The Solar Revolution - Past, Present and Future

Transcript

Michael Liebreich

Hello, I’m Michael Liebreich and this is Cleaning Up. The solar sector has been one of the huge success stories of the energy transition to date and it is poised for even more disruptive change in the next few years. I’m here today in a solar manufacturing facility, it belongs to 3S Solar who make fantastic rooftop solar in Switzerland. But the person I’m here to talk to is Jenny Chase, BloombergNEF’s lead solar analyst. Please join me in welcoming Jenny Chase to Cleaning Up.

Before we get started, if you're enjoying Cleaning Up, please make sure that you like episodes. Subscribe on YouTube or your favourite podcast platform and leave a review. That really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That's cleaninguppod.substack.com. Cleaning Up is brought to you by the Liebreich Foundation, the Gilardini Foundation and EcoPragma Capital.

Jenny, thank you so much for making time and for coming here to film Cleaning Up.

Jenny Chase

It's really exciting to be here.

So just for context, we are in a solar factory. I thought, in honour of your role, your history, we ought to do that. So it's a solar factory here in Switzerland.

And it's really exciting. This place makes building-integrated solar products, and there is a big red button right behind me that I must not press.

So however animated you get, don't press the button. Where we always start is: In your own words, who are you, what do you do?

So I'm the Lead solar analyst at BloombergNEF and possibly the person in the world who knows the most about solar demand, supply and price over the last 20 years.

Oh, gosh, so that's a pretty bold claim, but it's probably correct, in fact.

I said probably. There's a lot of other people who know a lot of things and know their sectors much better. But yes, as an overview, I'm pretty good.

I think I'm going to go with that claim actually. Normally I don't like where people say, I have the most this and the most that. But I think that's probably true, because now you've also written a book, we should say, just before we go into how you and I know each other, which, of course, is for nearly 20 years. But you've also written a book.

I have. It's called ‘Solar Power Finance Without the Jargon,’ and it's intended to include the stuff that I should have known 20 years ago when I wanted to have a career in clean stuff generally, but didn't really know anything about it.

And you've just come out the second edition, correct?

Yes, indeed.

And let me just ask very quickly, in that second edition, how much of the first edition did you have to scrap and go, 'Oh my goodness, that really didn't work out the way I thought.'

There wasn't much that I thought was awful, but there was some... I changed the focus a lot. So, for example, there's a lot more about batteries, because I was slightly bearish on batteries, compared with where I am now. And there's a lot more on hydrogen, which I know you love hydrogen, Michael. And just updating on the energy crisis of 2022 when Russia invaded Ukraine, that was a huge update, because it really changed the picture with the energy world in general.

So let's go back to not quite 20 years, but it was 2004 because also in the book there's some lovely stories from the early days of New Energy Finance. That was before it was Bloomberg New Energy Finance. So when did you first hear about this fantastic opportunity to devote your career, your life, to this business?

Well, I was at the University in Cambridge, studying physics, and I realised that I wasn't good enough at physics to make a career of it. Physics is really hard, it turns out. And there was this email about an internship. All I was doing with my summer was cleaning windows and earning money and so I applied, and so I came to your office in Notting Hill. And eventually you did actually hire me.

I mean, you nearly didn't find it because at that point, I was working partly out of a friend's boardroom and partly out of my house, and you went to the wrong one.

Well, nobody told me where to go. I had to look at your address on the internet, which was your house, Michael. So I turned up there, and it was really just a house, and nobody was there.

We're talking really, really early days.

That was startup culture.

Yeah, it was startup culture. And there's a little bit in the book about that. The funny thing is, when you originally wrote the book, you sent a copy to me to have a look at and to check some of the details of those early days, and when we raised money and those sorts of things. And apparently the Bloomberg lawyers got worried that I would be offended by it. Is that right?

Well, I had run the bits past you, and you'd actually added some bits that people might have thought that you'd be offended by. So that was pretty funny.

Because there's an email that I found. I was prepping for this conversation, and I went back in time and I found this tremendous email where you say that the Bloomberg lawyers are worried that you are not being sufficiently, fundamentally respectful of me in this description of our early days. And I wrote back saying, "I don't remember 'fundamentally respectful' being part of the job description."

It never was, Michael, thank you for that.

It really never was, was it? These were pioneering times, because we were inventing the data — not inventing the data, hopefully — we were gathering the data, but we were inventing terminologies. We were figuring out how industries were structured. It was kind of cool, wasn't it?

It was absolutely cool. It was a bit of a cottage industry that we were writing about, but it was in the process of turning into a real industry, and we were inventing some of the terminology and collecting the data about that and helping to make investors feel comfortable enough to put big money into this.

And I remember the huge battles we fought, like trying to call... What's now called solar thermal, you wanted to call it STEGs (solar thermoelectric generation ) because it was called concentrating solar, which caused confusion with photovoltaic concentrated solar, right? And we tried to get the terminology picked up, it never did.

I think I lost that. It's now called CSP — concentrated solar power — and it means solar thermal electricity generation. But to be honest, it's not a tech with much of a future anyway, so never mind.

Neither of them to be quite honest.

Oh concentrated PV failed ages ago, but yes.

And this was having a very expensive little dot of solar something and then bringing all the rays into it. But making electricity as opposed to solar thermal heat.

Well, solar thermal for pure heat, industrial heat, is potentially still an option. There's actually a 30 megawatt one on a beer factory that's being commissioned this month. And it doesn't produce electricity, but it does produce heat, and that is still avoiding carbon. But yeah, generating electricity...

I'm sceptical, because I just think: do photovoltaics, cheap battery and stick it in a heat pump.

You can do that.

Can you think of any of the terminology that we started to use, where we made up a term for something and then it became universal.

Tier One.

Oh yes, Tier One., yes. The bankability of solar producers.

