Solar power boom

Inclusive Economy06 Apr 2009Ellen Lammers

Last year more the solar industry made record profits. The worldwide demand for PV solar systems grew from a mere 125 megawatts (MW) in 1999 to 4,500 MW in 2008. This huge increase in demand was largely due to market incentives, in particular the feed-in tariff (FiT). The FiT was first introduced in Denmark, then on a larger scale in Germany and later in Spain. It works as follows: utility companies are obliged by law to accept – and give priority to – renewable energy (wind or solar) that ‘third parties’ produce and feed into the electricity grid. They also have to pay a fixed amount per kilowatt hour (kWh), guaranteed for many years (20 in Germany, 25 in Spain). To cover the costs of the FiT scheme, utility companies are permitted to raise the price per 1 kWh that households pay for their electricity. In most cases, the costs of the incentive scheme do therefore not appear in government budgets.

Those who oppose the FiT argue that people should not be expected to pay more for their electricity. Germany’s response to this has been that the long-term benefits – green electricity and reduced environmental damage from CO2 emissions – far outweigh the short-term costs.

The FiT has boosted worldwide private investment in the solar industry. It really started to take off in 2003 when Germany raised the FiT for solar to over 50 euro cents per kWh. This is a lot considering that the price customers in Germany pay for electricity is less than half of this, around 20 cents. Savvy entrepreneurs can now earn a fine living by seeking out tall and well-positioned farm roofs to lease from farmers. They cover the roofs with solar panels, connect the panels to the central electricity grid and wait. The return on the investment is secured within a foreseeable number of years. After that it’s pure profit. There are also local communities that together set up fields with solar panels (so-called free-field installations) to become joint shareholders. The million-dollar investments went into projects such as the 11 MW solar tower near Seville in Spain, which can power 6000 homes. Japan, India, South Korea and quite a few European countries have followed the German and Spanish examples and introduced the FiT. In his contribution to this report, Meinolf Heptner discusses what the FiT has meant for the solar energy market and why 2009 suddenly presents serious challenges.

Technological timeline

The solar industry’s economic surge has made it worthwhile for companies to invest in costly research and development (R&D). The ultimate objective is to make solar energy competitive with conventional energy without the need for subsidies and incentives. The main competitor for green electricity is gas, the price of which is connected to that of oil. Stephan Slingerland of the Clingendael International Energy Programme (CIEP) in the Netherlands points out that at present, with oil costing just US$40 a barrel, price competitiveness for solar energy is still a long way away. Wim Sinke, executive board member of the EU Photovoltaic (PV) Technology Platform, disagrees. There is consensus among PV experts that for the specific case of retail electricity – for households and private consumers – such competitiveness can be achieved within a decade, by using advanced versions of technologies already available. No technological breakthrough in the traditional sense of the word is needed.

Aerial view of 1200 6×8 foot mirrors at the experimental Solar One, an electric power generating station in the Southern California desert.

In some countries in southern Europe, grid parity with retail electricity can already be reached within just a few years. Grid parity means that the cost of producing 1 kWh with a PV system will equal the price paid for 1 kWh to the electricity company. Nevertheless, the costs for PV systems, which have already rapidly reduced, need to come down much more for large-scale commercial and industrial applications of PV to become economically competitive. It would greatly help if the solar industry could change to large-scale use of organic cells and thin-film technologies. In research labs across Europe and the US a lot is happening to develop these technologies further. Sinke, who is also a staff member at ECN Solar Energy, the Netherlands, says ‘Through our broad research programme [at ECN Solar Energy] we can support the industry in their short-term needs and also contribute to the necessary longer-term innovations. Our research reflects the fact that PV is a viable option now, but also still has huge potential for further improvements in terms of performance and economics’. In his contribution to this report, Johan Trip gives a brief overview of the different solar technologies and their innovative applications.

Solar in the South

Western countries leave the largest carbon footprints, but Africans and Asians bear the brunt of the impact in their struggle against floods and desertification. Is the international community – by way of compensation – doing enough to help developing countries adopt sustainable energy technologies, including solar? Africa certainly has no shortage of sunlight. Frank van der Vleuten of ETC Energy observes, however, that the global solar industry increasingly disregards Africa and its own role in poverty reduction. ‘The African rural market used to be important, but is has now become rather insignificant compared to the enormous subsidized markets in Europe, Japan and the US’.

