 MW exceeded a 1% share in 2007, the biggest jump has been in the 1.51-2.0 MW range.

- Ten major mergers and acquisitions were reported in 2007, down from 13 in 2006.

- Project ownership is still predominantly by independent power producers (IPP), but investor owned utility (IOU) ownership is becoming more prominent.

- Long term contracts to utilities are still dominant, but there is increasing interest in merchant and power marketing deals.

- Costs continue to trend upward for wind projects, driven mainly by higher turbine prices. Cumulative costs of wind power projects are at about $40 per megawatt hour (MWh).  However, due to overall electricity cost increases, wind power continues to remain competitive.

- While dropping slightly in 2007, wind power projects remain well over 30% capacity factor.

Implications: Ersol, a small, medium priced photovoltaic manufacturer, has been acquired by the German auto giant Bosch Group.  This acquisition will be good for both parties, giving ersol deep pockets and enabling Bosch to combine photovoltaic system with its solar thermal business.  One interesting question will be whether this is the beginning of a round of mergers and acquisitions in the photovoltaic industry.

Analysis: The announcement of the Bosch Group, known primarily for its automotive parts, of acquiring ersol Solar Energy may usher in a round of mergers and acquisitions in the photovoltaic industry.  Ersol is a high quality, medium priced crystalline manufacturer of solar panels.  It has gotten into the three figure megawatt a year production range and secured a long term cell supply deal with Aleo.  In addition, the cloud of slashed German subsidies has been lifted with the rate of the feed in tariff being reduced at a manageable 8% annual rate instead of the more drastic 26% as threatened by political conservatives (interestingly, nothing was addressed about the far larger coal subsidies).

Bosch will provide deep pockets to ersol, as well as the opportunity to pair up solar electricity with their growing solar thermal system offering.  It will be interesting to see whether this deal will trigger other mergers and acquisitions.  However the other remaining major incentive issues, in the US and Spain, are resolved, the photovoltaic market maybe due for a shakeout.  Unlike the more concentrated wind turbine manufacturing market, the top five solar cell/panel makers in the world were just under 40% of the photovoltaic market, and the next ten makers controlled about 35%. 

Dozens of manufacturers have a toe hold in the market.  Ersol reported an output of 53 megawatts in 2007, according to the Prometheus Institute.  That was little more than 1% of global output in 2007.  PV manufacturers like ersol will realize the necessity of growing quickly and becoming much cheaper, or face extinction.  Ownership by companies serious on renewable energy is a likely outcome for many of these firms.

Implications: The announcement of another high tech business in California getting a photovoltaic system is becoming old news.  What is more significant of this event are different financing instruments for photovoltaic systems making their way into the American market, and mindset.  A medium sized installation company may be the vanguard of a better way of selling PV.

Analysis: The story of a commercial rooftop photovoltaic system going up on a high-tech business is becoming old hat in California.  What is more significant are the business models that are beginning to finance PV systems, especially smaller ones for residential markets.  Besides eBay facilitating discounted installations to a naturally inclined market, leasing is becoming a more acceptable option of financing.

SolarCity is a privately held business that installed 876 kilowatts of photovoltaic capacity for 66 installations in 2007, according to the California Energy Commission.  That makes them nineteenth out of the top 50 installers in the #1 PV market in the US, with an average installed price reported at a little less than $7 per watt DC.

The concept of a homeowner leasing a photovoltaic system instead of shelling out cash is slowly making its way into the American mindset.  On SolarCity's website (www.solarcity.com), an example of leasing is given, where the installation of a 2,400 watt PV system, about 2/3 or so what is needed for an average California residence, is offered for $110 per month and no other costs for 15 years.  That will reduce electricity costs by close to the same amount.  It provides a hedge against future electric price increases and offers a buyout option at the end of the lease.  It's cost effective right now at about 30 cents per kilowatt hour, which many Californian homeowners pay at a marginal rate.

It will be financing that will lead to lower photovoltaic installed costs and make it more ubiquitous, like cars and furniture.  The genius of the German photovoltaic market's growth is not no much the feed in tariff rate, but the development of the financing mechanism.  With the surety of the tariff, a German can walk into a bank and get their system financed and approved, typically with a two page form.  A Californian still has to reckon with a huge pile of paperwork, a bureaucratic maze of different local incentives and jurisdictions, and banks that still run away at the mention of dedicated financing of renewable energy systems.  This is one reason why a German PV system averages over a dollar a watt less than a Californian one, before incentives.  A straightening out of this situation would be a significant cost reducer for photovoltaic systems.

