Can we envision a fair, balanced LG program that serves those that need it the most rather than only those that can afford to participate?
What would be the optimum structure & characteristics of a Federal Loan Guarantee Program for Solar?
A Discussion Contributed by | HighTable
The existing DOE Loan Guarantee (LG) program made some very large bets on very few players. The recent failure by one of them, Solyndra, brings into question both the substance and selection process of the program. Having walked through the application process, I am acutely aware of the various challenges faced by an applicant in just getting into the game let alone succeeding. Here are at least three substantive areas where I believe the program has fallen short:
1. Contradictory Criteria - The premise of the program was based on the requirement for the co-existence of two project elements that are not generally found together; 1) “employ new or significantly improved technologies”; and 2) “projects ready for commercial deployment … DOE’s … program is not intended for technologies in research and development.”
2. Very low risk tolerance – The program is akin to FHA loan guarantees for homeowners, but completely opposite in its risk tolerance. The program has an extremely high cost of participation ($100K in fees to enter, >$100K consultant costs to be evaluated) and in order to effectively compete in the program, one has to be positioned to not need the guarantee.
3. Catalyst vs consequence – The availability a loan guarantee can be the most important mechanism to spur investment into the PV industry. Presently, a loan guarantee is practically the last element of a financing plan that can be secured - if at all - based upon the various hurdles that have to be overcome before the DOE is willing to make a commitment. In contrast, an early commitment (especially to early-stage companies) with associated downstream performance requirements would facilitate the other elements of a companies financing plan (risk equity, tax equity, debt commitments, etc).
With this experience under our belts, can we envision a fair, balanced LG program that serves those that need it the most rather than only those that can afford to participate?
I know only the situation in Switzerland. Here, like in Germany since several years, the most efficient financial incentive for PV systems is the purchase of the produced power by utilities on the basis of a tariff that covers the effective generation cost (capital, operation and maintenance cost). The tariff is revised each 6 months by the Federal Office of Energy, to consider the technological progress leading to cost reduction in PV systems. However, the new tariff is applicable only to new systems and the once agreed tariff is valid for 20 years without modification. Therefore, the owner of the system has the guarantee of the return on his investment, under the condition that his system effectively generates the power it should. This is an incentive for well operating systems. The subsidy is covered by an additional fee of about 1 US Cent on each kWh consummed in Switzerland.
Switzerland in not in favour of big PV power plants built somewhere in the nature. We are a small, densely populated country and land is a rare and costly resource. On the other hand, the available roof surfaces are huge and even if only one third of these surfaces would be covered by PV modules the PV power generated would cover some 20% of the electricity demand of the country. Roof integration of PV panels is therefore a fundamental issue. Aesthetics is crucial. Many PV opponents try to hinder the installation of PV panels on roofs by means of somewhat ridiculous building regulations. As building regulations are a municipal issue, actions are needed in each commune individually to obtain the right to install a PV system. Hopefully there will be in some future a better regulation at the cantonal level, to simplify the authorisation procedure. Switzerland is a confederation of 26 independant states, named cantons, like the US are a confederation of 52 states.
Jean-Marc Suter Chief Executive Officer, Suter Consulting on 9/27/2011
I believe the loan guarantee program is not targeting the right area. The current focus of accelerating the time between R&D and market deployment doesn’t ensure the technology is market ready or even market viable. I agree with others that the focus should be on market-pull mechanisms.
Loan guarantees would help the market best if they were tightly focused on developing a large market. Specifically I believe that providing loan guarantees to encourage municipal utilities to install PV systems sized 500 kW to 5 MW provides the best bang for the buck and the lowest risk profile. This market provides many benefits including large volume for market ready equipment, and allows the market to foster new equipment development. These entities are already smart about energy, they can spread costs over many customers and many years, and they aren't likely to go bankrupt.
Jeff DeLaune on 9/26/2011
This gets to the question of "what is the best incentive / subsidy structure for a market such as PV?" 1) Anything that mitigates risk or leverages private capital, such as a loan guarantee, has tremendous benefit to an emerging industry. This is especially true for the 2008-present period when capital for PV without credit enhancement was nearly impossible to come by. The question is - at what part of the development cycle should this capital be injected - R&D, PIlot, Pre full-scale, full-scale? There are valid arguments for all of them, though, if the technology is truly at the "full-scale" stage, then it probably doesn't need help as does technologies at earlier stages.
