This is Dana Perkins and you are listening to Switched on the BNEF podcast. The first solar panel was invented at the end of the nineteenth century, but it took until nineteen fifty four for Bell Labs to create the first commercially viable solar cell. Today, many would consider it a cornerstone of the energy transition and a part of clean power rollout all over the world. In the twenty first century, we've seen solar adoption reaching new highs and
module prices reaching new lows. To put things in perspective, global installed capacity of photovoltaics in twenty twelve was at one hundred and two gigawatts, and a decade later it grew till one point two terawatts, which brings us up to today. So what does the remainder of twenty twenty three have in store for solar? Will the industry reached new milestones and how might that differ in different parts
of the world. On today's show, we're joined by BENAF solar specialist Jenny Chase, and she's going to talk to us about bnef's Q four twenty twenty three solar market outlook. She shares the current glopebal dynamics for solar, for example, how Europe's recent buying spree of modules has affected prices as well as the status of solar megabases in China, and how onshoring solar manufacture in the US has impacted module prices. I also ask Jenny what keeps her up
at night? Is it price, cannibalization or trade wars? And just how much solar does she consider to be too much solar. BNF subscribers are going to be able to access BNF Solar Market Outlook for Q four twenty twenty three on BNF dot com, at BNF on the Bloomberg terminal, or on the BNF mobile app. Now, if you like this podcast, if you subscribe, you'll receive an update on your phone when a future episode is published, and if you provide us with a review or a rating, that'll
make us more discoverable by others. But right now, let's jump into our conversation with Jenny about what's happening in solar any Great to have you back on the show today.
Great to be here, Dana.
So we're going to discuss solar. I mean, what else would we discuss? The fun thing about this is we're preparing for this show. Given that we've done this show, and you actually you write books on the topic of solar, you go on other people's shows, you're on TV about solar. So let's jump into this. But let's do this flash point of right now. We're going to talk about being
a f solar market outlook looking into the future. We're also just going to discuss a bit of the COP goals, so COP twenty eight, stripling renewables by twenty thirty, and that solar element within there. But I want to know headed into this, is this going to be an uplifting show or do you have bad news for me?
It's not a great time to be a solar manufacturer. On the other hand, all the installation numbers are going up. It's very easy to look at solar with a ten year overview and say, well, obviously solar is going to be massive, Solar is king, Solar is going to change the world, And I think that's probably true. The great thing about having to write a quarterly outlook is that you have to ground it in what's actually happening. And to be honest, there is some big news and there
is some slightly not so exciting news. So the big news is that China is likely to install two hundred and forty gigawatts of solar panels this year. The reported numbers look a little bit lower because they're inn ac capacity from the grid, so that's the grid and a red capacity, not the panel capacity. But it's probably going to be about two hundred and forty gigawats of solar panels going into China, which is like last year the entire world installed two hundred and fifty two gigawats of
solar panels, So this is quite an acceleration. And part of the reason for that, though, is that prices are super low. Yesterday I was updating the price index for solar modules, and right now your standard solar module in a free trade market cost twelve point eight cents per watch. That's below where anyone thought it would be. That's below
where the experience curve so as it should be. I'm having real difficulty constructing the experienced curve in a way that makes any sense with twelve point eight sense per what it is if you look at the cost stack, possibly still slightly above the cost of every step of the value chain variable cost, but it is super low. I mean, these are really prices that not only have we never seen this anymore, but it also makes no sense.
So this is an industry that can still, after all these years, surprise the hell out of you.
I am so surprised. I think it's because I've been watching it for seventeen years eighteen years now that I am so surprised.
And with these prices, does this therefore give it the most competitive l COE in most parts of the world globally, bar nine of any other technology.
Solar is super cheap. If you've got a grid connection, then you've got land to put it on. Then if you can get someone to buy the power, then you can sell the power. But it's not really the price of modules that's driving solar economics anymore. And the challenges are something entirely different. That said, low module prices are a big problem if you're a manufacturer selling solar modules.
Well, so let's then go into that. Let's talk about the module manufacturers. Why is this such a hard time Because it is so they're not getting the margins on the things that they're selling despite the demand. Is there a glut of supply or there too many manufacturers?
Exactly I mean, there's always too many solar manufacturers. That's it's an industry with structural over capacity. Because everyone loves solar manufacturers. Everyone loves solar panels, so everyone is like, let's make solar panels, and then it turns out that the margins and making solar panels are terrible. It's a commodity business. The new generation of technology is always coming online, and it's more efficient, it's cheaper to make, it uses
less materials. It's a great business to be buying solar modules. But even there, a lot of European markets have what they're calling a hangover. There is a huge inventory of solar moduels in Europe because last year there was the energy crisis, power prices went through the roof, everyone panicked, everyone put in orders for solar modules. And this year the pressure is off. Power prices have eased a bit. We've realized that some of the worst case scenarios for
power prices are not going to happen. People are asking questions like do I want to put solar modules on my roof at any price right now? And there were installation there were bottlenecks in labor so essentially the European market has not grown ass as I think people buying modules in Europe expected, and there's probably about a year of inventory sitting around in the supply chain in Europe of solar modules.