And yet solar energy has a massive role to play in developing countries: it can give rural households their first access to modern energy. Worldwide 1.6 billion people do not have access to electricity, and 2.5 billion are still dependent on firewood, dung and charcoal for their daily energy needs. With a small, affordable solar system, families can power a light bulb at night, charge a mobile phone and watch a programme on their black-and-white television. In Kenya, Tanzania and Uganda, Mali, Burkina Faso and Niger, and in Botswana and Namibia, the commercial markets for PV systems are growing fast. In eastern Congo and southern Sudan, as well as in the Sahel, the markets for stolen solar systems are thriving. The piece ‘The sunny South’ in this report discusses some of the challenges involved with introducing solar energy in Africa. In his contribution, Jaideep Malaviya describes the situation in India, where government incentives for solar energy are on the way and manufacturing opportunities are plenty.

Solar in the oil-rich deserts

In the summer of 2008 oil prices rocketed to a new record of US$40.40 a barrel. The vulnerability of countries without domestic fossil reserves contrasts starkly with the self-confidence displayed by resource-rich countries display, especially when prices are rising. This may explain at least part of Europe’s self-appointed global leadership in the area of climate change (unlike the US, the EU is running out of domestic fossil resources). But even the US shows signs of change. President Barack Obama appointed Steve Chu as Secretary of Energy. Chu, a Nobel laureate fofor Physics (1997), is known as a very strong advocate for solar energy.

There are people who predict that solar energy may come to test the power of the Organization of Petroleum Exporting Countries (OPEC). Their reasoning is easy: the sun belongs to everyone. No country has a monopoly, not even shared, as is the case with mineral resources. It is a matter of who jumps at the opportunities, has the vision and is willing to invest. At this moment, electronics firms and IT companies are leading in embracing the ET (energy technology) revolution that accompanies the rise of solar. The largest players in the solar industry today are not the big energy companies that were once more invested, such as BP and Shell. Heptner, however, suggests that this may well change, saying, ‘I think solar is still too small to really have made it onto the radar of big oil. Exxon’s 2008 profit is probably enough to buy most of the solar industry at current prices’.

Yet, interestingly, the oil-rich Middle East has not been not idle in the area of renewables. The United Arab Emirates has commissioned the Swiss Center for Electronics and Microtechnology (CSEM) to build prototypes of artificial solar islands to float in the Persian Gulf, that will generate electricity using concentrating power solar (CPS). Because of their floating structure they could be easily moved to always face the sun, generating maximum power. Also found in the Emirates are demonstration plants of the Sahara Forest Project, which envisions vast greenhouses that use seawater for crop cultivation, combined with concentrated solar power, to provide food, fresh water and clean energy in deserts.

The most ambitious plan is the Eumena –Desertec programme, which would involve linking the Middle East, North Africa and Europe, based on electricity generation through solar power (CSP and PV), wind and some biomass. To give an idea of its potential, a solar power plant measuring 500×500 km in the Sahara could provide enough electricity for the world’s entire population. Prince Hassan Bin Talal of Jordan is playing a leading role in promoting the programme. He calls it ‘anti-establishment’ – fossil fuels are in the mix only as backup for balancing power.

Some people question this. Frank van der Vleuten suggests that for the EU this ambitious plan can also be seen as a geopolitical move to safeguard contracts for the supply of gas from Algeria and Libya. ‘And then these solar plants would be a nice present’, he says. ‘We’d call this “greenwashing”. It is unlikely that the plants would contribute to solving Africa’s energy poverty’. Preben Maegaard, vice-president of Eurosolar, considers it absurd to build thousands of kilometres of gridlines from North-Africa to Europe, especially if few Africans will benefit (the majority of Africans are not – and never will be – connected to any electricity grid). Sinke, however, sees no reason whatsoever for such cynicism. ‘We can’t afford cynicism. The problems of Africa are much too big for that – and the world’s response absolutely insufficient. Let us see how far we can get instead of saying what cannot or should not be done. The potential is enormous. Would it not be wonderful to have more than just oil coming from the East’?