To be fair, I'm not sure we made it up, but we do still maintain the list of Tier One. solar manufacturers and BloombergNEF has become synonymous with Tier One.

There's also stories in the book about the price indices that we definitely created. And that was pioneering work, where I just decided that we really needed to get the definitive index of prices for silicon ingots and wafers and cells and modules, and I pushed the team. And your initial reaction was, 'It can't be done. They're not going to tell us these prices.'

This is true. It was actually more fundamental than that. Nobody had a clue what price polysilicon was and what price you could buy a bag of chunks of polysilicon at? And that was ridiculous, given that a huge problem in the industry was how expensive it was. But you did keep on our backs about that until we actually got some price points and we published them. And then people rang us up and said, 'Oh, you're wrong.' And that was really helpful, because that helped us get it right. And in the end, we did manage to create indices by talking regularly with these people and by getting regular price points.

And that's now used, for example there are companies that will hedge prices. It's used as a financial indicator built into contracts.

It's been built into many contracts. BloombergNEF doesn't do that survey work anymore, we outsource it to a company PV InfoLink in Taiwan, but we definitely set up the methodology and we were the first ones to use it.

And we're going back to around 2007-8, and there was this thing called the silicon bottleneck. Suddenly, instead of using offcuts from silicon that have been produced for microchips, suddenly the solar industry took off and it was absorbing all the silicon. There wasn't any and the price went from, we didn't know what, to something much, much higher, orders of magnitude higher. And that resulted in a lot of weird things, didn't it? Things like Solyndra and do you remember Silicium de Provence?

I remember a lot of silicon manufacturers that spent a lot of money and never made any silicon and Silicium de Provence was one of them.

Yes, and around the same time, there's another story that you tell in your book, which is our prediction as New Energy Finance — as it was then — the prediction that solar prices would crash.

I think that was mostly you, Michael. I recall you coming back from a conference where you'd been sitting, I don't know whether you want to tell this...

So this was the Renewable Energy Finance forum in 2007, where I was sat at the back of the room in New York with all these incredibly smart people. They were wearing much better suits that anybody we met anywhere else, because it was Wall Street. And they were all talking about how the price of solar would come down, so you could do it more cheaply, and it would sort of smoothly glide down. It was presentation after presentation that said, 'We're tremendously well positioned as slowly the price has come down,' and so on. And I sat in the back and thought, this is bullshit. Because when that silicon bottleneck opens up, then the price will crash, because you'll go from value-based pricing to marginal-cost based pricing, which is much, much lower. And so in the back of the room, I mocked something up on my computer, I mocked up a chart as best as I could. And I presented it, and I said, 'There'll be no soft landing, this thing's going to get ugly.' And there was a frisson of excitement in the room, or there was a kind of shadow of fear that passed across people's faces. And then I sat down, and I think I texted you on my Blackberry at the time and said, 'Jenny, I've done this terrible thing. I've told everybody, the prices are crashing. We need to do some proper calculations.'

And I was used to that, so I did. Essentially, after you'd done this really back of the envelope calculation and then presented it to everyone, saying that prices would fall by 40, 50, 60%...

I think it was 40%, but I gave an exact year. I said it would be 2008-2009. It'd be in one or two years time. And then I kind of passed the task over to you.

And I recall pushing back a bit because I said that Germany would absorb enormous volumes of solar modules, which it did, but that didn't actually stop it happening. And we collected the price data, and we did that calculation as properly as we could, including inflation, which is a real bastard when you're doing this sort of analysis over 25 years. But yeah, you could actually see that the price of modules was artificially high, because the price of silicon on the spot market was $440 a kilogram, when it probably should have been about $25 a kilogram. And that when the bottleneck eased, which it would, because there were many more silicon factories coming online in China, and hypothetically elsewhere — in the end, it was mainly China — then the prices would crash. And we calculated that at a 40% drop. So the Wall Street guys you were talking to were talking about 10% and we were saying 40%. In the end, it was more than that.

It did end up being a lot more than that over time. And I think to be fair, they were saying sort of 10% over a five-year period, and we said 40% in about two years, and we were not right enough. We were right, but not right enough. We should have been more aggressive. But what was happening — what's been happening always in solar — is these extraordinary sort of historical eras, you could say. Because that was 2004, Complete ignorance, coming together, creating some terminology, getting the first data and starting to do the first prediction. So that was certainly, I think for us, that was a really important, kind of seminal time. That's where we learned our trade — both you and I, frankly. But the industry in 2008-9 went through that price crash, and it entered a different era, and it's been doing eras ever since. So what happened next?

So the prices of solar modules crashed from about $4 to about $2 per watt very quickly. And that was partly because of the removal of a big subsidy regime in Spain, which planned to build 400 megawatts of solar, and ended up building 2700 megawatts, and then suddenly stopping. And it stopped because that's what subsidies do. Governments go, 'that is too much money' and they don't have a choice, really. They have to slam the brakes on, otherwise solar developers would just build.

So I remember that Spanish sort of boom-bust. We calculated that almost inadvertently, probably without the grown ups at the Ministry of Finance knowing, they added something like €20 billion euros to the national debt just by this one policy that got out of hand, and they had to keep paying it. The government guaranteed it out into the future, and it ended up that something like 10 or 15% of Spain's national debt suddenly got added by this one solar policy. And then they reversed it, famously.

It was not ideal, and there were retroactive changes which made nobody happy, but they did somewhat alleviate the effect. And solar manufacturers had a horrible time as well. I mean, the thing I say, just in general, is that solar manufacturing is a horrible business. I realise I'm saying this sitting in a solar factory, but it's a horrible business to be in. Don't go into it.

