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Letter from Shanghai: the Solar Disruption is Accelerating!

Huawei SolarThe solar disruption is accelerating. I spent last week in Shanghai, where I attended the SNEC PV Power Expo 2015 and had the opportunity to meet with a number of global solar executives in China. Here are a few highlights and thoughts from the show.

1- Solar PV costs going down fast.

Solar PV production costs are about 45 ¢/W, according to Arturo Herrero, Chief Strategy Officer at JinkoSolar, a tier 1 Chinese PV manufacturer. Market prices are as low as 55 ¢/W for larger projects (80+MW) in markets without significant tariffs or anti-dumping measures (like the US), according to Mr. Herrero.

Tier-2 manufacturers generally compete on price so they have to sell for even less. I heard from several sources that tier-2 manufacturers are shipping product for less than 50 ¢/W.

 

2- Information Technology merging with Solar.

One of the premises of my book “Clean Disruption of Energy and Transportation” is that solar is a technology and, as such, it’s governed by information economics and the increasing returns that characterize information products.

Huawei, the $46 billion (2014 revenues) telecommunications company has entered the solar market in a big way. At the SNEC PV show Huawei showed its “Smart PV Plant Management System”, a power plant monitoring solution that combines string inverters, smart loggers, wireless communication equipment, and a grid management center to monitor the power plants.

The marketing manager I spoke with at the show told me that Huawei had shipped 4 GW of smart PV plant product in 2014 and expected to ship 10 GW in 2015, which I found hard to believe. The company’s product collateral did say that the company had 5.5 GW in orders and 4GW in shipments for 2014.

Whatever the numbers are, Internet companies are finding out that the distributed technology nature of solar is very much in tune with the distributed nature of information technology.

 

3- China has achieved critical mass in solar PV manufacturing.

The SNEC solar expo was far larger than any solar expo I have been to. More than 150,000 attendees came to Shanghai to visit 1,500 companies covering 180,000 square meters of exhibition space. By comparison, Intersolar Europe 2014 had 42,300 attendees who came to visit 1,100 companies covering 88,000 m2 of exhibition space.

Most of the companies at the show were Chinese and they represented nearly every aspect of the solar PV manufacturing supply chain. China has probably achieved a critical mass in solar PV – which feeds the virtuous cycle of further gains in scale and innovation that lead to even lower production costs.

 

4- China is already the world’s largest PV market.

China installed more than 5 GW of new solar capacity the first quarter of this year. ([i]) This is just under the 5.6 GW that France has installed in its whole history. ([ii]) China is planning to install a total of 17.8 GW in 2015 which is just under the 18.3 GW that the United States had installed in history as of the end of 2014. ([iii])

By becoming both the world’s largest manufacturer and the world’s largest market, China can further increase innovation advantages that accrue when co-locating R&D, manufacturing and markets. This can push the PV learning curve even further – which leads to even lower cost of solar.

As PV costs keep going down, the solar disruption around the globe will accelerate even more.

SNEC Solar Expo 2015

SNEC Solar Expo 2015

 

 

 

5- Clean Disruption, Internet Disruption and Solar Disruption

Solar energy is pushing energy production, storage, and management to the edges (customer sites) from the center (centralized power plants). These distributed solar sites are getting smaller, smarter, more modular and connected.

The solar disruption has many of the same characteristics of the information technology disruption. Just like the Internet turned our information publishing world from centralized to distributed, we’re headed toward a distributed architecture of energy made possible not just by solar and storage, but also by software, sensors, artificial intelligence, mobile internet, big data, satellites, nanotechnology, artificial intelligence, and other exponentially improving technology.

Extraction-based economics (based on scarcity and increasing marginal costs) have no chance against solar and information-based economics (based on abundance and decreasing marginal costs.)

The solar disruption is accelerating!

 

Sources:

[i] http://www.pv-tech.org/news/china_officially_installed_5.04gw_of_new_solar_capacity_in_q1

[ii] http://en.wikipedia.org/wiki/Solar_power_in_France

[iii] http://en.wikipedia.org/wiki/Solar_power_in_the_United_States

“It’s a one-two Punch” PV Magazine 4-page interview with Tony Seba

 

PV Magazine Cover, January 2015 issue.

The solar industry is starting to believe. Solar is a disruptive technology and, when combined with other disruptive technologies such as electric vehicles and self-driving cars it will disrupt the energy infrastructure.

PV Magazine interviewed me about the Clean Disruption, the future of energy and the role that solar PV is playing in that disruption.

Here’s one of the questions that Edgar Meza asked me. The magazine has kindly allowed me to share the entire interview in PDF form here.

What characteristics of PV make it disruptive?

