Solar Energy: A Star Powered Source
Contents
Introduction
An infinite source
Market forces
Facts and Figures
Investment Opportunities and Market Segments
Market movers
Leaders & fast followers
Investors
VC / PE / Funds
The Power of the Sun
As more renewable energy sources hit the market, solar energy remains popular
As resource management continues to threaten our planet, we ought to look at an infinite source of power that could be the answer to many of our issues.
Solar power in the US dates back to 1955 when photovoltaic technology was first introduced in the country. Recently in 2016, the US solar power industry reached 1 million installations due to the significant decrease in prices and the initiatives instated by the government since the technology first came into practice.
In 2011, the US Department of Energy launched the SunShot initiative with the goal of making solar energy fully cost competitive by the end of the decade. In only five years, the SunShot initiative had achieved 90% of its goal and established a new one: cut the cost of solar-generated electricity by 50% in the next decade (2020-2030). Already since 2010, the price of solar power has decreased by 80%.
The solar energy industry saw a significant increase in power generation (23%) from 2019 to 2020. In 2020, solar energy accounted for 3.1% of global energy generation, being the third most used renewable energy source, behind wind power and hydropower.
However, solar energy faces multiple challenges such as high upfront costs associated with elevated prices of freight and raw materials, a reliance on consistently sunny days, and a grid that wasn’t designed for such a source, so constant efforts to make this a more viable and accessible technology will need to continue.
Market Trends: Facts, Figures, Forces
Market Facts
The two main types of solar energy are Photovoltaics (PV) and concentrating solar-thermal power (CSP). PV is the most widely used solar technology; in 2020 it had the second-largest absolute generation growth of all renewable technologies.
Solar and wind energy prices are expected to be higher in 2022 and 2023 than pre-pandemic levels; however, they remain a more desirable alternative as coal and gas have had sharper price increases.
The Net Zero Emissions by 2050 Scenario estimates that there should be an average annual PV generation growth of 24% in the decade of 2020 to 2030, while the record increase was 23% in 2019 to 2020.
In 2020, 62% of renewable power generation became cheaper than the cheapest fossil fuel option. A study by IRENA showed that in 2020, CSP costs fell by 16% and PV by 7%.
market Figures
The Solar Investment Tax Credit (ITC) is a 26% tax credit for solar projects in commercial and residential sectors. The ITC incentivizes investment in solar power, however the tax credit will be reduced to 22% in 2023 before falling permanently to 10% for commercial projects and 0% for residential projects in 2024.
Installations in 2022 by Q1 brought U.S. photovoltaic capacity to 126 GW.This is enough to provide power to 22 million American homes, accounting for roughly 50% of newly installed electricity generating capacity in Q1 of 2022.
A 2021 joint study conducted by IEA and the Imperial College Business School found that global renewable power portfolios performed seven times better (422.7% return) against fossil fuel portfolios (59% return) over the last 10 years.
However, due to the Covid 19 pandemic, the solar energy industry experienced a significant drop in employment and expansion, costing the industry five years of progress.
market forces
Demand for energy is significantly increasing in a post-pandemic era. According to BP’s annual Statistical Review of World Energy mentioned in a Bloomberg article, coal consumption surged 6% in 2022 despite price increases in Europe and Asia. However oil usage remains below pre-pandemic levels even though demand rose by 5.7 million barrels a day due to the high demand of the airline industry. The high demand for energy calls for significant increases in renewable energy supply and expansion so that the transition to phase out fossil fuels may continue as it was in 2019.
Additionally, growing concern for the environment is driving government policy and green investments. Environmental, social, and governance (ESG) funds have more than doubled between 2019 and 2020. Aggressive policies like strategies in the UK to cut emissions and the return of the US to the Paris agreement will drive even more efforts to rapidly reach net zero emission scenarios.
Investment Opportunities and Market Segments
The solar industry offers a myriad of investment opportunities throughout the supply chain including solar manufacturers and installers, storage and inverter startups, and innovative power plant ownership.