To be fair, commodity solar manufacturing. I'm sure there'll be the argument that this marvellous building, integrated-architect design, whatever, will be fine, but let's move on. Because when you say, 'it's a horrible business,' particularly that next phase, 2009 to about 2013-14, there were just bankruptcies... It was a bloodbath, wasn't it?

Absolutely. LG, Suntech.... I can't even.

Well there was Solyndra, famously

Solyndra wasn't a serious company, but there were serious companies that went bankrupt in that period, like a lot of them.

Well, Suntech, the leader, the Sun King, Zhengrong Shi, the richest man in China at the beginning of that period, ended up bankrupt, right?

Exactly. A lot of them went bankrupt. Over half of the companies that were in the top 10 at the start of that period had gone through some form of bankruptcy by the end.

That's right, because you're also seeing, in that period, companies like Sharp and so on falling out of the top 10. I think First Solar, at one point, was really close to the top. It didn't go bankrupt, it's doing very well. It's a great company, but it didn't maintain its position in terms of the volume of output. It just went down through the ranks, and everybody at the top of the table is now Chinese, right?

Absolutely, yes. China really turned this from being a cottage industry to being a proper industry that supplies at least 5%, maybe 7%, of global electricity now.

And I saw, by the way, you spoke to Zhengrong Shi, the former Chinese Sun King, and he's now got a new business doing flexible solar. And you asked him to sign a copy of your book. Does everybody know Jenny's got a book? And you should all buy it. You asked him to sign a copy of your book, but the chapter that he's in is the chapter on bankruptcies.

Yes, I did interview him about it, and it's fairly sympathetic.

But it's classic Jenny, because this enormously knowledgeable and warm interview with Dr Shi is followed by asking him to sign the chapter on bankruptcies in your book.

Bankruptcies happen. They're a consequence of doing innovative things.

But they're also sometimes a consequence of all kinds of weird stuff. So Hanergy, and there are other examples. These were, I don't want to say... am I allowed to say Ponzi scheme, or will I get sued? No, they've gone bankrupt.

I think you probably won't get into trouble for saying it, and you would also not be wrong.

Yes, so there was a lot of that going on. But then moving through the phases, the historical phases, you get to 2015, which is the year of grid parity, right?

It is. I mean, you hardly ever hear talk grid parity anymore, but we were so excited. At one point we published something saying that $2 a watt module price would be grid parity. It would be the price where you could put modules on a residential roof and generate power at the same price that it came from the grid, and that was going to be the big deal, that was going to unlock enormous growth. That was not really true, it turns out, because it assumed that you could use every kilowatt hour from the sun to replace power from the grid, and you can't.

And of course, that would be retail price parity, right? As opposed to wholesale grid parity, which is the one that everybody kind of wants to know about. So what were the right numbers, and when did they happen?

I don't think there is a right number, I'm sorry, I think it's incremental. You get particular... We now have major markets that are essentially unsubsidized, although your definition of subsidy can vary. Like in China, solar plants are being paid the same price as coal-fired power stations, but in some cases they are guaranteed that price for longer, or at least are expected to receive that price for the lifetime, which is not a thing that may happen.

Yeah, there's a lot of discussion about 'what is a subsidy,' which I think we'll get onto when we talk about some of these very cheap plants that got built. But there are things like priority dispatch, which some people say is a subsidy. And I think it's not, really. Because if you've got zero marginal cost, you're going to get dispatched anyway, right? You get that priority without really trying.

Except in rare circumstances, exactly, yes.

But broadly speaking, when all said and done, 2015 we stopped hearing... until then there wasn't a day that we didn't get asked, 'but when will renewables reach grid parity?' And after 2015 you kind of never heard it. And the price was when it became around the same as electricity from natural gas or coal, so around $40-50 per megawatt hour. That sort of price point, right?

That's about the price point where you start to see plants popping up without subsidy, yes. That does depend on interest rate, which is not something the solar industry can control. And I would probably, right now, give a range of between $30 and $60 a megawatt hours to what solar really costs.

Yeah, let's come back to that, because I'm going to challenge that, because I want to know a bit more about... we've got to talk about levelized cost, I'm afraid. But before then, let's just continue our historical romp through the ages of solar. Because after grid price parity, we entered a five-year period through until the end of COVID, the inflation boom, there was that sort of five-year period of just like, 'hey, this stuff works, let's go from 0.1% of our power system to 3% or 5%.' What did that period feel like?

It felt quite slow, to be honest, because you did still need policy to be driving solar, and policy makers are quite cautious, especially after they'd seen things like Spain massively increasing its national debt by over-subsidizing solar. So there was a period where solar installations in Europe dropped because the governments collectively were just like, 'let's be a little bit careful with this.' And that makes a lot of sense. Frankly, the reason the market overall continued to grow was because places like China and India started building, especially China. But yeah, the period looked like a lot of policy, a lot of inching forward. But in the meantime, we expanded from having to cover 12 big markets for solar to covering, well today we cover 146 which is a lot of work.

Because you kept on underestimating what was about to happen during that period. In fact, right the way throughout?

We still underestimate what's going to happen, Michael, it's chronic.

Yes, there's a fantastic chart, a famous chart. For people watching the video, we'll throw it on the screen. It's the famous International Energy Agency underestimates chart, where, for 20 years in a row, they have just completely underestimated the installations particularly of solar, but also wind, and everybody has good laugh at it. There's a bit of controversy about who first drew it? Was it actually us, Bloomberg New Energy Finance, or was it Auke Hoekstra? I think it may have been Auke.

I think it was Auke.

It probably was, but we've all had a good laugh, everybody knows it's a thing. But your chart looks better but not perfect. Is that being polite?

That is being polite. And I am very willing to admit that solar has surprised me consistently. And this makes me very happy. Everyone always underestimates solar, and part of the reason is that these days, we've got expert analysts all around the world covering their individual markets. And I have to convince them to buy into the forecasts for their region. Well first, they have to create the forecast and then sign off on it. And they never want to forecast an absolute boom. You know, if Indonesia has 200 megawatts of solar, they literally cannot imagine that one day it will have 200 gigawatts of solar.

