President Bill Clinton's speech to the UN "Earth Summit II" in June won few plaudits from environmentalists. He accepted that the scientific evidence for global warming is "clear and compelling" - but resisted international pressure to set targets to curb the USA's emissions of greenhouse gases (ENDS Report 269, pp 41-43 ). However, one element of the speech was widely welcomed - the President's approval of a plan to ensure that solar panels are installed on the roofs of one million buildings in the USA by 2010.
BP and the greenhouse risk
A programme of this scale will be a major boost to the world's infant PV industry - and is the latest in a series of recent developments which look set to ensure that 1997 will be a landmark year for PV technology.
In May, John Browne, Chief Executive of oil giant BP, announced plans to expand its subsidiary BP Solar ten-fold over the next decade to achieve annual sales of $1 billion.
For some years, BP has been distancing itself from the oil industry's sceptical view of global warming. Last October, it quit the Global Climate Coalition, an industry group which lobbies against emission reduction targets.
Mr Browne broke ranks further by accepting the "effective consensus among the world's leading scientists" that there is a discernible human influence on the world's climate - and that "it would be unwise and potentially dangerous to ignore the mounting concern." He made it clear that BP sees a strong continuing need for oil and gas - but that solar power will make up an increasingly significant proportion of the company's business.
The best PV systems currently produce electricity at "something like double the cost of conventional sources for peak demand," Mr Browne said. "But technology is advancing and, with appropriate public support and investment, I'm convinced that we can make solar competitive in supplying peak electricity demand within the next 10 years."
Strong interest in PV technology in the 1970s, spurred by oil crises, proved to be a false dawn. Since then, however, the efficiency of commercially available PV cells has increased steadily - while the costs of production have fallen steeply (see graph ). Dipesh Shah, BP Solar's Managing Director, told ENDS that "the cost of PVs at the factory gate has come down seven-fold since 1981. We don't see an end in sight in continuing to come down that cost curve, and I expect costs to fall a further two- to three-fold in the next ten years."
However, Mr Shah strikes a note of caution, pointing out that PV costs are at least six times higher than baseload costs of conventional fossil-fuel generation capacity. "Integration of PV into buildings has other advantages in terms of avoided costs for such things as cladding materials," he says, "but let's not kid ourselves. The costs of PV will remain considerably higher than baseload electricity costs, and probably won't match them until 2015 or 2020...We shouldn't simply say that PV is competitive and gloss over the real costs."
Professor Bob Hill, chairman of the British Photovoltaic Association (PV-UK) and head of the Newcastle Photovoltaics Application Centre, says that the cost of producing PV cells now stands at around $3/Wp (peak watt). Fully installed system costs are, he says, around $5/Wp. The general view among PV suppliers is that silicon-based PV modules will begin to compete with conventional sources of electricity for peak demand once production costs fall below about $1.8/Wp.
Economies of scale
Improved production processes, continued gains in cell efficiency and better module design and system integration are all expected to play a part in bringing down costs. Further savings can also be expected from the increasing use of thin film technologies which need smaller quantities of raw materials. Thin film cells using cadmium telluride (CdTe) and amorphous silicon are already making inroads into the PV market, and thin films of crystalline silicon may soon be available (see box ).
Up to 40% of the production costs of conventional PV systems are due to the silicon, most of which is obtained as a waste by-product of the electronics industry. The PV industry is currently suffering from a shortage of silicon, and any significant growth in output will leave it even more exposed - particularly as electronics firms improve the efficiency of their own production processes. Professor Hill believes that PV suppliers will need to "grasp the nettle" of developing dedicated solar-grade silicon production facilities.
However, the bulk of the cost saving is expected to flow from economies of scale as the market expands and large-scale production plants become serious propositions. Last year, global PV production stood at 82MWp - double the output at the end of the 1980s and enough to give the industry a turnover of over $1 billion. Furthermore, the sector has recorded average growth of 15% over the last decade, with a still higher rate forecast for 1997. Large-scale PV panels - a growing number of which are being connected to the electricity supply grid - account for over 70MWp of current production. The remainder is made up of a variety of small-scale applications in such products as calculators.
