Energy Circus: Solar Millenium

It seems to be true that in the end plans rarely survive contact with reality.

When I introduced the Energy Circus, had a plan in mind to start out discussing the general characteristics of diverse sources of energy and especially electricity. I will do that, but right now there is some current news that should be discussed.

We do have a bad day at the stock markets in Germany, but when a company’s stock plummets by 50%, there must be something else going on. Solar Millenium is not one of the small guys – until recently they had plans for a billion dollar 250MW solar power plant in California, they were also the guys who build Andasol – the prototype for the Desertec project that is supposed to be a $0.5 trillion investment, but it never added up and is presented in strangely contorted and opaque ways to say the least.

Why the turmoil? The company is the market leader in solar thermal energy and such it has been making losses and just announced to restructure itself. And instead of installing 250MW as solar thermal, it is going to install photovoltaic cells because they are supposedly cheaper – while officially stating that they will stick with solar thermal. This is confusing investors to no good end and for good measure, there are reports that the company’s CEO faces allegations of insider trading.

Given the incredible amounts of money sunk in solar power, a certain amount of corruption is par for the course. So, I’ll ignore the latter part. But you may ask, what does the sudden reversal in technology mean?

Well, at least one of two things and likely both. The first part of the story is, that there is currently a shortfall in demand for solar cells in Germany and an increase of stockpiles. There is a reason why the company is making losses and that is a general slump in the market. So, Solar Millenium is probably trying to get rid of this stockpile, but this is unlikely to be a profitable proposition, because they were probably planned to be sold at a higher price and now their value must be written down.

Worse yet, unlike solar thermal generation there is no integrated way to store energy for any length of time in solar cells, which immediately degrades the value of the generated electricity. If electricity can’t be used, it can’t be sold and its value is lost.

At the same time, solar thermal is probably more expensive than people like to pretend it should be. (Objective prices are hard to come by – they are contorted by all sorts of perverse incentives, both to the upside and the downside.) Desertec, which relied on solar thermal, calculated with some … frankly ridiculously low price of about 3.5 cent per kWh.

The prototype “Andasol” had a raw investment cost on the order of 10 cent per kWh. “Raw” means without considering  financing, depreciation, maintenance, cleaning, personell, replacement parts and whatever else is needed. The true cost is thus definitely higher – especially because of the first two factors. Perhaps on the order of 15 cent per kWh in southern Spain.

Solar thermal energy generation is not exactly high tech. While it is possible to reduce cost through mass production, the difference isn’t so great. Andasol already covered two square kilometers in solar collectors. getting costs down by something on the order of 70-80% to achieve the is an illusion

So, what is the point? Well, we’re probably witnessing the unsurprising bursting of the solar bubble – marked by reliance on subsidies, massive lobbyism, over-investment and ignorance of basic necessities of the technology (power storage and transmission).

But the problem with all this is, that all the euphoria didn’t really get us much. The installed capacity consists of mostly primitive, low efficiency, solar cells. There has been precious little progress in the technology beyond the regular crop of headline catching stories – because the focus was on the money, and companies earned money by quickly churning out primitive but easy to produce solar cells, because every year subsidies would be reduced, thus speed and quantity were always more important than quality.

What does this particular bubble leave us with?

Unfortunately, not a lot of electrical power. Germany will have on the order of 40-50GW installed peak capacity – generating 4-5 GW on average, but severely interfering with generation in the rest of the grid during peak hours. Ironically, wind power in particular.  On a sunny noon some 30-40 GW of power get into the grid leading to peak power plants being shut down and pumped storage going online. But when that is not enough to accommodate this amount of power, you must start shutting down wind power, because you base-load power plants cannot react so quickly.

The result is that wind power generation has actually declined in the last 4 years by some 10%, despite an increase of installed power by some 20%. So, the plus side is that there is an incentive to install proper transmission lines and storage, as that would immediately generate additional available energy that’s there for the taking.

It would be a good thing, if that should that happen. In this case there would at least be the beginning of an infrastructure present to do wind- and solar power right, the next time around. Then, hopefully with a more sober assessment of the possibilities such technologies have to offer and especially more honesty about the price to be paid.

I bear no grudge against solar or wind power, in fact, I would want to see as much installed as possible without doing damage (that depends a lot on efficiency of the generators, solar cells and especially storage technology) – but it has to be based on honest assessment of the direct and indirect costs and limits of these technologies (especially their environmental impact) and not green self-delusion.

5 thoughts on “Energy Circus: Solar Millenium

  1. this is a very informative and interesting blog you have.
    its good to find to someone who is sharing ur views…
    btw great comments on the latest bernanke article in the economist!
    truer words were never said

    thanks again!

  2. It’s be a difficult year for renewables with much of the incentives and subsidies due to expire at the end of 2011. It won’t be until they hit grid parity with traditional sources of energy that they can take off in the market without such reliance on the government, because for the foreseeable future there won’t be an effective mechanism in place pricing in externalities.

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