And this is because, you know, going back to the methodologies that we developed for forecasting. The New Energy Finance, then the Bloomberg New Energy Finance forecast is a bottom-up forecast. It is country by country, and therefore it's sector by sector, and there's lots of data on stuff that's connected to the grid. There's very poor data on stuff that's behind the meter. In other words, in a factory compound, which the National Grid doesn't see. And then there's almost nothing real time about rooftops and retail. So you're really in a big fog of uncertainty trying to build a bottom up forecast, right?

Basically, my entire career has been about wrangling really bad data and trying to get some sense out of it. And I can be very boring on the topic of what's going on with data today, but basically, yes, this stuff can grow very fast. That's the other thing nobody realises. Solar can go from a standing start to building hundreds of megawatts and gigawatts a year. It's not like other energy sources, which are serious, heavy infrastructure. Solar, you can just put up these days. You can hang one solar panel off your balcony and plug it in.

Now, in the early days, we dealt with this by creating something called the buffer, because we did the bottom up calculation, and we knew that we were going to miss all sorts of things. There'd be some country, or there'd be some sector, be some policy... Another thing that happens is people race for the finish line of policies. So there's going to be a policy which ends at the end of the year, and everybody goes crazy installing it, and you don't find out about it until afterwards. So we created the buffer. Talk to me about the buffer. How's it doing these days?

I think the buffer for this year is about 100 gigawatts out of 585 gigawatts total estimated installation, so the buffer is big. And basically that is me and Lara Hayim, the head of the solar team these days, and we sit down and we go, 'everyone has submitted their forecasts for their countries, but we know that at least half of them are missing something or getting something wrong,' and that there will be markets that we haven't even seen yet. And we don't know what's going on with Pakistan, but they are buying a load of solar modules, and then we basically put a big chunk on, and this made our forecast much better.

So this is a fiddle factor, right? I mean, it's a buffer, I'm not accusing you of anything nefarious. But it is an allowance for the known unknowns. But it's never big enough, is it?

It is occasionally big enough. In 2018, we did overestimate demand briefly. It happens also for individual markets, you can overestimate. I've recently cut our estimate for South Africa, because it has really slowed down since last year, despite you would have thought many of the fundamentals still being in place.

But it really goes to the heart of the challenge, is that you'd like to add a very big buffer, because you know that there's going to be something happening. But of course, once you have clients, they then say, 'fine, there's a big market — 600 gigawatts — but where is it going to be?' And then you say, 'I can't really tell you, because a third of it is the buffer.'

It's more like a fifth.

Well, it's a fifth, but it's too small.

Possibly, yeah, the problem with having a well paid job is the clients. If I didn't have any clients, we could do much better aggregate forecasts. And there's always some wise-ass on the internet saying, 'I think it will be 700 gigawatts.' And they might be right, but they don't have clients, because the clients want to know where it's going, and they want to see some sort of analysis of why we think it will go there. And my clients these days are quite understanding about the buffer, because we have this history where we can say, 'we historically underestimate.'

So you say, 'Just trust us, we don't know exactly where it'll go, but it will be there.' Let's just finish off the last couple of years, the inflation surge and what's happened there? Because I want to come to what's going to happen next, and we start throwing numbers like 700 gigawatts or 600 gigawatts and 580 — we should come back to that. But what happened at the end of that period where… you called it 'slow,' I think maybe the word you actually meant was 'boring,' because it was just more and more solar over a period of four or five years. What happened as we came out of COVID? We saw inflation, and of course, then the Russian unprovoked invasion of Ukraine. What's the last few years looked like?

What was quite notable about COVID was that it did very little to solar modules. They spent a bit more time on boats, that was the main effect of COVID on the solar industry. What really kicked the industry into a new phase was Russia invading Ukraine in early 2022 because then natural gas prices, liquified natural gas prices around the world soared. Europe was trying not to buy gas from Russia, there were all kinds of sanctions, then there were all kinds of new policies. And we saw that the industry actually grew about 76% from 2022 to 2023, which is fast even for solar. High energy prices really made people think about energy. People in governments think about energy very differently, and that makes solar much, much more attractive, both on a short term and a long term basis.

But the reason I link it to the end of covid is there was this surge of inflation that actually started before the Russian invasion. So Russian invasion pushes up energy prices, but in parallel, you've got this inflationary surge, which then the energy prices also fed into. So what you had in the wind industry is real pain. The wind industry — I don't want to say it ground to a halt — but certainly the froth totally came off the wind industry. But not the solar industry, so why the difference?

Well, first of all, solar manufacturers are doing things better all the time. There are lots of people far smarter than us, working in factories and research labs all over the world, finding ways to grind every fraction of a cent out of the cost of making a solar module, and they are really good at it. That is what the experience curve is. It's lots of people finding ways to cut the cost, and so they kept doing that. And in fact, the crisis meant that solar modules did stabilise or even go up, depending on your indicator, during this inflationary crisis, which caused a little bit of temporary pain, but everyone had confidence they would come down again. And also everyone was willing to pay more. So basically, the solar industry kept building.

That's right, and I think the wind industry at the same time, they had some technology problems. They proliferated the product range, which is the exact opposite of what happens in solar, which is largely a commodity. So they had too many models. Some of the big manufacturers had gearbox problems and so on. So they definitely have had different experiences in the last few years.

And wind is not a semiconductor tech. Solar modules are the first major electricity generating technology that doesn't have moving parts. And that is a big difference. There's a lot more cost that you can grind out of a semiconductor tech than you can out of a piece of heavy engineering like a wind farm.