Professor Hill says that "a spate of 10MWp capacity plants are now springing up in the US and Japan, which should bring costs down by up to 30-40%." Indeed, Kyocera is building a production facility in Japan with an output of 30MWp, with plans to double capacity in the near future. Professor Hill says that once facilities with outputs of 50MWp or more are established, costs should fall sufficiently to allow PV systems on UK buildings to produce power at around 8-9p/kWh - the price which domestic consumers pay for electricity from the National Grid.
Opportunity for UK firms
PV-UK estimates that global PV production is likely to grow to 250-300MWp by 2005, and 1,200MWp by 2010. It sees two major markets for UK companies: electrification of rural areas in developing countries, and grid-connected systems in the industrialised world. In northern Europe, building-mounted systems are expected to prove considerably more cost-effective than dedicated solar power stations. The Association is keen to win a slice of the action, and is calling for Government backing to increase the UK's share of this expanding global market from the current 10% to 15% by 2010.
A significant number of UK firms supply consultancy services and other support to PV installations. However, only two are involved in PV production - excluding Pilkington Glass' recently acquired subsidiary Pilkington Solar, which operates out of Germany. The largest by far is BP Solar, which last year produced some 9MWp of silicon-based PV panels at its works in Spain, Australia and India. Later this year, it will commission a new $20 million, 10-15MWp facility in California, marking its entry into the commercial CdTe market.
The only PV production plant in the UK is Intersolar's factory in Bridgend, South Wales, acquired from Hungarian firm Chronar two years ago. The plant produces thin film amorphous silicon cells, originally aimed at small-scale consumer product applications. However, some two-thirds of the 1MWp annual output now goes to PV panel applications. Intersolar sees this as "the big growth area", and by the end of the year will have increased the works' capacity to 3MWp.
Weak home market
However, PV-UK argues that without a showcase home market its members may miss out on the chance to corner a growing share of the world market. Dipesh Shah says that BP Solar "is quite open to building a large manufacturing facility in the UK as the market develops." But PV-UK's Jenniy Gregory believes that this is unlikely "unless the political conditions are right - with a good home market backed by a sustained long-term strategy."
At present, there are just four PV schemes on domestic housing in the UK, involving 14 houses. Just six houses carry grid-connected PV systems, including three in Silvertown, Docklands, which were "solarised" in June in a joint project between Greenpeace and the Peabody Trust, London's largest housing association. Greenpeace's aim is to demonstrate that PV can reduce household fuel bills in low-income households.
Similarly, the huge potential for PV-cladding of commercial buildings remains virtually untapped. A 1992 report for the DTI by the Newcastle PV Applications Centre put the potential resource for PV-clad buildings at a huge 100GWp by 2020, and recommended a "feasible and sensible target" of 12GWp. The Centre itself set up a major demonstration project in which 40kWp of PV arrays were used to refurbish and supply power to the University of Northumbria's computer department (ENDS Report 240, pp 10-11 ).
A handful of other PV-cladding projects are at varying stages of development:
Major PV programmes overseas
However, this activity pales into insignificance beside the scale of the potential resource - as well as the PV programmes under way overseas. Most notable is Japan, which has an ambitious programme to install PV on the roofs of 70,000 homes by 2000.
The Japanese trade ministry runs a capital grant scheme which offers householders half of the cost of installing PV systems - and, as with similar schemes elsewhere, has been swamped with applications from the public. In 1997, a subsidy of $100 million has been proposed in order to fit 36-38MWp to 10,000 homes. The policy seems set to give Japan a clear lead in the global PV market - Kyocera has estimated that by 2000, some 140MWp of a world demand of 250MWp will be in Japan - and ambitious targets for 2010 are now being considered.
In Germany, some 2,200 houses were equipped with PV under a capital grant programme funded by the central government. This scheme was stopped in 1994, when the rate of PV installation fell back to very low levels.
However, PV uptake has revived strongly in many cities such as Aachen, Hamburg and Munich. In an approach modelled on that developed in Switzerland, regional governments have guaranteed a fixed, high price for electricity exported from PV units into the grid. The take-up has been further boosted by a Greenpeace campaign which encouraged around 4,000 potential purchasers of PV systems to submit letters of intent, allowing large-scale contracts to be set up.
