Solar power: Updating the market perspective for a “disruptive technology”

Terry M. Peterson, EPRI

Precious few-if any-of us will be active in the electric utility industry in 2050, when solar power may be viable in central-station generation applications.

That’s a long time to wait. In the meantime, don’t give up on the technology. Looking out only 20 years, the EPRI Electricity Technology Roadmap forecasts that costs of photovoltaic (PV) electricity will continue its laudable cost reduction path, falling to $1.10 per watt by 2020 compared to $6-$7 per watt today. That five-fold improvement in the cost/performance of PV cells is the expected result of ongoing technology improvements that are simultaneously reducing production costs and improving operating energy-conversion efficiency today.

Already there are many growing applications of PV electricity that make technical and economic sense, including remote phones, switches on utility distribution systems, and over-water warning lights for airports.

Acknowledging that, this article aims to make the case for an even more aggressive approach to implementing solar power today in specific, “green,” ratepayer-focused applications. One powerful driver of this here-and-now approach is the rather elegant theory of “disruptive technologies.” Some may think that linking solar power to the adjective “disruptive” is provocative at best, and highly negative in its worst perception, but the following explanation carries the concept forward.

Who will grab the brass ring?

The theory of disruptive technologies first caught the attention of planners and analysts in a serious way five years ago in a Harvard Business Review (HBR) article written by two Harvard faculty members. The authors argued that disruptive (new and significantly different) technologies often look financially unattractive to established companies. Not offering immediate revenue and profit potential, these technologies can languish in the background. As a result, it often falls to less mature but more innovative organizations to seize the moment and take the innovations to market.

As a consequence, the established players can be caught napping when the new technology takes hold “below” them in smaller, more nimble and risk-taking organizations. Solar PV could fit such a model, and this article proposes that the electric utility industry take specific and near-term steps to capitalize on this specific disruptive-technology opportunity.

Fortunately, a few visionary utilities have made the case; and opportunities for others remain enticing. At least two utilities, private and public, offer homeowners subsidies to install solar PV panels. Many of these homes are also connected to the conventional power grid, which is used as an energy storage device in an arrangement known as “net metering.” In favorable climate conditions, rooftop PV systems can generate enough kilowatt-hours to supply a family’s needs.

Contractual details, costs and other customer arrangements vary between the programs, but what they achieve is clear and positive:

  • Customers who want to support green technologies have an option and feel connected to the renewable strategy.
  • The utility receives recognition for its obvious buy-in on the concept of renewable energy.
  • In the process, the utilities are learning a great deal about the point application of green power systems, customer responses, marketing techniques and related business issues. The ground is plowed and seeded for future developments in the green movement by the established utilities.

Are utilities fast and flexible enough?

But a bigger business issue is framed by the “disruptive technology” theory. As the HBR authors point out, if the established companies don’t jump on such opportunities, they run the risk of smaller, energetic entities seizing the moment. They put it this way:

“The key to prospering at points of disruptive change is not simply to take more risks, invest for the long term, or fight bureaucracy. The key is to manage strategically important disruptive technologies in an organizational context where small orders create [market] energy, where fast, low-cost forays into ill-defined markets are possible, and where overhead is low enough to permit profit even in emerging markets.”

The authors add that “managers of established companies can master disruptive technologies with extraordinary success.” That means our large, established electric utilities can take advantage of consumer-level solar applications and position themselves for a future as the opportunities grow, as technologies improve and as better ways to link small solar installations to the grid evolve.

Pre-empting “green competition” should be an equally attractive motivation.

Let’s not lose sight of reality in the process. At the end of 1999 there was only one gigawatt of worldwide solar electric generation in place. A few visionary companies are serious about producing solar cell modules, and the overall market is growing at a healthy 20 to 30 percent per annum, but it is not yet a booming business. The ones who are pushing this so-far tiny bandwagon can be viewed as moving aggressively on a disruptive technology path.

From the utility perspective, the opportunity-and challenge-is to get in an active, aggressive mode to seek out solar PV opportunities. A parallel path, equally important in the long run, is to continue pushing to advance PV technology to enable new applications across ever-broader consumer markets. The five-fold improvement in the cost/performance picture can be addressed, but the industry leaders will have made significant investments in timely and focused research all along the way.

Look at it this way: every time research and development (R&D) achieves an advance in cost/performance in the near- to mid-term, opportunities to leverage solar into bigger markets are multiplied. The best way to manage the risk inherent to this technology-development challenge is to share it via collaborative R&D funded by public and private sources.

Here is a quick overview of where resources can be applied immediately to move the solar cost/performance needle in the right direction. Apparently, thin-film solar PV technologies, the bridesmaids of the industry for two decades, are finally poised for real market entry. A number of commercial-scale manufacturing plants are under construction or in early stages of operation around the world. There are three principal technologies in the running, and the eventual winner(s) will depend as much on judicious R&D management and business skills as on laboratory wizardry.

Another glaring opportunity for larger-scale businesses is so-called concentrator PV systems. These have languished in the PV market, not so much because of technical issues-although there are some-but rather because they don’t fit well into the rest of the PV world’s infrastructure. Unlike flat-plate PV systems, which scale well down to the watt level, concentrators best fit into systems not smaller than several kilowatts. Counterbalancing this larger-system bias, concentrator manufacturing apparently can be scaled up to multi-megawatt module production for far less capital than a corresponding thin-film factory requires. These two attributes seemingly make concentrators a logical choice for utility attention, especially in the high solar-resource southwestern United States.

With the right attention to solar power as a disruptive technology and appropriate technical progress through R&D, there is no reason to wait for a year-2050 solar nirvana. Instead, we can actually witness, implement, and enjoy the fruits of solar technology-and regale our grandkids with the good story.

Peterson is the manager of EPRI’s Solar Power and Green Power Marketing.

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