So let's talk about 'how cheap is solar,' a controversial subject, despite the fact that you and I know it's really cheap. So how cheap is it? You came up with some numbers earlier, just in our conversation. What were they?

So I gave a range of $30 to $60 per megawatt hour, which depends where you are, how sunny it is and what your cost of capital is — meaning what return an investor would need to invest in that project. The best metric is probably that today you can buy a good solar module for about 10 US cents a watt. You can buy a solar module, for the cost of about 10 cups of coffee.

To put that in perspective, the Department of Energy in the US had something called the SunShot Initiative. It was trying to bring it down to $1 and it's now 10 cents. And they were trying to do $1, I think that was by 20... When was that? That would have been by 2020 to be fair to them, around the end of the last decade. But still 10 cents. But I don't recognize those numbers of $30 to $60 as being the full range, because there are plenty of places in the world, and you know, I've been tracking the lowest cost projects because I'm an optimist, I like to highlight the cheapest projects in the world. The cheapest in history is $10.4 per megawatt — $10.4 not $30 — in Saudi Arabia.

No, it isn't. If you believe that, I'll tell you another one. Oh,

Well that's the number, that was the contract that was signed.

No, it wasn't, that is not the way they put it. The way they put it is that was the levelized cost of electricity (LCOE). And I think we probably have to explain what the levelized cost of electricity is. So the way BloombergNEF defines it is basically what you have to pay somebody to build your project as an inflation adjusted contract over 25 years or over the lifetime of the project.

With no subsidies.

With no additional subsidies that are not included.

Not included in what, in the price? So we're going back to the early days, because I invented the New Energy Finance levelized-cost definition, and it was excluding all subsidies, yeah?

Yeah but. Well, absolutely, it should be excluding all subsidies. It's the full price per megawatt hour that you have to pay for the solar project to get someone to build it for you. So they're taking the risk that the sun doesn't shine, they're taking the risk that they don't manage to maintain the project properly, and that's what they're willing to take. And then it has required return on equity and a cost of debt in it, because the investors in this project need a financial return, and that is in there. So the Saudi contract is, I'm pretty sure based on other contracts I've seen, for example desalination plants, is a hypothetical number if you assume certain things that the government has provided as part of the...

Such as?

One is things like cheap land and cheap labour. In some cases the land is free, the prep is free, the grid is free. But also sometimes there's a synthetic term in there for the cost of capital, which they won't tell you what it is. And so if you ask them, 'okay, so what is the project actually being paid?' They will say, 'oh, we can't tell you that.' Because it's not what they're being paid. It's this synthetic number that is designed to win the auction.

Ok so let's move on from that particular Saudi project. But you're right, if you're given free land, and if you're given a state guarantee on both the electricity purchase, so the utility that buys the electricity is guaranteed by the state, and your own performance is guaranteed by the state, then of course you're going to be able to do very, very cheap solar power. But there are plenty of projects in places like India and Morocco, just very sunny places, you know where they are, where business conditions are good that we see prices of $15 per megawatt hour, $20, $18. There's lots of examples of those, and you can't say they are all synthetic this and synthetic that.

So I don't think Morocco has those prices. Sorry, I think that's not a number coming from Morocco. You see low prices from Chile, but not quite that though, because Chile is super sunny. The prices from India are a bit more of a question because they're also not inflation adjusted. I think a lot of these are just really bad projects being built by state-owned firms, to be honest, in India. I do not understand how the Indian market works.

Morocco, by the way. I can't give away any secret information, but I'm very close to Paddy Padmanathan, who was on Cleaning Up as the Usain Bolt of solar, because he kept on breaking world records and driving you probably crazy, because he was somewhat unclear whether they were unsubsidized. But it turned out that they were and they made money. So how can I put this? He's very confident...

He's not getting paid the amount that was on the press release, if they're making money.

The last person who made that point — it was very funny — was Kerry Adler from SkyPower, I think it is. And I remember in around 2013 when Paddy Padmanathan had done the first sub $20... I think it was a sub-$28 power purchase agreement in the Gulf, and Kerry Adler came up to me practically frothing at the mouth, saying that he couldn't possibly make any money and it was absolutely ridiculous. And ACWA, which was the company that Paddy was CEO of, did a very successful IPO several years later, clearly very profitable, and it was not a problem. And so people predicting these things don't make money and that people will make losses, they tend not to work out.

So 2013 is an interesting point, because between that being bid and between that being built, module prices dropped substantially. So that was probably a factor there. But also, the announced price was almost certainly not what they were paid. And also the local utility generally takes a 60% stake, so the local utility that's paying the PPA also takes a major stake in the project, so they do have a certain incentive.

Now you can see why being in the information business is so fantastic, because trying to unpick all of that and get clarity is incredibly important. It's difficult, but important, and it translates into value. And this is what your clients are actually paying you to do, right?

It does. And what annoys me about those synthetic prices being issued as real prices, by the way, is that you then get governments in Zambia, in South Africa, in places all around the world that could really benefit from a bit more solar power, saying, 'We're not going to sign a PPA at $60 a megawatt hour, because this country signed it at $20.' Which means they just do nothing.

Yeah, so there's an element of waiting, because they want the cost to come down. But I think that era is over, because the module prices are not coming down very fast anymore, so we'll get some clarity on that.

Well also the module prices are relatively irrelevant because they're 10 cents.

Well that's actually the most important point, I think, is that most of the cost is now soft costs or other ancillary costs. It's the civil engineering, but it's the project management, it's everything else, right? Installation costs...

And also things like steel, racking and mounting systems, inverters. Yeah there's a lot of stuff. A lot of materials go into a solar project, not just the actual module.