GE is the prime finance agent of this scheme, which is a signature loan, requiring great credit.  It remains to be seen whether other major lenders see this as an opportunity for growth with other lending instruments in the doldrums.

Implications: Renewable energy has been a step child in the US Department of Energy's household.  Research and development has never been generous or consistent, and the expected contributions of renewable energy to American needs have been treated like a petting zoo on the way to the lions and tigers of fossil and nuclear energy.  But a recent USDOE report on the reasonable expectation that wind power will generate 20% of American electricity may signal the beginning of the end of this benign neglect.

Analysis: The US Department of Energy has been historically ambivalent about renewable energy.  Political favoritism and institutional bias has made renewable's research and development modest budgets a roller coaster, robbing them of even more strategic efficacy.  The forward reporting by the Energy Information Agency of a renewables playing a minor role in future energy production in the US fails to take into account the decades of start up required before major market share can be achieved.

The facade of indifference may be cracking a little as this recently released USDOE report which expects that the American wind power industry will by 2030 reach 20% of the nation's electricity, not capacity, a higher number.  This would require 300,000 megawatts of capacity, a rate that would come close to equaling the total capacity presently  installed (over 15,000 MW) every year.  It acknowledges that the first 1% of electricity generated by American wind in 2007 is the beginning of significant market development.

In a nearly matter of fact manner, as opposed to more breathless entities like Greenpeace, the USDOE report lays out the likelihood in terms of expected costs, transmission infrastructure growth and regulatory policy can be achieved.  The report assumes the 20% can be reached even against USDOE expectation that fossil fuel power plant costs will remain stable and nuclear's will decline, a scenario which is looking increasingly unlikely.

The report underhandedly acknowledges the Renewable Portfolio Standard policies by many states in making this 20% goal realistic.  This 20% number could make up most of the additional electricity demand in the US by 2030, especially if serious consideration is given to efficiency and other renewables.   More over, 20% would equal about what the nuclear power industry generates at present.

However the production tax credit situation goes this year in Congress, this report will be provide strong encouragement for American market development in wind power in the coming years.

Implications: The announcement by Suntech of a huge building integrated photovoltaic (BIPV) project in France may be a sign that the PV maker's acquisition of MSK has gone smoothly.  It also shows the potential of the French PV market and the BIPV market as a whole.  It will be an interesting competition for BIPV between crystalline companies like Suntech and thin film makers.

Analysis: This announcement by Suntech Power Holdings Co, Ltd of a multi-megawatt building integrated photovoltaic (BIPV) project in France has two interesting connotations.  It may be a sign that Suntech has successfully merged its acquisition of the Japanese BIPV company MSK last year and will be able to offer BIPV products in a significant way to the public.  The second aspect is this project size indicates that the French photovoltaic market is significant, if not the size of Spain, and that the building integrated feed in tariff rate offered will be a significant part of this market.

The BIPV concept allows for photovoltaic systems to actually be part of the building, such as glazing, roofing or an awning.  This market, while a relatively small percentage of the global industry, has appeal because it can provide PV unobtrusively and often can be only a minor part of new  construction budgets.  It can appeal to clients who want to be green and stylish.  Countries like Spain and Portugal are requiring in their building codes that new construction to have solar.

Both crystalline and thin film, primarily amorphous silicon, are used in BIPV.  Crystalline has the advantage of higher power density, while thin film has the ability to be formed into malleable products like shingles and can handle heat better.  The BIPV product offered by the MSK group of Suntech are crystalline, either mono- or multi.   The design of this company's BIPV systems allow clearance for air circulation and minimize efficiency loss due to heat.

Some other crystalline BIPV are Schuco glazing systems, roof slates by Kyocera, Open Energy and Altlantis Energy.  Companies like Sharp and SunPower can also have their panels installed into BIPV's. Examples of thin film BIPV companies include United Solar, Solar Integrated Technologies. HelioVolt, EPV Solar and Schott.

Implications: More people are familiar with the thousands of utility scale wind wind turbines that dot the American landscape as well as over 1-1/2 million solar electric and heating installations on buildings.  But another green power sight, small-scale wind, is starting to show up in the suburban and urban communities.  This industry is relatively tiny and privately held, but may grow into the billion dollar category before long like its solar and larger wind power cousins.

Analysis: While public attention for small scale renewable energy is focused on solar power, wind power is starting to make waves, of the air at least.  The market for small scale wind power, which is approaching installation rates of thousands of machines a year in the US is an eight figure a year revenue source.  Globally the market is much bigger, approaching 100,000 units of 20 kW or less per year and nearing one billion dollars annually. Very few small wind power companies are publicly held, and none of the big turbine manufacturers have decided to make their way down the food chain as of yet.  Some states offer incentives for small scale wind power, and a federal residential tax credit passed this year or in 2009 may spark an even greater boom.  Federal funding for small scale wind on farms or rural areas could be gained through the US Department of Agriculture Section 9006 Program.