Another triumph for Greenpeace's solar campaign is the recent decision of the Greek government to fund the first 5MWp tranche of a PV power station on Crete. The group had backed a plan by US company Enron Solar for a 50MWp PV plant - by far the largest in the world - instead of a new oil-fired power station (ENDS Report 260, pp 19-22 ). The capital cost of the full project, which Enron hopes to complete by 2003, is put at $120 million.
Elsewhere in Europe, the Dutch government has set a target to install 250MW of PV capacity by 2010 as part of its strategy to boost renewable energy. The European Commission has also put forward a rather vague target, with no deadlines or policies to achieve it, that 500,000 roofs be fitted with PV in the EC. A clearer picture may emerge when the Commission publishes a White Paper on renewable energy later this year.
The US million roof programme will also provide a major boost to installed PV capacity. Scott Sklar, Executive Director of the US Solar Energy Industries Association, expects that around 350,000 roofs will be fitted with photovoltaic installations and the remainder with solar water heaters. At present, just 10,000 US buildings are fitted with PV.
Details of how the million roof target will be met remain sketchy, but Mr Sklar expects the main elements to be a package of long-term, low interest loans and a push to fit PV to state-owned buildings. A growing number of US utilities - following the lead of the Sacramento utility SMUD - are setting up "green purchasing schemes" in which homeowners pay a premium on their power bills to have PV installed on their rooftops. Moves to set up such green electricity trading schemes in the UK remain in their infancy - and are focused on renewable energy sources other than solar (see pp 24-25 ).
Reforming the NFFO system
In the UK, PV has received little government backing. The DTI's new and renewable energy budget gives just £500,000 to solar power. To date, the non-fossil fuel obligation (NFFO) has been the main policy tool to promote the development of renewable energy technologies, by awarding long-term supply contracts to chosen projects at a premium price. However, the last Government refused repeated calls to bring PV within the NFFO on the grounds that the technology was too far from economic convergence with conventional sources of electricity.
The new Labour Government has raised expectations that it will give a more sympathetic hearing to the PV lobby. In opposition, Energy Minister John Battle announced plans to transform the current NFFO levy into a "green fuel" levy which would subsidise solar power and "clean coal" projects as well as the existing range of renewable energy sources (ENDS Report 265, pp 15-17 ). The prospects now await the outcome of the DTI's current review of "what would be necessary and practicable" to achieve the Government's goal that renewables should provide 10% of the UK's electricity needs by 2010.
Greenpeace, and many members of PV-UK, argue that the NFFO-type system was designed for relatively large, centralised power sources, and would be cumbersome and bureaucratic if applied to numerous small, highly distributed PV sources. Indeed, PV-UK's Jenniy Gregory says that PV would command an unusually high price under NFFO of over 50p/kWh, compared to an average of 4.3p/kWh for renewables currently under the scheme, in part because the subsidy is loaded onto the fraction of electricity that is exported and not used in the building itself. "There is a danger that PV would come in so high under NFFO as to be politically unacceptable to the Government or to the public," she says.
Domestic or commercial buildings
Because of the potential difficulties in supporting PV through a rate-based mechanism such as the NFFO, Greenpeace and much of the PV industry are calling for a capital grants scheme along the lines of the Japanese model. In a recent parliamentary answer, Mr Battle estimated that the current cost of installing PV panels of 1.5-3kWp on a domestic house is typically between £10-15,000.
However, the environmental group disagrees with PV-UK on how to focus any future Government-funded PV programme. Greenpeace prefers a programme to promote PV installations in the domestic sector - and particularly to reduce fuel bills in social housing. Campaigner Marcus Rand points out that up to four million new houses are likely to be built over the next decade, presenting a major opportunity to install PV modules and to reduce fuel bills in the social housing sector. Over twenty housing associations have backed the group's campaign.