Now I want to move on to a bunch of the pushback that the solar sector and you and I have had over the years, because this conversation about, 'what does solar really cost?' Now we've had a conversation about levelized cost, LCOE, fascinating for those who are really into the details, but there's a lot of people out there that say levelized cost is irrelevant. It's irrelevant. It's misleading, it's a communist plot, it's whatever. Are they right?

So here's what I've learned in 20 years of solar analysis, the sun only shines in the daytime.

Wait, wait, say that again. You mean it's not sunny at night?

Levelized cost is what it is. It is the price you pay someone per megawatt hour. Sometimes you don't need any more power in the middle of the day, and when you don't need any more power in the middle of the day, you probably shouldn't build any more solar, at least until you've built something to move your power demand into the middle of the day.

Batteries or EVs or something

Exactly, so levelized cost, it is what it is. It's not the answer to everything, but it is a good way of comparing the cost of a 25 year investment in either a gas plant or a coal plant or a solar plant, under certain assumptions about when you're going to need power.

But people who are against the build out of renewables for whatever reason, generally, by the way, nuclear, you know, they call themselves eco modernists, and they sort of live by attacking renewables, which is a bizarre way to live. But what they will say is, 'the problem is, you get this cheap electricity at the middle of the day, even if you need that, but it's pushing up the costs of the rest of the system, and so it's driving up electricity costs over all.'

Well, the dogs bark, the caravan moves on. In a sense it is true. In a sense there is a sort of core of decent argument in this, which is that at the point where you've got so much solar in the daytime that power on the spot market is free, and we are starting to get to that point. And by 2030, we will have free power setting on the spot market, and hopefully to the users as well, in the middle of the day, on a sunny day, pretty much all the time. And then there is not that much value in adding more solar. Actually, as a solar analyst, and also someone who really wants to stop climate change, I think we should be building more wind, and I would probably also build a bit of nuclear, because diversity is good, and a thing that I've also really learned from having my own solar system here in Switzerland is that solar does not generate very much in the winter. I mean, the daily fluctuations are nothing compared to the seasonal fluctuations. Now a four hour battery, really helps, qnd in fact in the California grid, you can really see that batteries are now eating the evening gas peak. It's brilliant. It's a lovely chart. I'll send it to you.

Well, so I've been using a chart in my presentations for about five years. Which is this canoeist paddling along, and I call those gas peakers. And then I click and I show what's behind the canoeist, which is this huge shark in the water. It's a fantastic photograph, a real photograph. And those are batteries that are coming for the gas peakers. Because if all you need is to cover a few hours of peak in the evening, then the answer is a battery without question.

But that's not what you need, or all you need, depending on your grid. There's a condition called dunkelflaute in Germany, usually in early spring, where the wind doesn't blow for a week, and it's basically still winter, so that sun doesn't shine, and any battery that you could possibly build would be drained by the end of that. Okay, there's obviously some exceptions to that, but yeah, a normal battery would be drained by that. And it really does not make sense to build a conventional battery to cover that period. So you need something else or some other option. And that's where you start to look at really high price things like making hydrogen with electrolysis and burning it, like gas peaker plants that just run for one week a year.

And let's go through because there's some other sort of pushback. So there is this problem of system costs, in which the levelized cost doesn't represent the whole system costs. We call that one a draw, right? maybe. But there are other pushbacks that we've had over the years that all of this is irrelevant anyway, because the solar panels are made with Chinese coal fired energy, and so they are a net-negative for the climate.

That's what we technically call bollocks. So the energy payback period of modern solar panels is somewhere between six months and three years, depending on where you install them. It helps to install them somewhere sunny. And the carbon payback depends on the carbon intensity of the grid you're in. So it's short. Even if they're made with coal, the Energy payback is really good, and increasingly, I mean, China is the world's biggest installer of solar modules, by a long way. These days, China is attempting to decarbonize its grid, and there's a reasonable possibility that China may actually have peaked coal consumption in 2023.

We've been doing this for long enough for the Chinese grid power mix to have changed, because it used to be 85% or over 80% coal, and it's now only 60%, and that's a huge difference and it's very clear. Now, what you've seen also in that period is that coal has fallen off the US grid, coal has fallen off the European grid, it's fallen off the UK grid, and it's going to fall off the Chinese grid. So I think that one is definitely not a draw at all. That one is absolutely, as you say, you used the word so I can use it, bollocks. Let's move on. How about, 'this is really only for rich countries — California and Europe — you have to be an environmentalist, and otherwise there's really no benefit to solar. You're just doing it for emotional reasons, and it won't catch on in the rest of the world.' How about that one?

That's really not true. I mean, China is building solar because it wants cheap power, and it's making lots of modules. India is building solar because it wants such cheap power. Pakistan, the data is really bad, but it's also buying a lot of solar modules and electricity consumption in Pakistan fell 10% last year on the grid. Now, some of that is probably because high prices meant that people used less power, which is not good, but part of it is almost certainly there was a lot of completely untracked small solar being built to save people money. So no, this is something that poor countries are doing now, and with 10 cent solar modules, they really can.

The data business is such fun because you just alluded to grid power droppings. What we've got around the world is electricity demand growing partly because we're doing electric transport, electric heating and we're doing data centres and things like that. But a lot of the grid companies are saying, "No, it's not growing. Absolutely not. We're not seeing it." And the reason is because there's all this behind the meter and rooftop and so on. What a fantastically confusing world that you inhabit. You've talked about China a few times. So how about, you know, all of this stuff, 80% of the entire value chain of solar, is in China. And that's really bad, because we are price takers, we are becoming dependent. It's not bad enough we've been dependent for oil on bad countries, we're now going to be dependent for our energy on China, and it's all made with slave labour.

So to be fair, I'd rather be buying solar modules every 25 years than oil every week, in terms of being dependent. And I think that the forced labour concerns in China are limited, and fundamentally, most people working in the solar industry in China just have jobs which they can leave, and frequently do. Turnover is a huge problem in Chinese solar factories, because people go down to the next factory to get a job.

