Wind and solar power in turbulent times
Over the past few decades, electricity generated by solar and wind power has been the fastest growing new sources of energy in the United States and for many other countries around the world.
Despite phenomenal growth, both wind and solar companies have recently been hitting turbulence due to a sluggish economy inhibiting investment, an oversupply of equipment, cheap natural gas prices and uncertainty regarding the renewals of government incentives.
Vestas, the world’s largest wind turbine manufacturer, anticipates lower equipment demand due to slow growth in global economies and uncertainty regarding the U.S. federal production tax credit (PTC). In reaction, the company has cut thousands of jobs this year both in Europe and the U.S. “Vestas is adjusting its workforce in the U.S. and Canada to address global restructuring requirements and changing market dynamics due to several factors. In North America, our workforce has decreased from more than 3,400 people in January to about 2,600 today,” said Andrew Longeteig, a Vestas communications specialist.
Siemens Energy recently announced the layoff of 615 employees, 37 percent of its U.S. wind equipment manufacturing force. It also cited uncertainty regarding the PTC, a drop in orders due to low natural gas prices and a sluggish economy.
In wind-rich regions, however, wind energy is now one of the most cost-effective sources of new electricity generation, competing with new installations of other energy sources. Overall wind energy costs have also dropped over the past few years as turbine technology has matured, with taller towers and improved turbine efficiency.
But industry experts and the recent Department of Energy Wind Technologies Market Report for 2011 foresees circumstances that threaten to slow new U.S. builds. These include questions about long term government support, a modest growth in demand for electricity, an oversupply of equipment in the supply chain and low natural gas prices.
On the positive side, overall U.S. wind equipment manufacturing has increased dramatically. According to the 2012 U.S. Energy Department report, nearly 70 percent of the equipment installed at U.S. wind farms in 2011, including turbines and components like towers, blades, gears, and generators is now from domestic manufacturers, doubling from 35 percent in 2005.
In solar, Solyndra and Evergreen Solar are the best known failures because of government loans and media coverage, but dozens of other manufacturers like Beacon Power, Mountain Plaza, Stirling and Spectrawatt went bust resulting in the loss of thousands of jobs. It’s no secret that China’s cheaper production of PV panels and related equipment was part of the reason why. China was accused of “dumping” government subsidized PV modules at below cost in order to dominate the global market. In retaliation, the U.S. Commerce Department recently imposed tariffs on most solar panels imported from China.
Anyone can generate their own electricity with solar or wind technology and supply power to a home or business. In general, however, surplus electricity generated by solar or wind is sent to a utility.
Wind power is virtually all utility scale, while solar is usually segmented into either utility-scale or distributed generation for individual buildings. Connecting and selling electricity to a utility varies by state and utility company. Many states have “net metering” or other laws and regulations that specify the types of generators that can connect to electric utilities and how the owners are compensated for any excess electricity they produce. In some states, each utility determines if and how they will allow connection and pay for the electricity. In over 30 states, utilities are mandated by law to achieve renewable portfolio standards (RPS), that is provide a certain percentage of their total electric generation from renewable sources by a given date.
But keep solar and wind electric production in perspective. In 2011, the U.S. generated about 4,106 billion kilowatt hours of electricity. About 68 percent of it came from fossil fuels like coal, natural gas, and petroleum. Solar only accounted for 0.04 percent and wind 2.92 percent of 2011 total electric production.
Mike Taylor is the director of research for the Solar Electric Power Association, an educational organization dedicated to helping utilities integrate solar energy. Taylor stated, “Right now supply greatly exceeds demand. Manufacturers are selling panels at very low profit margins, or even losses. That’s not a healthy long term market so we are having bankruptcies, consolidations, mergers and buyouts.”
“On the other side you have consumer demand increasing because prices are so low. We are going through a consolidation period which I think is natural. Probably in the long run healthy, but there’s some short term pain in the shakeout. It’s bad for the manufacturers, but it is creating great opportunities for downstream installations. The upside is the lower price of solar panels. Just between Q1 and Q2 of this year, total all-in installation costs in the U.S. decreased 10 to 15 percent in 1 quarter. That’s great for consumers,” said Taylor.
