The sun rises on solar
Households, businesses and utilities are turning to solar energy. Thomas Steenburgh (Harvard) provides a look at solar technology and markets while focusing on a Californian startup, Nanosolar, which is striving to become the lowest-cost solar panel manufacturer.
The case (see reference below) offers an informative introduction to solar energy technology and markets. Solar energy still represents a minimal contribution to world energy consumption – 0.5% of consumption in 2008. While electricity derived from solar sources is still comparatively expensive, environmental concerns as well as falling manufacturing costs are leading countries to turn to solar energy.
A number of technologies are available for transforming solar energy into use for residential, commercial or utility customers. At the topmost level, solar energy is either used to produce electricity or heat. The photovoltaic (PV) option transfers sunlight into electricity while the solar thermal option turns the sunlight into heat. Solar thermal technology is used for small-scale residential options or for very large-scale concentrating solar power (CSP) systems. These CSP systems require mirrors and lenses, creating steam which in turn drives the steam turbines of power plants.
Photovoltaics (PV) constitute the faster growing category but within the category several technologies are available. The more traditional crystalline silicone panels (c-Si) are efficient (13-19% conversion rates) but costly to manufacture. To achieve lower manufacturing costs, so called thin-film technologies were developed which are less expensive to make although their efficiency is lower (6-12%) than c-Si. Within thin-film, varying semiconductor materials can be used: cadmium telluride (CdTe) has the highest penetration but copper indium gallium (di)selenide (CIGS) holds much cost promise.
Nanosolar
How does Nanosolar fit into this sunscape? Founded in 2002 by two Stanford PhDs, Martin Roscheisen and Brian Sager, its professed goal is to develop the lowest cost manufacturing process for solar energy. Quite logically then, it opted for the thin-film PV route. Its technological advantage lies in the development of a proprietary CIGS ink that allows it to use aluminum rather than a more expensive stainless steel as a base and also allows it to print solar cells at higher rates.
In the solar energy business, low-cost must take into account more than the cost of the solar modules (grouping of cells). In an average thin-film installation, solar modules make up only 50% of the final cost, while the various installation operations (called balance of system) take up the other half. Accordingly, Nanosolar designed its modules to offer lower balance of use costs by requiring less mounting equipment, less electronic cabling and less installation time.
The company is confident that it can manufacture modules at a cost that will allow utilities to deliver electricity at a price of around $0.10/kWh. This is much more than the $0.04/kWh from coal but in line with the cost of electricity from gas-fired plants which are used in peak demand situations. Nanosolar’s cost calculations for 2012 have it manufacturing panels enabling utilities to produce electricity at a cost of approximately $0.08/kWh (case, p.19).
Apparently, investors are reasonably confident in Nanosolar’s ability to deliver on its promises. The Series A through C financings (2002-2006) provided $60 million. The 2008 Series D financing constituted a quantum leap. First, it represented a fivefold increase to $300 million and secondly, the pool of investors included such important potential customers as Advanced Energy System (AES) and France’s EDF.
In 2009, the company had some 250 employees, 200 in the US where the cell manufacturing facility was located and 50 in the panel assembly facility in Germany (see box on how the Nanosolar Utility Panel™ is manufactured)
The competition
The PV industry has a well-established leader. Headquartered in sun-soaked Arizona, First Solar had 1.2 billion of revenues in 2008, using a different thin-film technology, cadmium telluride (CdTe). It had recently crossed a symbolic cost barrier by becoming the first solar company to go under the $1.00/watt manufacturing cost barrier. However, Nanosolar executives were confident that, thanks to their CIGS technology, they would be able to offer lower price points, with higher capital efficiency. Also acting in Nanosolar’s favor was the fact that system integrators (companies that handle the solar plant process from land search through plant construction)were eager to have alternatives to First Solar.
There were other American startups, Solyndra, HelioVolt and MiaSole, applying CIGS technology. Two Japanese giants, Sharp Electronics and Sanyo, were investing in thin film capabilities, using yet another technology, amorphous silicon.
And in the older c-Si category another Stanford spinoff, SunPower, was leading the way with $1.8 billion in 2008 sales. At least three Chinese companies were active in this more mature technology: SunTech Power, Yingli Green Energy and Trina Solar.
Where, for how much?
The case’s discussion question is where and at what price Nanosolar should sell its panels. Europe could be a particularly attractive market. Many countries were using feed-in tariffs to jump start solar electricity production. Germany was a leader in this regard. As of 2004, utilities were required to buy any available solar electricity at a 20 year price schedule starting at 0.57/kWh, which then decreased by 5-10% a year. Spain, France and Italy were following in Germany’s feed-in steps. France was aiming for 300MW by 2011, Italy for 3GW by 2016. All in all, Europe was projected to be home to more than half of the global solar utility market in 2013. The European prospects explained in part the choice of Germany for Nanosolar’s panel assembly plant.
Accordingly, Nanosolar had designed its panels for European power generators that sold electricity to mid-sized cities requiring 1-10 MW capacity. In particular, Nanosolar was supplying modules to a leading German systems integrator, Beck Energy, for a 1MW and a 10MW plant. It was also set to supply modules for EDF and AES’s first European solar plants (in France and Eastern Europe respectively).
American regulators had not been able to advance as far as their European counterparts. There was little hope for a national feed-in tariff plan. At the state level, California had set up a program but a low price (approximately $0.10/kWh corresponding to the gas plant cost) and short time frame did not provide a strong incentive. Florida was an example of a large state with a more ambitious plan, setting the tariff at a much higher $0.32/kWh.
The quandary for Nanosolar was whether it should go after a big American market that was taking off more slowly than markets in various European regions. Pricing in the US was a particular problem. Currently, its strategy was to offer a price just under the market leader, First Solar (prices were quoted in cost per watt and First Solar had recently undercut the $1.00/W threshold).
Going forward, Nanosolar could take full advantage of its low-cost capabilities but that would mean low margins, conceivably for the long-term, and PV solar was not cost competitive with favored American sources such as coal (unless of course carbon taxes made coal-sourced electricity more expensive). On the other hand, if it did not offer a minimal price, it opened a door for its established and nascent thin-film competitors who might be willing to take the risk of the low-margin strategy. Time will show us whether Nanosolar and its investors get a nice tan or a bad burn.
Reference:
Harvard: 9-510-037
“Nanosolar, Inc.”
Professor Thomas Steenburgh (Harvard Business School) and Alison Berkley Wagonfeld (Executive Director, HBS California Research Center)
Published May 2010