So what would you say to— because it has to be taken seriously, not just allegations of forced labour, but the proven forced labour, which is part of the solar value chain in China. How does the solar industry outside China, the installers, the suppliers, because a lot of the technology, and a lot of the silica and so on, that supply goes through the Chinese value chain, comes from other countries. How do those Western or non-Chinese companies deal with that issue?

Well, the US now restricts modules going into the US. The value chain needs to be certified to have not gone through Xinjiang Province, which is where the allegations are. Elsewhere, you can ask that you use solar modules made with polysilicon from outside Xinjiang Province. And Xinjiang is only about 30% of the world's polysilicon supply this year, it's not actually a big part of the supply. And frankly, given that China is roughly half the world's market, China could happily absorb all the Xinjiang polysilicon and there wouldn't be a shortage of other stuff. In fact, the new polysilicon plants aren't being built in Xinjiang at all because power is cheaper in Sichuan or inner Mongolia. I think any manufacturing industry should be concerned about its value chain, but I think that it's not particularly a solar problem.

I think your point is quite right, and this is an issue that goes beyond solar. We've seen it also in batteries, where there's this enormous amount of concern about human rights and child labour and slave labor in the DRC, in Congo, around cobalt. And of course, these are vital issues, they need addressing. They need addressing robustly, same as they do in the clothing industry and other industries. What's galling, I've got to be honest, is that the people raising them are very often people who have shown no interest in slave labour or child labour or human rights. They're quite happily using cobalt or petrol in their car that was refined using cobalt from the DRC, or they were using cobalt in their phones and with not a worry until it's something to do with renewable energy. There's something about renewable energy that triggers people.

And the oil industry is not exactly ethical.

Parts of the oil industry, maybe large parts. Let's move on to another couple of issues. All of this solar, it's toxic. The solar panels are toxic and they end up in landfills. They're actually a vast environmental problem, far from being a solution.

Well, this is always a fun one, because the first thing is that silicon solar panels, like the ones made here, like the standard ones, contain nothing particularly toxic. There is a tiny bit of lead in the solar but that's very seldom what people are talking about. There is a company called First Solar, which makes cadmium-telluride panels. And both of those things are individually toxic. But First Solar has a really thorough recycling program, and it's not generally the subject of this. You certainly can recycle solar panels. The reason it's not a bigger thing is that most solar panels ever made are still in use, sitting on roofs generating power. And again, I think that the people who've never shown much interest in recycling or sustainability before get very upset about the possibility that solar modules might not last forever.

And what about the lead in the solder, which does seem to be real, at least it's a real thing and it is bad when lead leaches into our groundwater and so on. Can you put that in context of how much lead is used by the solar industry versus other uses, like, for instance, lead acid batteries in cars, and I don't know, roofing and other things.

So lead is bad, we don't want lead in our environment. And I can't remember the numbers that I got from the Lead Association, but the lead used in solar panels is a fraction of that used, for example, in shot.

You mean like shotguns, duck shooting, those sorts of things?

Yup, and what's recycling like on shotgun shot?

It's very, very poor. But also, there are replacements for lead, but a lot of people who shoot refuse to use them because they say they are somehow, presumably, emotionally inferior.

If I ran the world, that wouldn't happen.

And the number, which I know from your book, which I read last night, is 0.07% of lead goes into solder for solar panels. But let's come back to this question of winter, because I found winter really interesting. I think that day-night, the fact that it's not sunny at night, apparently, that gets solved by batteries, and it gets solved by EVs, and it gets solved by thermal storage as we electrify heating and so on. But winter's a real problem. You talked about the dunkelflaute, but just winter is a problem. So what are the sort of things that we're seeing? You started to talk about some of them. But if we look at sort of now to 2030 we've got 7% of global electricity coming from solar today as we speak. Do we really need to deal with these sort of difficult bits? Or will the solar sector keep doing what it always does, just solve the next problem, take the next chunk of demand, double or triple in size, another few times, confuse you and beat your forecasts? Be annoying?

I think that this is probably not something the solar industry can solve, because all the solar industry can really do is sell solar, right? It is probably something that should be a consideration in energy policy. Because the thing is, if you've got solar causing very low power prices all summer and in spring and in autumn, then wind farms, for example, don't get built because they're not making enough money over the year. And if they don't get built, they're not running in the winter. So I do think that right now, particularly in places like Europe, which is quite far north, subsidies for wind or incentives, policy drivers for wind should be a higher priority than drivers for solar.

But what should that look like? Because fundamentally, I've said it, and I think you've repeated it, that overcapacity is a feature, not a bug, right? When we move to this deeply renewable world with some nuclear and other things, we're going to end up with a lot of over capacity. In other words, if you look at the ratio between the mean demand and the peak potential output, if everything was running, it's going to be enormous, right? We're going to have 3, 4, 5 times as much generating capacity as is needed. What policy environment can possibly make that make sense?

Policy needs to focus, first of all, on building things that are not solar, and secondly, on incentivizing flexibility to make those cars charge in the daytime. And I know you're not going to like this, but at least one of the answers is possibly having electrolysers to make hydrogen, because by 2030 we are going to, almost every day in spring and summer in places like Spain, have massive amounts of solar just being not used. We call it curtailed, but thrown away.

But okay, so let's just dive into that, because I would love it if the economics of that worked, because it seems so sensible. The problem is that, let's say it's thrown away 30% of the day during spring and early summer, cool. That's 10% of the year. That's 6% of the year. You are not going to, as an investor, build an electrolyzer that runs 30% of the day in spring and early summer and is idle the rest of the time, any more than you're going to build a wind farm that doesn't work during the day ever.