Globally, solar power has been growing rapidly, averaging a 65 percent annual growth rate for the past 5 years and driving a boom in solar panel manufacturing.
In October, GTM Research published a report that analyzed more than 300 global solar photovoltaic module makers. It found supply to be in excess of demand by an average of 35 gigawatts per year over the next 3 years. The report predicted that 180 existing manufacturers will either go out of business or be acquired by 2015.
Over the past 5 years, the U.S. wind industry added over 35 percent of all new generating capacity, second only to natural gas, and more than nuclear and coal combined. U.S. generation from wind turbines increased 27 percent in 2011 from the prior year, and is up 350 percent since 2006.
The main obstacles to wind and solar power have always been intermittency and storage. When the sun does not shine or the wind does not blow, electricity is not generated. And electricity must be used as it is generated, unless storing is available.
In the U.S., solar electric production thrives best in the sun belt. Due to fierce global competition over the past several years, the cost of solar hardware such as photovoltaic panels and inverters have dropped precipitously and are expected to continue to decline which is good news for buyers.
To understand the current state of wind and solar energy from the electric utility perspective, we spoke with Revis James, director of generation research and development at the Electric Power Research Institute (EPRI). EPRI conducts research and development relating to the generation, delivery and use of electricity for the benefit of the public. Its members represent approximately 90 percent of the electricity generated and delivered in the U.S., and its international participation extends to more than 30 countries.
“First, we still have subsidies in place. These subsidies are typically renewed annually by Congress. That is helping sustain renewable energy, although there has been concern regarding their renewal for future years. There was open discussion last year and the year before that they were not going to be renewed, but they were.
“Second, there are the state RPS. There are over 30 state programs now. Five years ago the number of RPS programs was in the mid-20s. That’s helped keep solar and wind going. However, from a renewable perspective, there’s a big negative factor – cheap natural gas. Gas has become so inexpensive that even with subsidies for solar and wind the attractiveness of investment in gas-fired generation is very strong. Plus gas has several characteristics that are very desirable with respect to operability and reliability. They are large capacity and are a dispatchable resource that you can start and stop when you want. That’s eroded the attractiveness of renewables.
“Third, the integration of renewables has been progressing slowly. Typically, a fraction of the nameplate capacity of a renewable facility is assumed to be available to account for the variability in output. Frequently, daily time periods where there is high renewable output do not coincide with periods of peak electric demand. This effectively reduces the amount of renewable energy that can be used economically. In some instances, it’s possible to have a situation in which a power company must take generation from renewable assets to comply with RPS, while other potentially cheaper generation is reduced to low or zero output.
“I think we are going to see continued growth in renewables to some degree to fulfill state renewable portfolio standards that have not yet been met. To comply with those requirements, power companies will have to develop infrastructures like storage or back up generation that will involve additional costs. Given the current situation, I think renewable growth may be limited to what is required via the RPS standards. If gas prices were to rise significantly, or if we had a technology breakthrough in storage, growth in renewable generation capacity may accelerate beyond the minimums required by law, but at the moment I do not see that,” James concluded.
Justin Pentelute, chief executive officer of Syndicated Solar, a Colorado based solar engineering, procurement and construction contractor commented on the present state of his industry, “Solar’s growth has been marked by innovation, technical prowess and strong environmental support. Linking all of these factors is government engagement through R&D, financial support, tax incentives and regulatory pressure on electric utilities. Combined, these initiatives created a hospitable environment for solar. Savings on the monthly electric bill is the basic attraction in all cases.
“Fine for now, but we have to focus on a major point – continuing national and state institutional support of solar is essential. It needs to be a broad, long-term priority. In a political climate that is partisan and contentious, support for energy innovation sometimes gets lost in the ether. That’s a mistake. Bottom line, solar is very viable and is now just needing to overcome the frivolous oppositions and get our facts straight as we plead our case and steer this country to clean jobs and a better energy source,” said Pentelute.