Obama $8 Billion Solar ‘Betamax’ Undercut as China Backs Rival Technology
The U.S. government’s $8 billion bet on solar energy that would pave the deserts with mirrors risks following the Betamax into the technological wilderness because of Chinese backing for a cheaper system.
The Department of Energy guaranteed loans to six plants that will reflect sunlight to boil water for making electricity, aiming to kick-start commercial projects. Four of those, and a third of $26 billion pipeline encouraged by U.S. aid, may switch to standard photovoltaic panels that generate a charge directly from the sun, said Brett Prior, a solar analyst at GTM Research.
The cost of generating power with panels plunged about 37 percent in the past year as Chinese factories cut prices, pushing three U.S. makers including Solyndra LLC into bankruptcy protection in the past quarter. Germany’s Solar Millennium AG (S2M) walked away from a $2.1 billion U.S. loan guarantee last month and ditched thermal devices for a cheaper photovoltaic system.
“If Solar Millennium, a major developer that has the technology, can’t do it with a loan guarantee, then it’s not clear who could,” Prior said in a phone interview from Boston.
While the developers of some of the U.S. guaranteed projects said they are sticking with mirror-based devices, a switch by others will drain momentum for the technology and shift engineering jobs President Barack Obama aims to create in the southwestern U.S. to the panel plants of eastern China.
Congress is probing White House support for Solyndra, with some lawmakers saying loan guarantees were given without a thorough vetting of the Fremont, California-based company, one of many solar-equipment makers in the U.S., Germany and Japan that were weakened by the same Chinese competition. Solyndra wasn’t in the solar thermal business, focusing instead on photovoltaics.
Tiffany Edwards, an Energy Department spokeswoman, declined to comment on the competing solar technologies.
Photovoltaic, or PV, panels have benefited from tumbling costs. That in turn fueled demand and allowed manufacturers such as China’s Suntech Power Holdings Co. to boost capacity and cut prices for use in fields and on rooftops.
In contrast, thermal developers are struggling to raise money for what are typically custom-designed plants erected in deserts on a utility scale, taking years to design and build. They employ more workers for construction and maintenance than plants using panels.
Solar thermal, at least in the U.S., is approaching a tipping point that recalls the defeat of Sony Corp.’s Betamax format to the rival VHS in the videotape war of the 1980s, said Lee Clements, a fund manager at Impax Asset Management Ltd.
“It’s like VHS versus Betamax,” Clements, who co-manages about 2.4 billion pounds ($3.8 billion) in clean-technology investments, said in a phone interview. “You’ve seen a big snowball effect” as cheaper prices fuel more demand for panels.
The biggest losers may be the industrial giants such as General Electric Co. (GE), Siemens AG and Toshiba Corp. (6502) that make turbines for both traditional and solar-thermal power plants. Several have acquired stakes in the last two years solar-thermal equipment makers.
Siemens bought Solel Solar Systems for $418 million in 2009. This year GE acquired a minority stake in ESolar Inc. for $20 million and got an exclusive license to sell the California company’s technology. ABB Ltd. (ABBN), the world’s biggest power-grid supplier, agreed to buy 35 percent of Novatec Solar with an option to acquire the rest of the German company in March.
Like the Betamax video recorders that offered better picture quality for a higher price, solar thermal plants are more valuable than PV because they can store power and send it to the grid after the sun sets.
Thermal plants use an array of technologies each aimed at running a conventional steam turbine. Some have curved mirrors to focus the sun’s heat on pipes carrying water or synthetic oils, and others employ flat mirrors to bounce the radiation to a boiler atop a tower. The latest systems divert the excess heat of the afternoon into vats of liquid salts and then tap them during the evening to keep the generators running.
“The big thing with solar thermal is storage,” Cedric Philibert, a solar analyst at the International Energy Agency, said in a telephone interview. “It’s cheap and it’s very effective.”
The value of the technology will spur installations of plants generating 147 gigawatts by 2020 compared with about 1.3 gigawatts today, and it may be competitive without subsidy at peak times, the IEA estimates.
“That’s fairly optimistic,” said Jenny Chase, leader of a team of solar analysts at Bloomberg New Energy Finance. “I don’t think solar-thermal will ever be able to compete with photovoltaic” on cost.
Solar-thermal developers that offered cheaper power than PV two years ago trimmed the cost of their power by 3.5 percent since then to 27 cents per kilowatt hour, Chase estimates. That compares with a plunge to 17 cents today for PV.
The point of government loan guarantees “is to foster innovation, and you can’t foster innovation by building whatever’s cheapest,” said Chase. “You’ve got to take a risk that the private sector isn’t willing to take.”
Developers already switched seven projects with about 3.2 gigawatts of capacity to solar panels, Prior said. Others are sticking with mirror-based systems. Abengoa SA (ABG) said its 250- megawatt project for the Mojave desert will continue with thermal technology. Nextera Energy Inc. (NEE)’s Genesis thermal project is fully permitted and under construction.
NTR Plc, the Dublin-based owner of Tessera Solar, last month wrote off 42.4 million euros ($58.5 million), its entire investment in solar-thermal, after selling two U.S. projects to developers who opted to dump the technology.
The solar-thermal business “has not been successful to date in securing third-party funding, which was always essential for it to commence high-volume manufacturing,” NTR Chief Executive Michael McNicholas said in an e-mailed response to questions.
The U.S. developers most prone to switch to panels are those that have slated 1.6 gigawatts of plants using the most- established solar-thermal system, which lines parabolic mirrors up in troughs, Prior said. The picture differs outside the U.S.
In Spain, where fixed subsidies protect solar thermal from competition from PV, some 24 trough plants with about 1.45 gigawatts are being built, according to New Energy Finance.
India has approved 470 megawatts of generators, though the relatively low fixed price it offers may make it difficult for developers to find financing, New Energy Finance said in an Aug. 3 report. Indian plants will earn the equivalent of 24 U.S. cents a kilowatt-hour compared with 29.1 euro cents (40.2 U.S. cents) in Spain.
BrightSource Energy Inc., the solar-thermal developer planning a $250 million stock offering, already decided against using trough technology. Its former Chairman John Bryson is Obama’s nominee to lead the Commerce Department. Founder Arnold Goldman built the world’s first commercial trough plants in the Californian desert in the 1980s. They’re still working today.
Backed by investors including Morgan Stanley and Google Inc. and a $1.6 billion U.S. loan guarantee, BrightSource is trying to prove a technology it calls the power tower. That uses mirrors arranged in concentric circles to focus the sun on a central column.
“We were able to drop costs down significantly,” Chief Executive Officer John Woolard said at an Aug. 29 briefing at the site. “Ivanpah is the culmination of two and a half decades of work and thinking around solar.”
Solar Millennium shares plunged 67 percent since announcing on Aug. 18 that it was switching to PV panels instead of using its own parabolic mirrors for the first 500 megawatts of the Blythe project in California, set to be the world’s largest solar plant. Spokesman Hans Obermeier said the company is also considering switching technologies for its other trough projects.
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