This is true, and exactly the same with AI and data centres, by the way, although data centres, you could actually send tasks around the world to where it's sunny. But even so, you're not going to build a whole expensive data centre to run it at 10% capacity.

So I had an idea, at one point after exiting BloombergNEF, I had this idea that my next thing would be a series of data centres around the equator that would move the task around where it was sunny. I even had a name for it. I was going to call it Skynet.

I think you should do that, Michael. Or we could just build a big wire around the equator, and then we can move the power to wherever it's sunny at any one time. And building transmission, long distance transmission grids, particularly east to west, is actually a huge part of this as well. Because yes, if the sun goes down two hours later in one place, then it could feed power to somewhere.

So I think you know, I'm an investor in Xlinks, which is north to south. It's going from the UK to Morocco. But there are Xlinks 2, 3, 4 and 5, some of them secret, and eventually, clearly, east-west linkages. Linking Europe to the PJM grid in the east of the US would be an incredibly valuable asset because of the time differences. And in Asia, linking up Asian countries, I think all of that is going to happen. High-voltage DC, I think we ain't seen nothing yet in that sector.

I mean, even for high-voltage DC, you have the capacity factor issue that if you're building a high capex investment — which an HVDC line really is — if you're only running it sometimes when the sun is right, the economics can be difficult. But clearly, linking the world up more is part of the solution.

Oh, and look, with Xlinks, it's wind, solar and batteries, keep the cable full because you need to. And if it's east-west, you'd be going one direction for some times in a day, and back the rest of the day. But let me come back to what's about to happen? Let's come back from the distant future, five years out, 10 years plus. Let's come back to between now and let's say 2030. So I saw a statistic, I have to be careful because it wasn't a BloombergNEF statistic, but you probably got the same one, that there's going to be two terawatts of solar manufacturing capacity within a year or two. We've just gone through one terawatt, which you predicted. This is a lot of solar, right?

Oh, there is so much solar manufacturing over capacity right now. There is enough polysilicon to comfortably make 1.1 terawatts of solar modules today. And that is the bottleneck. I mean, solar module manufacturing capacity today is like 1.4-1.5 terawatts. It could be two terawatts next year, who cares at that point, because there is not demand for 1.4 terrawatts.

You say there's not demand, but you've always underestimated the demand. So are you sure that there isn't demand somewhere? Some country — Nauru, I don't know — that's going to suddenly install hundreds of gigawatts.

I'm sure that there are many countries installing a lot more than our forecast says. I will be delighted if Nigeria or Kenya or Indonesia has this massive boom, and they probably will, but it's not going to be hundreds of gigawatts. I mean, our current forecast for this year, including a big buffer, is 585 gigawatts, and there is capacity to make 1.1 terawatts. So there's like 500 gigawatts of spare capacity.

And to put this in perspective, I did a back of envelope calculation. One terawatt of solar capacity, if you made it and installed it, and it wasn't curtailed, would be enough to produce about 5% of global electricity. So the solar industry today has the capacity to add 5%, so to go from 7% to 12% to 17% to 22% of all electricity globally, with the industry that we have today around us here, partly in a little way in this factory.

It's incredible. Global power installed power capacity for all types is about 9.3 terawatts. So being able to have a terawatt a year is massive, because it does mean that on a sunny day, there's going to be loads of power.

But what happens? Are we going to see that scale of installation? You said 600 gigawatts this year, but is it going to get to because the growth in capacity continues? Are we going to see solar installations go from 600 gigawatts to a terawatt to 1.2 terawatts? Or are we going to see bankruptcies? Because if we don't get that demand, what the hell happens to all these manufacturers?

We're going to see bankruptcies anyway. I mean, the current 10 cents a watt is a pricing that is very, very close to cost, possibly below cost, even for the leading manufacturers, across the whole value chain. I think that rather than the price going up, they will bring their costs down to meet it. But in the meantime, a lot of these firms are going to go bankrupt, either noisily or quietly.

So this is the solar sector's 'there will be blood moment.' Because there'll be blood somewhere. It'll come out either in the solar manufacturing value chain. Or if it does get installed, it's going to be hugely disruptive to electricity systems, enormous.

It can be both.

Blood all round.

Yes, the thing about solar manufacturing is because you build a factory using state of the art technology, and it's bigger than your competitors, and it has the lowest operating cost, and it makes lovely TOPCON modules that are slightly more efficient than the alternatives. So everyone loves you. Three years later, somebody else has built a bigger one using the latest technology down the road, and you haven't even paid back the debt on your factory and already it's obsolete.

Jenny, nearly 20 years in, you seem to be enjoying this absolutely as much as on that very first day when you walked through the door to write news stories, before you even became a solar analyst. It's just such a pleasure talking to you.

Thank you for getting me a really great job that I love.

It's a pleasure.

So that was Jenny Chase, lead solar analyst with BloombergNEF, former head of the solar team there, and when I was building what was then NEF, almost employee number one. And, as always, we’ll put links in the show notes to resources that we mentioned during our conversation. So that’s first and foremost, Jenny’s book, ‘Solar Power Finance Without the Jargon’, which is now in its second edition. But also episodes of Cleaning Up with Paddy Padmanathan, who developed so much of the very cheapest solar power in the world. And also, Simon Morrish, CEO of Xlinks, the cable that will ultimately link Morocco to the UK. As always, thanks to the production team behind Cleaning Up. And please join us this time next week for another episode.

Please make sure that you like episodes. Subscribe on YouTube or your favourite podcast platform and leave a review. That really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That's cleaninguppod.substack.com. Cleaning Up is brought to you by the Liebreich Foundation, the Gilardini Foundation and EcoPragma Capital.

The Solar Revolution - Past, Present and Future | Ep173: Jenny Chase

Michael Liebreich

Jenny Chase

Listen On

Featured Episodes

Recent Episodes