Generally speaking, most consider "small" wind to be 10 or 20 kilowatts of capacity down to a few hundred watts.   Small wind power can be part of a portfolio of intermittent renewable energy between solar electric power and large-scale wind.   It can deliver a higher percentage of its capacity in electricity at a lower cost than photovoltaic power in the right site, but a poor wind power site may render it to be little more than a lawn ornament.

Despite vocal NIMBY opposition, wind power in developed areas is making headway.  In Illinois, the cities of Rockford and East Peoria have codified zoning for wind installations that allow for reasonable standards, and they have been installed in numerous sites in suburban Chicago.  As people gain familiarity with wind systems, they become as much of the landscape as a central air conditioner, and maybe quieter.

Implications: Maybe it's the 2008 Presidential campaign and its "silly season" that makes one looks askance at a report that somehow makes cleaner air a "bad thing" due to "unintended consequences".   Assuming that this is not a call to return to unbreathable air, the issue might be to look at environmental regulations as a "disruptive" element.  Even if it were disruptive, clean air winds up being good for solar power and other green markets.

Analysis: I will start off with the assumption that no one wants to go back to the days of London Fog, smoke pouring down the side of old lignite power plants like beer foam or diesel fumes that made one's eyes water a block away.  A lot has been made on the disruptive nature of environmental and green energy programs. 

These alleged disruptions range from making economies uncompetitive to slicing and dicing birds on wind turbine blades.  The report discussed here brings out "unintended" consequences of clean air programs, namely clearer skies and rising temperatures that could make Europe's summers increasingly hotter.  Whether this is the same level of "unintended consequences" as the increased level of mining increasingly dilute uranium ores for nuclear power is unclear, not to mention waste disposal.

The interesting aspect about "disruptive" applications, whether they are cleaner air, personal computers or anti-discrimination laws, is that they do indeed "disrupt" the established order, whether it's pollution, centralized control of information or bigotry.  Generally, once the phase of disruption is passed, which could take a generation or so, especially for social changes, things settle down, or are usually better than before.

One may make the same case on cleaner European skies, besides the minor advantage of breathing better.  They can also bring about economic advantages and new markets.  Clearer air means that solar electric systems will work more efficiently. 

Clearer air with warmer temperatures may impact the performance of crystalline photovoltaics above the 30 degree Centigrade (86 degree Farenheit) or so level somewhat (although output will still increase).  But warmer temperatures will not negatively impact most thin film photovoltaic applications, and will actually help solar thermal applications, whether for electricity or hot water.  Green roof systems can mitigate  temperature extremes for buildings and, on a large enough scale, climate extremes.

So one can go from a good thing having "unintended consequences" to having intended consequences that are good.  Solar power markets can continue to grow while doing good.

Implications: As wind power and other renewable energy sources become more prominent, their visibility can make them vulnerable to criticism when something in the grid goes wrong and they are anywhere near it.  Wind power developers and manufacturers have to be as cognizant of communication to the public as well as their engineering and finance capabilities.  This industry response to a power drop (not outage) in Texas serves as a good example.

Analysis: As individuals or as a society we like things to work automatically, chief of all our electrical grid.  Issues of costs or pollution aside, anything that is new tends to be perceived as a danger, to the mainstream, and particularly to the the power industry.  Renewable electricity, particularly wind power, is still looked upon as an interloper.

When something goes wrong with the grid, any element of newness is cast as the villain.  The Northeastern US power failure of 2003 and the one in Florida early this year had all kinds of mundane causes.  Maybe it was failed switches or substations, inadequate personnel training or management.  Public outrage, while apparent, was somewhat aimless.  After an official round of pronouncements and promises of it not happening again, things died down.

The recent power drop (not failure) in Texas last February produced an interesting reaction.  Nobody lost power on an unplanned basis, but because there was a major (if not significant) presence of wind power installations on the grid, much grumbling was directed that wind power somehow caused the drop or was a factor in it.  Had wind power been a significant presence in the Northeast five years ago or in Florida this year, that issue might have surfaced as well.

The response by the American Wind Energy Association lays out specifics on what happened, but the primary issue is that no power failure occurred.  Some load shedding occurred by customers who had prearranged with the provider for such scenarios of power scarcity, and they were compensated for it.

The moral of the story is that investors in innovative technologies like solar or wind power need to have companies who either sell the product or use it know how communicate to the public when something in the "neighborhood" goes wrong and the "new kid on the block" gets blamed.

