November 6, 1996
For just about as long as I can remember, the official wisdom has put photovoltaic electricity–electricity generated directly from sunlight– 20 years away from commercial competitiveness. How can something with such promise–power for satellites and clean energy on Earth–remain 20 years away for 40 years?
In part because the focus has been largely on technology–how can we make the cells more efficient? And while there has been great progress, another point of view focuses on economics.
More than 20 years ago, David Morris of Institute for Local Self-Reliance proposed, in “The Dawning of Solar Cells,” that market formation was key. Morris highlighted two levers: First, few people purchase a home for cash, or even for the 3-5 year financing term used for automobiles. It would be too expensive–and short term financing is not necessary for a long lived purchase like a house. Or a PV system. Second: The chicken-and-egg problem of economies of scale. PVs are too expensive because the market is too small. And the market is too small because PVs are too expensive. So how could economies of scale be created, moving PV companies more rapidly from essentially craft production to efficient assembly line manufacture?
The model was simple: a consortium of buyers (Morris proposed cities) and one or more PV manufacturers would enter into a purchase contract. The buyers would agree to purchase a specified rising quantity of PV systems each year for 7-10 years. The manufacturer would agree to provide the systems, using the contracts in hand to secure financing for expanding plant and capacity. The economies of scale, and the ride up the learning curve, from the steadily increasing production would enable a steady –and dramatic–reduction in the cost of the PV systems per kilowatt…and those projected price reduction would be included in the original contracts.
In the first years of the contract, the buyers–financed by tax-deductible bonds or other financing–would be obtaining electrical generating capacity that cost more than market alternatives. About two-thirds of the way through the contract term, PV costs would drop sufficiently to make the energy they generate competitive. And in the final years of the contract, the buyers would profit enough from a widening savings differential to retire the bonds that financed the effort.
The result: a collection of cities becoming increasingly energy self-reliant, a viable and more broadly competitive PV industry, and the concomitant environmental and economic benefits.
In the time since that proposal, there have been only fitful attempts to apply the approach of market formation through coordinated purchase programs–most notably the US Department of Defense and the PV/USA and PV4U Federal/power industry consortia.
The most ambitious effort, surprisingly, has come not from a major financial or government institution, but from a non-governmental organization called the Solar Electric Light Fund. SELF’s ambition was not to kickstart the industry but provide a financing bridge to enable benefits of PVs to reach some of those most in need, and most unable.
SELF has pioneered the use of PVs for rural electrification programs in developing countries, with programs in countries to help local groups finance, install, and maintain their own solar home electric systems. The systems provide PV-generated electricity for no more than a family already spends for kerosene, candles, and dry-cell batteries, the usual source of light for rural people without access to the electric grid.
According to SELF, PV systems are too expensive for most rural families to purchase outright, since, in effect, they are asked to pay in advance for their next 20 years of electric service, the typical life of a solar PV panel. “We want to make solar lighting economical for millions by selling electric service in developing countries at a monthly charge similar to the pricing of urban utilities that will cover costs and provide a profit to investors,” says says SELF’s new Chairman, S. David Freeman.
Freeman, former chairman of the Tennessee Valley Authority (TVA) and past CEO of four major electrical utilities, will oversee the formation of an investment company to finance large-scale deployment of solar electric home lighting systems “to help serve the two-fifths of the world’s people who do not have access to electricity.”
Which leaves me with the question: if a not-for-profit NGO can put this together, where is the consortium of cities, lenders, companies, etc. that can put Morris’ 20 year old strategy to the test at a significant scale in the US? The current round of utility deregulation might provide an opening.
For more information, please contact:
Solar Electric Light Fund; 1734 20th Street NW; Washington, DC 20009; Phone: (202) 234-7265; Fax: (202) 328-9512; email: [email protected].