Shortly before the general election, Greenpeace issued a "solar challenge", calling for a programme to install PV on 50,000 houses in the UK by 2010. The group claimed that this could be achieved with annual Government funding of £16 million - diverted from existing fossil fuel subsidies - and would generate 40,000 new jobs. It points out that Redland is about to launch in the UK a PV roofing tile which can be readily incorporated in new roofs - but that a similar product made by BP Solar is only available in Germany.
However, BP Solar's Dipesh Shah takes issue with Greenpeace's cost estimates. "I'd love to see a 50,000 rooftop programme in the UK," he says, "but if we go down that route then let everyone know what the true costs are." A programme with annual funds of £15-20 million could be used to install PV on perhaps 1,000 homes and 25 commercial buildings each year, he says. "PV adds quite a lot to the cost of social housing, but the higher end of the market is better able to afford it - especially if the Government provides the right breaks in taxation or capital grant allowances."
The PV industry prefers to target commercial buildings. PV-UK argues that offices' demand for power is more closely matched to daylight hours, and that economies of scale and avoided costs from non-PV cladding materials make such installations more cost-effective. However, in political terms it may prove trickier to persuade the Government to fund PV installations on business premises than on social housing.
The grid-connection problem
However, both Greenpeace and PV-UK agree that all PV installations face common barriers in exporting electricity to the grid. In general, Jenniy Gregory says, "the regional electricity companies (RECs) don't like connecting PV systems to the grid, and we always face a huge battle."
Many RECs are concerned that if the PV market in the UK takes off, the contribution of numerous small sources could destabilise the electricity grid and make it difficult to balance supply and demand. As a result, several PV installers have been required to fit costly grid-protection devices. However, Ms Gregory says that these concerns have been overcome in countries with existing major programmes: "The RECs just don't believe that UK electrons have exactly the same properties as anywhere else in the world."
Grid-connected PVs are further disadvantaged because of the terms on which power is traded with the grid. When the output from a PV installation exceeds on-site demand, the excess is sold to the REC at just 3p/kWh. However, when the electricity flows the other way, the REC charges the PV operator up to 9p/kWh.
PV-UK is calling for the Government to equalise these prices by permitting "reverse metering", in which the building's electricity meter effectively runs backwards when it is exporting power. Such metering is already widespread in California, other parts of the USA and Germany. PV-UK also argues that RECs are failing to take account of the "embedded generation" benefits arising from small sources such as PV which are close to the point of use, thus reducing transmission losses.
Bringing in finance
While PV technology has enormous potential, it remains a tiny player in the global energy market. Just 600MWp was installed by the end of 1996, and even with the forecast healthy growth in the industry, PV will not make a significant impact on global greenhouse gas emissions for many years.
The challenge of speeding up the growth of the global solar market led last year to the establishment of Solar Century. This organisation, based in Oxford, aims to increase demand for PV by brokering deals between investors, buyers and suppliers. Jeremy Leggett, Solar Century's Chief Executive and former Scientific Director of Greenpeace, hopes that the scheme will have stimulated the installation of an extra 80MWp of solar capacity within three years.
Last October, Solar Century hosted the first of its solar investment summits, which led to an informal "investors' club". This has already brokered two $2 million deals between European investors and US solar power developers. Dr Leggett also advised on a recent $2.75 million investment by reinsurance company Swiss Re in the PV services business Sunlight Power - the first placement by a major financial institution. The company specialises in introducing PV for rural electrification of developing countries.
The Solar Century has also set up a "buyers' club" in which companies form a consumer alliance by signalling their willingness to install PV on their own buildings. Current members include the Guardian Royal Exchange insurance company, National Westminster Bank and Lloyds TSB. PV suppliers to these member companies agree to pay a small levy, which is paid into a fund to promote the uptake of PV in developing countries.
The Solar Century initiative is in its early days, but has already attracted strong interest from major players in the financial markets. In part, this reflects the insurance industry's growing concern over the potential impacts of climate change on its business. But according to Dr Leggett, the PV industry - with its potential for huge and sustained growth - is increasingly being seen as a highly attractive investment proposition. "Serious money is there to be made," he says. "Today's PV industry should be compared with the early days of the computer industry in Silicon Valley."