My thinking shifted while listening to a company presentation* about the increasingly large scale of PV installations. There is a large and growing market, they reminded me, for solar power installations for major purchasers of electricity. This was around the time that Google announced their commitment to a 1.6 megawatt PV installation at their headquarters-the largest installation in the U.S. at the time and one of the largest in the world.
Listening to that presentation I realized that something that happened in wind power now seems to be happening in solar power: installations are scaling up. In the margins of my notes I sketched an image familiar to anyone who knows the history of wind power: a line of increasingly large wind turbines.
Wind turbine size has grown over time.
This image summarizes a key trend: the power-generating machines — wind turbines and solar panel arrays –have tended to become larger over time. But it’s not just the equipment that gets bigger — the installations get bigger, too, covering great expanses with large numbers of machines.
In wind power, it’s widely known that there have been economies of scale realized in manufacturing, installing and operating larger machines and putting more machines in one location. What may be less well-understood is that in wind power another important reason for the scale-up of installations has been "transaction costs" in the broadest sense: the effort and costs of siting, negotiating, financing and managing a project is about the same whether the project is small or large, so one maximizes profits by making an installation as large as possible.
In PV, economies of scale are less significant, particularly in manufacturing, in which the key unit is a module (around 200 watts), rather than larger assemblies. In PV, siting is also easier than in wind power. Thus, larger installations generally cost customers about the same as smaller installations. However, in the current development of the industry, transaction costs are high and one way of making them less significant is by pursuing bigger transactions.
Worldwide, there are more and more large installations, as the investment bank Jefferies & Company observed in a market report for the third quarter of 2006. In California, according to my calculations on data from the California Energy Commission, installations through the year 2004 averaged about 4 kW. For 2005 and 2006, the average was around 5 kW — a jump of roughly 25%. In residential markets, individual systems are getting larger and new housing builders are starting to order PV for an entire development at a time.
PV installations are also becoming more commercial — and in the process starting to move toward utility scale and centralization. Around the globe, corporations are promoting themselves as environmentally responsible with solar power installations. In California, 2006 was the year that, for the first time, the rate of growth of commercial sales outstripped residential sales growth. More and more, we see systems developed for large corporate headquarters, factories and other large, power-hungry facilities.
Another major trend — which is less obvious — is that these technologies have tended to move from the edges to the center of the grid. The small windmills that are the progenitors of today’s mega-sized, megawatt machines were used in remote locations, where the availability of electricity and thus its cost were otherwise out of reach. While legislation allowed some of the first utility-customer, wholesale wind power plants to be established in California’s Altamont Pass in the 1980s, many of the wind turbines sold in the 1990s were for use in small numbers in rural cooperatives in northern Europe.
Today, of course, the turbines are massive, the installations have numerous machines, and the power is being sold directly to utilities for centralized power.
The original market for solar cells was in outer space — as far as possible from the grid. The first major terrestrial market was in calculators and other grid-disconnected devices as a replacement for batteries (which are still the most expensive channel for electricity, per watt). Today photovoltaics are found on homes at the grid’s retail cost fringes and are increasingly being used in larger installations for industrial purchasers of electricity.
Costs are continuing to decline overall in the PV industry, in part because of the growth of expertise in large-project management and project finance. Nonetheless, PV is still a long way off from providing centralized power at wholesale rates. Utility-grid solar is still a very small market and almost entirely thermal, rather than solar electric.
My new view, to put it in a nutshell, is that there has been a tendency for renewable energy power generation plants to become larger and to move from the expensive edges to the wholesale center of the grid. The massive wind turbines that today play a significant role in generating centralized power are the descendants of small windmills in off-grid locations. Solar cells, which got their start in extra-expensive extra-terrestrial applications, are today moving from residential rooftops at the grid’s retail cost fringes to larger installations for industrial purchasers of electricity.
That is not to say that scaling up is the only path forward for PV (and, with the resurgence of interest in on-site wind power, it may be too early to tell whether or not it bigger is always better in wind). I expect PV to continue to proliferate in grid-edge, small and retail-priced applications, particularly by finding other ways to reduce transaction costs. In fact, I believe that there is a major opportunity for those companies that reduce transaction costs for small purchases, such as in residential applications.
What is missing from these sweeping generalizations? The biggest missing piece is government. It goes without saying that laws, regulations, agencies and subsidies play a major role in defining the markets for all types of power generation, and the newcomers wind and solar each evolved under different regimes. Another missing piece is technology: It may be important that for wind turbines, and to a lesser degree, photovoltaics, it is easier to start with a small machine and make it incrementally larger over the years.
Do these trends and parallels extend to other technologies and markets in renewable energy, beside wind and solar power? My impression is that similar lessons could be drawn from the development of other power generation technologies, including fossil fuel and hydroelectric plants, and they could apply to other renewable technologies, such as solar thermal and ocean power.
*The company making the presentation was SolFocus. Full disclosure: SolFocus has been a client of the author’s firm, GreenMountain Engineering.
Jon Guice is a sales and marketing executive and co-founder of the renewable energy technology consulting practice at GreenMountain Engineering. Earlier he co-founded a distributed wind power start-up. An accomplished social scientist, Jon’s first career was in academia, government policy and computer technology development. He holds a doctorate from the first-ranked science and technology studies program at the University of California, San Diego. He has published widely and is a frequent speaker at industry conferences