Solar Energy: This is What a Disruptive Technology Looks Like

May 28, 2013


I’ve said it before, I’ll keep saying it. No matter what you think about the need to decarbonize – the revolution is coming, because the technology is so compelling it simply is going to have its way.

Armchair Economics:

A picture is worth a thousand words. The graph above compares the price history of solar energy to conventional energy sources. This is what a disruptive technology looks like. While conventional energy prices remained pretty flat in inflation adjusted terms, the cost of solar is dropping,fast, and is likely to continue doing so as technology and manufacturing processes improve.

While solar currently accounts for less than 1% of the energy supply, it is an exponentially improving technology, both in terms of price (14%/year) and pace of construction (60%/year). Already it is approaching parity with other energy sources in the Western US. Assuming this trend continues for another 10 to 20 years, and there’s no reason not to, solar power will become 5 to 10 times more cost effective than it is today. This raises an interesting question. What happens if solar becomes an order of magnitude cheaper than other sources of power?

This is the nature of disruptive technology. It represents such an improvement that it renders existing industries obsolete. We saw waves of disruption take place as the Internet upended entire industries. Expect to see a lot of this in the coming years.


You can see where this is going, can’t you. As network prices surge, rooftop solar PV prices are falling even more dramatically in the other direction. As the Edison Electric Institute and leading US utilities have pointed out this year, customers now have the option of sourcing electricity from their own resources at a cheaper cost, and will be tempted to use the grid only as a backup. This, of course, is a major threat to their business model. It’s what AGL Energy, and Hawaii’s network operator have both described as the “death spiral.”

For the moment, the likes of SP Ausnet are protected by regulatory pricing. But it’s not clear how long that will last, or offer them the same degree of comfort. SP Ausnet, in its own outlook, states its biggest challenges are dealing with the “changing energy environment” and changing “customer behaviour”, and making sure its voice is heard in regulatory decisions.

Meanwhile, it is vigorously pursuing opportunities in the “non regulated” market – such as high voltage lines for the state’s desalination plant, and connections to Macarthur wind farm, the state’s largest. And it will also be busily figuring out how it fits into the new “distributed” model of electricity delivery, which in the future will rely as much or even more on rooftop solar, battery storage, fuel cells and electric vehicles than it does on its 49,512km of poles and wires.

But while the EEI in the US noted that investors had been largely ignoring these trends, despite their grave implications for the industry, market analysts in Australia are starting to get cautious.

Deutsche Bank this week slapped a sell recommendation on SP Ausnet, noting that the market had not understood the risks to the business – principally the likelihood that regulatory returns from its transmission networks were likely to fall significantly in the next regulatory reset, and that it faces funding pressure from its ability to use cash flow to support its dividend payments and re-invest in capital expenditure. “We do not believe these risks are adequately captured in the current share price,” the analysts noted.

It’s not quite a revolution, but the trend is clear: The energy game is changing and running an electricity network will not be the licence to print money that it once was.

20 Responses to “Solar Energy: This is What a Disruptive Technology Looks Like”

  1. “Assuming this trend continues for another 10 to 20 years, and there’s no reason not to, solar power will become 5 to 10 times more cost effective than it is today….”

    Well, there is a reason for it “not to” – the utilities are not planning on taking this lying down. In California there is a major push underway to eliminate (or at least severely curtail) net metering – the basis for using the grid “only as backup.” Using the language of a faux populism, the investor-owned utilities are declaring themselves concerned over the “cost-shifting” that solar represents from wealthy customers who can afford solar to poor customers who cannot. As if they cared about poor customers.

    Up until now, the attack on solar from the right has been that it doesn’t work and is a bad investment (see Solyndra, Suntech, etc.) – but that argument doesn’t hold up when more and more people are installing solar (like your neighbor) and costs keep coming down. So look for the attacks to switch to how unfair solar is to the poor. That is the utilities last hope of preventing the “death spiral” that is facing them.

    Jim Jenal, Founder & CEO, Run on Sun

    • greenman3610 Says:

      Don’t forget “solar cell syndrome”. Trust me, it’s coming.

    • junkdrawer88 Says:

      Have you seen this?

      Donald Sadoway: The missing link to renewable energy:

      (Liquid Metal Batteries)

    • mtl4u2 Says:

      “the utilities are not planning on taking this lying down.”

      That doesn’t mean they’ve got a fighting chance of winning. Energy isn’t like sugar: one cannot hide the price into stuff and perpetuate a cartel with the help of CONgress.

      They may not “taking this lying down”, but a technology like solar will make them bend over. It’s only a matter of time.

  2. My only minor disagreement with the author here is the choice of the word revolution. I would kindly suggest the word “evolution” as its replacement.