Opportunities in cost-cutting in the utility-scale photovoltaic sector are key to encouraging investors to partake in new projects. Investors are focusing on solutions that improve design parameters for battery storage. The IEA reported that investment in battery storage increased by 40% in 2020, to a total of $5.5 billion. There are several risks along the supply chain due to the complexity of solar energy production and distribution. Investors must consider how to evaluate these climatic and financial risks along the value chain to ensure that impact investment is driving capital towards the most transformative technologies with the highest commercialization potential.
Annual Energy Storage Additions by Country, 2015-2020
China (light blue) and the US (dark blue) have been ramping up, but South Korea (teal) has been pacing the way for smaller countries.
Impact
Solar, amongst other renewable energy technologies, is generally considered to have a benign environmental impact — generating no noise and no direct GHG emissions or other dangerous ambient pollutants during energy production — compared to fossil fuel technologies.
However, it is also important to take into consideration the environmental impacts of a product’s supply chain and maintenance. PVs are also energy intensive to make and need certain types of materials that can be hazardous . However in the long run, solar energy is key to mitigating climate change and reaching net zero emissions scenarios.
In order to accurately measure the impact of technologies like solar energy, The National Renewable Energy Laboratory (NREL) has developed a System Advisory Model (SAM) that can make hour-by-hour calculations of a power system's electric output. The product makes performance predictions and cost of energy estimates that can help investors evaluate the impact of grid-connected solar projects and the inputs of different models.
Market Movers: Current and Future Heavy Hitters
Market Leaders
Iberdrola is a global energy leader that develops, manufactures and markets renewable energy technologies. They also specifically provide comprehensive solar solutions to homeowners so that they can produce their own energy.
NextEra is one of the largest utility companies in the world working to sustainably improve energy infrastructure in America. Aside from other renewables, NextEra provides solar solutions for homes, businesses and communities to increase solar energy accessibility.
SunPower has been a leading company in solar technologies since 1985 and they have received more than 1,000 patents on solar innovation. They provide solar residential solutions and in 2020, SunPower was ranked number one Commercial solar solutions provider in the US for the capacity category for the third year in a row.
Future Heavy Hitters
Cypress Creek Renewables develops and operates utility-scale and distributed power plants across the U.S. With 2 GW spanning 14 states, Cypress Creek owns one of the largest operating solar portfolios.
Oxford Photovoltaics develops Perovskite-Silicon solar cells which can achieve a much higher efficiency than standard PV cells. Business Insider listed Oxford PV in the top 21 companies set to transform the energy industry.
Sistine Solar’s flagship product is the solarskin, a graphic overlay that transforms traditional solar panels, so they blend in with its surroundings.
Solar Window is developing electricity-generating see-through windows using ultra-thin layers of liquid coating.
Ocean Sun’s main innovation is a floatable solar PV system for lakes and/or oceans. The company is the owner of an IPR portfolio including several patents and patent applications in all major markets.
Solar Skins
Panels covered by Sistine Solar’s flagship product, which camouflage solar panels in their surroundings.
Venture Capital/PE and Other Fund Investors
G2VP is a venture capital and private equity firm that invests in emerging technology start-ups. Their portfolio covers industries from transportation, energy, and agriculture to manufacturing and logistics.
Energy Foundry is a cleantech venture capital firm that provides funding for companies in the energy sector, scaling new ventures and disruptive ideas.
Clean Energy Venture Group provides seed funding to clean energy startups. They focus on early stage companies that have the potential to mitigate climate change.
Element 8 Angels (E8) invests in clean tech companies that will accelerate the energy transition. The focus on scaling both environmental impacts and investment returns.
Final Thoughts
Solar energy is key to achieving future net zero emission scenarios. The IEA reports that almost two-thirds of electricity generation needs to be renewable by 2030 in order to reach net zero by 2050. Such a transition will require heavy capital investment that could transform solar power into a low-cost energy source in the long run. The industry must also acknowledge multiple challenges to overcome, like sourcing niche minerals, weather dependency, efficient energy storage and installation space availability. Solar energy can be deployed at a large scale, and current efforts have demonstrated such possibility, however there is still a need for worldwide investment on solar technologies to fully utilize the sun as an energy source.
“The Sun does not shine for a few trees and flowers, but for the wide world’s joy”