2) Clearly, the feed-in-tariff (FIT) approach as a market-pull mechanism works and can be structured to provide sufficient incentive so as to enable non-subsidized financing of both manufacturing operations to supply product and deployment operations to use it.
3) The buy-down approach, used extensively in Japan in the late '90's and early '00's, can also be successful as a means of jump-starting a market and even enabling "culture change" in terms of wide-spread acceptance of new products - in this case, PV vs conventional power. However, I don't think it is a successful as the FIT approach.
4) The solar renewable energy credit (SREC) has had some degree of success, but, as presently structured, does not work in a sustainable manner. The program details, such as pricing and length of contracts, are highly dependent on individual utility mandates or other state-based legislation and hence are quite variable state-to-state. As such, the SREC's are both volatile and marginally bankable.
5) Renewable Portfolio Standards (RPS) - while an RPS can set a goal for either a state or a country, without a financial mechanism to facilitate the deployment of renewable technologies, it is not very useful.
John Tuttle CEO, Skypoint Solar, Inc. on 9/27/2011
The fundamental reason for Solyndra’s bankruptcy was the failure of its venture capitalist driven business model The venture capitalist failed to pay heed to the technical and economic fundamentals of the photovoltaic (PV) industry. Solyndra’s technology is based on the use of tubes coated with thin films of copper-indium-gallium-selenide (CIGS). Solyndra called for the use of CIGS semiconductor with four elements as constituents and tubes in place of flat thin films surfaces. This posed complex manufacturing problems, and Solyndra was forced to purchase expensive custom built equipment. In 1980, I published an article titled “Economic Requirements for New Materials for Solar Photovoltaics” in the journal “Solar Energy”. Based on the abundance and low cost of raw materials, I predicted that silicon would be the choice material or manufacturing solar panels for terrestrial applications. In 2010, about 90 % of solar panels were based on silicon. Thus from a supply-chain point of view and other large scale manufacturing considerations, silicon based panels have a distinct cost advantage over CIGS based panels As an expert with 37 years of experience of PV industry I had known for long time that Solyndra will fail. I stated this in a public meeting (as an invited guest speaker) in Atlanta in April 2009. One of the investor (who funded Solyndra was also present in this meeting).The argument of roof top mounted PV vs. Solar farm is also in the wrong direction. In US PV will thrive on large scale applications (e.g. solar farm). Each house is different and one has to design PV system for each house and cost increases.If we must cut subsidies and federal support, it should be done uniformly for all electricity producing technologies including nuclear and coal as well as for oil and gas industries.The tax payer’s money should not go down the drain. This is the only rule should be followed.. Each case should be judged on this single criterion. Dr. Rajendra Singh, Clemson University
Rajendra Singh on 9/26/2011
On the specific issue of Solyndra, I provide a few perspectives in my blog -http://web.me.com/jtuttle59/Energy_%26_You/Blog/Blog.html With respect to your comments:
1) Venture Capital model - I am not exactly sure how to define this "model", but in the rear-view mirror, if 6 or 7 of 10 ventures fail, was that the technology / company that failed, or the operational model imposed on the company by the capital providers? Probably a mixture of both. In PV, and specifically CIGS, I have noticed a lot of uninformed decisions made by capital resources - and the trend continues.
2) Complex technology - there is no doubt that combining the inherent challenges of making CIGS with a novel product form-factor and the need for custom equipment out of the gate made for a lower-than-desired probability of success. I also believe that, when the project began, their target cost-basis was competitive - only to see that position erode with time. The plug may have been pulled because of the realization that a "success" (meeting projected cost benchmarks) was ultimately going to be a failure in the market.
3) Both c-Si and CIGS have strengths & weaknesses. The only one in the former that trumps the latter in the long-run (>10-20 yrs) is the raw material availability. On the other hand, I believe the present module architecture that is reliant on glass is arcane - and wafers of Si have no other choice. Eventually, a >20% efficient form of thin-film Si has to be developed.
4) Roof-top vs open-field - While the latter is easier to engineer, thus resulting in the lowest LCOE, the former is a more elegant solution to power supply. If every roof-top in America had an "appropriate" (based on local shading and other considerations) coverage of PV, we would immediately drop our centralized demand by 50% and solve the impending need for billions of additional investment in T&D infrastructure.
John Tuttle CEO, Skypoint Solar, Inc. on 9/27/2011
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