    Darwinism is alive and well in American business. Its just not a mandatory process. Its also a very helpful process but we do not need to force it upon those who do not accept the change or more importantly take the time to see the benefits.

    Good point made by Jim Jenal here too. The utilities and utility suppliers are already talking about the expense of solar to its rate payers. Solar Power typically operate at peak market rate hours. Daytime 10am to 5 pm. That is when utilities can charge the highest rates. So, if solar is taking away from peak rate times when utilities are paying the most to procure power should it not make sense that solar is also saving monies for the average consumer ?

    Never see any mention of that dynamic

  3. I like solar but there is only so far it can go, at least as far as rooftops go. The actual amount of energy a typical homeowner can generate from solar, when translated into dollars and cents, isn’t very much. And it’s also a small fraction of a person’s total BTU usage when you factor in everything he does and the embodied energy in the things he consumes.

    To “decarbonize”, then, requires massive solar farms to (at least potentially) displace industrial fossil fuel use for things like manufacturing and transportation.

    The average western lifestyle simply can not be maintained on the solar budget of a suburban plot.

    • greenman3610 Says:

      as grids get smarter, and storage becomes an everyday part of the system, solar will fill in more and more.
      remember, Germany had a day last May where they met half their electric needs with solar. The potential
      for one rooftop is limited – but millions of networked roofs and farms add up.

    • uknowispeaksense Says:

      It will always be a mix. Sure there will need to be solar farms but imagine a world where every house has enough solar panels to not only produce all their daytime electrical needs but also recharge storage systems and fuel up their electric cars. Then throw wind and wave energy into the mix.

  4. If the price of solar comes down it will be good for us all, particularly we in the developing countries. Let us hope that the downward cost trend continues.

  5. daveburton Says:

    I don’t understand that graph. The vertical logarithmic scale makes it hard to interpolate (where are the markings below 100?), and I can’t read the units. It appears to indicate that the retail price of electricity is about 60 somethings (what?), and that electricity from solar is cheaper than the retail price of of electricity, and that oil is just slightly more expensive than natural gas.

    None of that seems right. Where I live, the retail price of electricity is about 11 cents per kW-hr, solar is enormously more expensive than that, and natural gas is much cheaper than oil.

    • andrewfez Says:

      $/gigajoule it looks like. Lots of ambiguity on how that is calculated here, but i’m too lazy to find out.

      the graph is just stretched a bit going vertically downward so the top of the solar line would fit on the page, whilst accommodating the intricate details of how the lines relate (creating a higher resolution) at the bottom.

      I’ve got an idea: the graph probably isn’t derived from conditions in your area; it’s probably a broader drawn picture.

  6. uknowispeaksense Says:

    There is now talk here in Queensland, Australia of charging households who have gone solar a levy to compensate households who are still yet to go solar. It seems energy companies are increasing prices on users to compensate for the drop in revenue from increased solar uptake. The argument is that as solar users are able to feed back in, they are using the network and so should pay for the maintenance of the network. Of course they fail to recognise that the solar produced power fed back in to the grid is effectively onsold to regular users. The feed in tariff paid to producers comes from the government, not the power company so they are getting this power for free. I suspect the environmental vandals, that is the conservative Queensland government (who is in the business of coal mining, according to the Premier, Campbell Newman) wants to provide a dissentive to consumers wanting to switch to solar so their mates in the mining industry will continue to fund their election campaigns.

  7. […] While solar currently accounts for less than 1% of the energy supply, it is an exponentially improving technology, both in terms of price (14%/year) and pace of construction (60%/year). Already it is approaching parity with other …  […]

  8. Energy is the next major industry to undergo radical change: from electric cars (market analysts expect that 50% of all vehicles manufactured worldwide by 2018 will be either electric or hybrid) to wind (wind power now represents the cheapest form of NEW energy generation — as in newly commissioned power plants) to solar PV (it is theoretically possible to increase efficiency 4-fold — from approx 15% to 60% — thus making any home with a roof anywhere in the world energy independent) to solar thermal (much smaller areas required to create significant town-sized power generation than solar PV) making rural areas self sufficient) to tidal (simple mechanical and boat-sized platforms enhance wave heights and can power coastal towns of up to 40 thousand people thus enfranchising poor coastal towns in Asia and Africa leading to a cultural revolution).

    But the lowest hanging fruit still remains inefficiency — the US wastes a third of its energy. Installing manifolds to capture heat and convert it electricity to making smart grids to making waste heat from your air conditioners and refrigerators’ heat your water tanks are all relatively simple tasks to engineers.

    However, and after saying all that. what will turn traditional power generation and usage on its head will be a new generation of batteries. You want to invest your money wisely? Look for those companies that are pioneering battery power.

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