Five Reasons Why Stock Market Pundits Are Wrong About the Death of Solar

Sunset in California | Photo: bdinphoenix/Flickr/Creative Commons License

There's been a bit of a surprising development in the solar world in the last few weeks: market analysts from Wall Street Daily's Trefis Team to Business Insider's Sam Ro have been piling on in the last few days to call solar power a risky, unworthy investment. Sam Ro's October 3 article pretty much spells out his position right in the title: "Why Everyone Is Losing Hope In Solar Power."

The argument runs along the lines of "solar power is more expensive per kilowatt hour than the national average for conventional grid power, and unless that stops solar is only viable with subsidies." It's a persuasive argument. It seems authoritative. And it's utterly beside the point.

The punditry seems to have been prompted by Catherine Wood's September 26 post on the Alliance Bernstein blog Context, in which Wood cites her colleague Brett Winton's research into grid parity, or the point at which solar power becomes only as as expensive as, or even cheaper than, buying power from the grid.

Winton cited a number of market experts, solar firms, and government agencies, and found that all of them kept adjusting their predictions for when grid parity would happen. You may have heard the aphorism about fusion power that it's 20 years away and always will be. In Winton's analysis, grid parity is much the same. Ask a firm to project when we'll reach grid parity, and ask them again next year, and the number of years they'll cite doesn't change.

Until solar power can be purchased as cheaply as other forms of power, the pundits argue, solar power will remain dependent on government subsidies and will thus be vulnerable to politics, making it a risky investment.

But there are a number of reasons why the arguments are simplistic -- so simplistic, in fact, that it's hard not to credit the coming election for the wave of anti-solar punditry, with the market following the putatively more business-friendly candidate's lead on opposing renewable energy.

First of all, it's misleading to talk about grid parity as though it's a benchmark the entire country will pass all at once. Places with abundant and inexpensive hydroelectric power, such as Washington State and Western New York, may not reach solar grid parity for decades. But Hawaii, which derives almost all of its power from expensive, dirty diesel-powered generators, has already passed grid parity. John Farrell at the Institute for Local Self Reliance expects San Diego to reach grid parity by 2014, and New York City only a couple years later. By some definitions, California has already reached grid parity.

Secondly, solar doesn't need to be as cheap as averaged power from the grid to be a cost-effective investment. Until the energy storage issue is solved, solar power will mainly provide power during the peak energy use hours of the day. That's when grid managers add additional, "peaking" power to the mix in order to run people's air conditioners. Such power also tends to be more expensive than the average kilowatt-hour sold. In California in the first half of 2012, peak power ran about 30% more than off-peak, according to the Energy Information Administration. In the New York City area the peak power's wholesale prices were almost double that of off-peak power. Quick-dispatched power bought on spot markets to meet very short-term spikes can be even more costly. The viability of large-scale solar actually counts on whether it can compete with the higher peak costs rather than the off-peak costs.

Third, government policy may be offering some subsidies to solar, but other policies are also holding solar back. Limits on net metering are a good example here. Under net metering programs, a property owner who installs rooftop solar can only recoup costs up to what her power bill would have been without the solar -- she can't turn a profit by selling excess power to the grid. It therefore makes less economic sense to cover an entire available rooftop in solar panels. And limits on the number of participants in net metering programs are kept artificially low, according to John Farrell. Removing restrictions like these would encourage more installations, which would prompt more PV panel production, lowering costs, and offering a reason to streamline permitting and installation procedures even further. In other words, far from relying on government intervention to survive, the solar industry is actually being kept artificially small by the existence of needless restrictions on rooftop and other urban solar.

Fourth, the pundits mix rooftop and remote utility-scale solar into the same bag. The costs are different for each: distributed generation carries less transmission and real estate costs, but somewhat higher labor costs. Utility-scale remote solar competes with wholesale power prices, while urban rooftop solar generally competes with retail consumer power bill costs. That means that in the absence of artificial government restrictions mentioned above, grid parity for rooftop will come much earlier than it will for utility-scale.

Lastly, attractiveness to investors is not always a good gauge of an industry's viability or importance. Solar leasing is one of solar's strongest sectors, yet despite its commercial viability the financiers have had to explore unorthodox ways of making investments in the field.

Think of it this way: one of the reasons the investors and their advocates look askance at solar right now is that there are more PV panels available than anyone expeted a few years ago. A sane society looking to reduce its climate impact as soon as possible would take that as joyous news. But from the perspective of someone trying to make as much money as possible in a very short time, that news is not so happy.

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