The author would like to thank Harish Hande and Meinolf Heptner for their useful comments on earlier drafts.


Unfortunately, due to the age of this contribution and several migrations to online content management systems, the footnotes in the text may have been lost. The footnotes below are listed in its original order of appearance in text.
  1. Spain is one of the exceptions. In Spain, electricity prices in general are regulated and the government has to cover losses of the electricity companies.
  2. 57,4c was the highest tariff for installations < 30kWp.
  3. In Germany this was as first as little as 7 or 8 years; now it is more likely to be 10+ depending on price, time and location.
  4. Luxembourg and the Netherlands are two countries that are lagging behind due to insufficient and unstable government funding. In February and March 2009, Dutch Ministers Van der Hoeven (Economics) and Cramer (Environment) met with Hermann Scheer.
  5. Nowadays oil is rarely used for electricity generation. The electrical load (=demand) curve is typically described as base load (always required) and peak load (higher demand at noon or early evening). Different technologies are used for different types of loads: for base load usually nuclear and coal do the job (high capital cost, low fuel cost; it is essential that you get a high utilization). For peak load in many cases gas turbines are used (less capital intensive, very fast start-up time, relatively high fuel-cost); PV has an output curve that is matching to peak demand, so it is best compared to gas.
  6. Sinke and Heptner emphasize that without explicit information on assumptions made (such as on system costs, its economic lifetime, interest rates, electricity prices, electricity yield, insolation and so on) comparisons between different PV systems, and between PV and other energy technologies, have no meaning. See: Sinke, Grid parity: Holy Grail or hype? To be published in European Sustainable Energy Review, 2009.
  7. Frank van der Vleuten of ETC Energy in the Netherlands argues that at the moment investments are focused on taking away bottlenecks in upscaling production of conventional technology, instead of getting the technological breakthroughs needed to make solar energy feasible without subsidies.
  8. Slingerland and Van den Heuvel remind us that ‘despite many attempts to leapfrog developments and make developing countries enter the renewable energy age in one single step’, increasing access to ‘modern’ energy in developing countries will inevitably lead to an increased use of fossil fuels – with a corresponding emissions growth. Source: Slingerland, S. and Van den Heuvel, S. Energy and climate: bridging the geopolitical gaps. In J. de Zwaan, E. Bakker and S. van der Meer (eds.) (2009) Challenges in a Changing World. T.M.C.ASSER PRESS.
  9. As a result, as much as 1.3 million people per year, mainly women and children, die as a result of diseases induced by indoor air pollution. Source: Slingerland, S. and Van den Heuvel, S. Energy and climate: bridging the geopolitical gaps. In J. de Zwaan, E. Bakker and S. van der Meer (eds.) (2009) Challenges in a Changing World. T.M.C.ASSER PRESS.
  10. The case of China is not discussed in this report. The domestic solar and wind industries in China have shown very high growth rates in recent years. Chinese wind energy has grown by more than 100% since 2005, and the 5MW implementation goal set by the government for 2010 was already achieved in 2008. The Chinese firm Suntech is the world’s largest PV module manufacturer. See also:
  11. Imports presently account for 82% of the EU oil and 57% of the gas demand. In comparison, oil imports presently account for 60% of the US demand and gas imports for 16%. These figures are foreseen by the US Energy In formation Administration (2008) to decline to 54% and 14% in 2030 respectiely. Source: Slingerland, S. and Van den Heuvel, S. Energy and climate: bridging the geopolitical gaps. In J. de Zwaan, E. Bakker and S. van der Meer (eds.) (2009) Challenges in a Changing World. T.M.C.ASSER PRESS.
  12. Some people frown at such predictions. Stephan Slingerland of the Clingendael International Energy Programme (CIEP) argues it will still take two or three decades before renewable energy sources start to significantly replace fossil fuel demand. If and when it does, this might well cause serious obstruction from countries with substantial oil, gas and coal reserves. These include not only OPEC and Russia for oil and gas, but also India, China and the US for coal. See also: Slingerland, S., van Geuns, L. and van der Linde, C. Van zwarte naar groene energie: geopolitiek van mondiale energietransitie. Internationale Spectator, 62(5): 259-263.