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Renewables at a Crossroads

Investment opportunities in an evolving environment.

Fortnightly Magazine - June 2011

the high-level technology categories such as wind, biomass, and geothermal to the subsectors underpinning them. For instance, the proliferation of various solar technologies—both thermal and PV, and the even further subsets of thin-film and crystalline silicon—helps to ensure that product characteristics meet the targeted needs of different customers—for example, utility versus residential. This technological diversity carries a number of key benefits. For example, regions often have expanded flexibility to meet renewable generation goals by leveraging technology alternatives that were previously unavailable. Additionally, intermittent renewables technologies can complement one another to help smooth output variations and better match supply with demand. And proliferation of different technologies enhances intra-renewable competition, thereby stimulating innovation and encouraging con�tinuous cost improvements.

To this last point, other opportunities might still exist to bring down the cost of renewables technologies and help them compete with traditional generation sources.

Wind: Wind power, the most widespread renewables technology, has already benefited from $3 billion in R&D spending over the past decade, and the technology might have reached the point of diminishing returns. Still, the slowdown has led to an estimated 30 percent overcapacity, which should lead to lower equipment cost and thus help sustain steady growth in wind installations.

Solar—CSP: Concentrating solar power (CSP) is a mature but re-emerging renewables technology that exhibits strong growth potential for the next five years. CSP plants have been operating in California’s Mojave Desert for nearly 30 years, and despite the introduction of some new technologies (such as the power tower), most plants are expected to feature the mature parabolic trough technology. As such, most technological breakthroughs to bring down the cost have already occurred. Despite this, the technology might build enough momentum to scale up component manufacturing and reduce costs if CSP projects continue to perform well in places such as California and Spain, and if installations increase.

Solar—Crystalline Silicon: Despite significant progress on the cost front in recent years, solar PV remains the highest-cost renewables technology and holds the greatest potential for further cost reductions. In crystalline silicon, there remain several levers for further reductions across the value chain, including consolidation, scale, and increased competition. Here, the impact of the rise of Chinese PV module manufacturers cannot be overstated. These manufacturers have increased their share of the market in the last four years to more than 50 percent. Today, the top 10 Chinese PV module manufacturers combined have six times the combined manufacturing capacity of the top 10 U.S. module manufacturers. Building on their strong position in the module segment, these companies will continue to integrate forward and backward, setting themselves up to deliver further cost reductions through both innovation and investments.

Solar—Thin Film: Beyond pursuing scale economies, an array of thin-film competitors are testing alternative designs and materials that promise to reduce the technology’s cost per Watt or increase cell efficiencies. Though unlikely in the immediate future, a breakthrough development related to manufacturing costs, material costs, or cell efficiency could reduce costs on the order of First Solar’s experience with CdTe or that of the Chinese crystalline silicon