Wind power developers have to be as good at public relations and communications as in engineering and financing.  Making sure the wind (or solar) industry does not become collateral damage with inadequate  grids is important for green power industries to engage in.

The deployment of wind power at a steady pace fits with its intermittent nature.  Thousands or tens of thousands of megawatts can be installed along major grid routes before intermittent generation becomes a significant factor.  By then, a generation of storage applications will be in the commercial mainstream.

These include compressed air systems, whether located in nacelles by General Compression, or in dedicated  underground storage, such as the project overseen by the Iowa Energy Center for a consortium of eastern Iowa municipal utilities.  Or electrolyte battery systems, such as the sodium sulfur systems developed by NGK Insulators, Ltd for American Electric Power, or the batteries developed by Canadian VRB Power Systems for the Some Hill wind farm in Ireland.

Eventually, as wind becomes more "convenient" and other energy sources get more expensive, many of these fears will subside.  But investors should never underestimate the fear factor of a new product.

Implications: Winston Churchill said it best about the Yanks; "Americans can always be counted on to do the right thing, after they've exhausted all the other possibilities".  So may it be with the latest Clean Energy bill (S 2821) introduced in the US Senate on April 3 that has so far garnered 36 cosponsors, including previous opponents of similar measures.  Thus, the US solar and wind markets and, to some extent, the global markets, may yet be stabilized by this extension, and live to be more effectively addressed by a new President and Congress in 2009.

Analysis: The US market for solar and wind power may be the difference maker for global growth continuing at a 30-40% rate, or a serious interruption in 2009.  The interruption is the threatening 12/31/2008 end to the present federal incentives for solar and wind power - specifically a production tax credit, now valued at about two cents per kilowatt-hour for ten years for wind farms, and a 30%/$2,000 tax credit for residential solar and a 30%/unlimited tax credit and accelerated depreciation for commercial solar.

While many ideologues deride solar and wind as hopelessly subsidized, conveniently ignoring the many billions that for decades shored up the fossil and nuclear industries, the real problem for the US market has been the historical stop-and-go-and-stop mentality of federal incentives.  This has caused a feast and famine of installing solar and wind power systems that does little to establish a stable domestic market, unlike Germany, Spain, Japan, Korea and a host of countries that deploy patient and strategic incentives over a decade or more, resulting in established industries and systems going in at lower prices.

In spite of the American attention deficit hyperactivity disorder (certainly not because of it), the US is now the number two wind power globally and has increased solar installations by 50% in 2007.  This is due to the moderate federal incentives in effect since 2005 (but only good for three years), and a growing bulwark patchwork of state incentives and public support.

Other factors include rapidly rising energy prices and growing import dependency of natural gas in addition to petroleum, the dawning realization that we are not going to drill our way to lower energy prices, and that new coal and nuclear power plants, if they are built, will cost far more and their electricity will be far more expensive than our parents' generators.  Last, but not least, the high probability of climate change having a bit of an impact on us.

Setting a comprehensive energy policy in a lame duck presidential election year has been impossible.   The best course has been the extension of existing incentives for at least one year, giving the new President and Congress an opportunity to do something more comprehensive in 2009.

So far attempts were beaten back because of the now novel Congressional concept of pay as you go; if you want subsidies you have to find a way to pay for them.  The logical, if politically untenable, solution has been to go after the billions that subsidize the oil and gas industry.  It may have been wiser to try and grab polar bear cubs in front of their mother.  Despite considerable public support for clean energy, a hedgehog defense of a filibuster minority in the US Senate assured its destruction.  Looming behind the Senate was the specter of a President discovering his veto pen after six and a half years of nonuse.

In what is likely to be a last chance before being engulfed in the election year, Senate Bill 2821 extends until 12/31/2009 the solar and wind incentives (with a little sweetener, like removal of the $2,000 cap for residential applications, which would certainly help that market).  The Senate has come up with "creative" ways to finance the incentives, which is translated to anyone but the oil and gas industry.  This has resulted (as of this writing) in 36 cosponsors, including some previous opponents of the last bill.

The next few days should see passage, reconciliation with an already passed House Bill, and, hopefully, signing by the President who, after all, signed the last major incentive for solar power.  Enactment into law will enable the US solar and wind industry to heave a huge sigh of relief, smooth out the global market fearful of going off a cliff in 2009 by interruptions or significant reductions in the German and Spanish, as well as American, markets.  It is considered very likely that whoever occupies the White House will work with Congress to develop at least a stable, if not spectacular, solar and wind power incentive program that will outlive a gerbil.