Here are several characteristics of PV that make it disruptive

1-  PV dematerializes energy. To understand this concept, think of how digital photography disrupted film photography. With digital imaging, photography went from atoms (film) to bits (digital), from something material that you had to manufacture for every single picture to something immaterial that is essentially free. Today energy is like film photography was in the 20th century. Every time you flip a switch you burn fossil fuels or uranium. Every time you hit the car pedal you burn petroleum. Solar PV dematerializes energy by turning the sunshine photons directly into electrons and bits. You don’t burn anything to charge your computer. The same thing happens if you charge your electric vehicle with solar energy.

2-  PV demonetizes energy. Again, think of digital cameras disrupting film photography. Each time you took a picture you burned film so Kodak made money. Then if you actually wanted to look at the picture you had to pay more money to Kodak for the paper and the chemicals that went into processing the film. With digital photography the cost of taking each additional picture, storing it, sharing it, and watching it is essentially zero. This is exactly what solar PV does to energy. Once you install a PV power plant the marginal cost of energy is essentially zero. Just like Kodak could not compete with a marginal cost of zero, there is no way on earth that energy companies can compete with solar marginal cost of zero.

3-  PV has increasing returns. PV is a technology whose costs have gone down by roughly 22% every two years for decades. Essentially the more PV is adopted the more everyone benefits from everyone else’s adoption of PV.

4-  PV is scale-free. The same technology works to power a 1W light bulb, a 1kW house, a 1MW business, a 10MW factory, a 100 MW town, a 1 GW city and a 100 GW country. This is much like information technology is scale free: our mobile phones, laptop computer and the most massive data centers work with similar modular technology building blocks.

5-  It flips the architecture of energy. PV essentially flips the architecture of energy the way that the web flipped the architecture of publishing. In the old days publishing used to be done by a few companies who owned large centralized printers. They decided what would be published and pushed it down to the users. Now everyone with a Facebook, Twitter or LinkedIn account is a publisher. The same dynamics work for PV: everyone can generate energy as well as information.

When you combine these disruptive characteristics of PV with the complementary disruptive characteristics of electric vehicles, it’s a one-two punch that conventional energy companies will not be able to survive.

Please read the whole interview with PV Magazine Interview with Tony Seba Jan 2014.

Auckland Wynyard Quarter

New Zealand is Anticipating and Leading Market Disruption

I’m excited about working with Callaghan Innovation to teach my “Anticipating and Leading Market Disruption” workshop in New Zealand.

Callaghan Innovation administers more than NZ$ 140 million (about USD $118m) in business R&D funding per year, designed to help accelerate innovation by firms in New Zealand.

The 1-day workshops will take place in Auckland (Monday, Sept 8th) and Christchurch (Wednesday, Sept 10th).

Click here to download the workshop flyer: Callaghan Innovation Market Disruption Tony Seba Event Flyer Auckland Christchurch 8Sept2014

 

Disrupting Energy & Transportation – Why Business Model Innovation Matters

In 1918 one in thirteen American families owned a car. Eleven years later 80% of American families owned one. The main reason the US auto market went from early adopters to nearly full penetration in just over a decade was an innovation launched by General Motors. It was not a new engine, transmission, or even a technology innovation.

In 1919 GM partnered with DuPont to form the General Motors Acceptance Corporation (GMAC) to offer a new financial innovation: consumers car loans. (1)

Seven years later 75% of all car buyers bought cars on credit. It was a business model that made cars affordable to the American mainstream buyer. In other words, it was a business model innovation that disrupted the transportation industry in the early 20th century.

 

From Car Loans to Solar Loans

Fast forward to the 21st century. In 2008 a company called SunEdison introduced the concept of solar-as-as-service. Residential and commercial solar power buyers would no longer need to invest capital in purchasing solar panels.

SunEdison offered to finance, install, own and maintain the solar panels on the rooftop of its customers. Homeowners did not have to take any technology, financial, or maintenance risks. At the end of the (20-year) contract, the customer had a choice of purchasing the equipment at deep discounts or having them taken off the roof.

Soon after SunEdison, another Silicon Valley solar installer SolarCity [NASDAQ: SCTY] created the SolarLease and the solar market exploded. The concept caught on and other Silicon Valley companies such as Sungevity and SunRun joined SunEdison and SolarCity in offering ‘Solar Leases’ or ‘Solar PPAs’.

Partly as a result of these financial innovations, the solar market in America quadrupled over the following four years. About 80% of residential and commercial installations are now financed by third party-companies. In Colorado the number is closer to 90%.[2]

Technology innovation is clearly important. Making the right Strategic Choices (whole product, positioning, product/market fit, etc) is clearly important. But Business Model innovation may be the key that unlocks a new market or disrupts an existing market.

Sources:
[1] “Cars in the 1920’s”, Kim Kenney, Suite 101, http://suite101.com/article/cars-in-the-1920s-a90169
[2] “Sunrun Closes $630M in Rooftop Solar Funds From JPMorgan, US Bank“, GreentechMedia, June 26, 2013: http://www.greentechmedia.com/articles/read/Sunrun-Closes-630-Million-in-Rooftop-Solar-Funding-from-JPMorgan-US-Bank

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