And it's that extra inventory that is what they're referring to as a hangover. Because I'm sorry, but using that term, I'm not sure I fully get why that is the term he used.
So sellers are referring to this as a hangover because there was a huge party in twenty twenty two, a lot of demand. People who were going to buy solar anyway, bought solar systems and solar modules early, and this year they're like, no, no, thank you, no more this. We have a warehouse. We have warehouses full of solar modules. At this point, I love this.
It was a party in twenty twenty two.
That's amazing, and it's not like it's not a party in twenty twenty three, but it's more like a normal year, and normal year when you had a really big party previously doesn't feel so good. Or to put it another way, demand was pulled forward from twenty twenty three into twenty twenty two, and in consequence, is not necessarily materializing.
Now, now we all have those friends that you know go home before midnight and those ones who miraculously make it after midnight. So let's talk about where the music's still blaring, where the party is still going. Let's talk about China, huge producer that we all know. Manufacturers of solar modules are coming out of China, additionally being installed. You had already touched upon the fact that there has been more installed in China than in the previous year across the world combined.
What is dry less, It's slightly less than in the rest of the world. It's two hundred and forty in China versus two fifty two last year worldwide.
Okay, so important clarification, but durn very very close, so we'll approximate there. So why is China? Why is China booming? It's such a rapid rate.
Well, China has China has two main sectors. So it's got the rooftop sector, which is on a province by province basis, and most of the provinces have been encouraged to roll out government schemes to do bulk development of solar on roofs, and many of them have quite successfully. It's a major market. There are major markets in Shangdong,
in Guangdong, basically where the people are. And there's also the only megabases where the government has allocated a grid connection out to a place with lots of land, and developers have to put up to ten gigawatts of solar on that one grid connection and often some wind batteries as well. And those megabases were auctioned off in the past few years and the developers were mostly waiting until
the prices dropped to do them. There's also a deadline at the end of the year for some of those megabases, so the developers are now saying, Wow, finally cheap modules. We've got a deadline coming up. Let's build it.
So's let's get it done. It's last call'st.
Orders STI, Well, that's orders for that batch of megabases. But that will but there is another batch next year.
You're referring to the megabases in China, which this is a term that I'm not hugely familiar with. So if there are other people listening, can you put this in context. Are these only found in China? Is this is it a scale that is really not often or maybe ever, found elsewhere in the world. And can you put the size into context for our listeners.
So the good thing is we have an upcoming note from Chan Yi Shao in Beijing on China's energy megabases because they don't get talked about enough. So China's megabases are relatively unique, although there are some similar developments in India. It's the government finding a patch of land which can be developed for solar and wind, running a grid connection out there, and then just giving a stayt owned developer the right to do it. And these can be five, ten,
twenty gigawatts. They've been auctioned off in batches, and the most recent lot will be co located solar, wind storage and sometimes some thermal as well, just to get the most out of that grid connection. But this is a really centralized planning, really low price development of a huge amount of renewable energy. And it is similar to some of India's twenty four to seven and big auctions in some respects, but they are even bigger.
So let's pivot to the US for a second, because we recently did a sh on grids and that keeps wrapping up grid connectivity, is creating time lags for installing renewable energy. Wind solar, you name it. The grid is requiring additional work in order to facilitate new projects coming online. First of all, are we seeing the same grid connectivity issues in backlogs in China? Sounds like perhaps not. And then well we'll go to the US in just a
second after that. But firstly, in China, is the grid able to handle all of this?
So any renewable energy market in the world you go to at the moment, you can say, well, the big bottleneck right now is grid, and you will be right. You can go to a conference in Turkey and say here in Turkey the big bottle neck is grid, and everyone there will think you know so much about the Turkish show. In a market, you can do this anyway. So yes, it is a problem in China, and in China particularly, there's the problem that the areas with lots of land and lots of sun and wind are not
the places where people live and use power. And China, more than any other country, has used ultra high altage transmission lines to take power across the country. But even the biggest transmission line is difficult to use fully with solar and wind, particularly with just solar, because of the low capacity factor of solar so yes, it is even a bottleneck in China, although China has certain structural advantages to building enormous projects to sort it out.
So then let's do that pivot to the US as a completely different market. Have the timelines for getting new projects online been extensively elongated as of late, and can you just touch upon well the current state of play in terms of near shoring and domestic manufacturers of solar modules, because there has been a change to the way the US treats semiconductors over the last couple of years and that has changed how they go about purchasing solar panels.
And what I really want to know is are they experiencing these same ultra low prices.
Well, the US is a small solar market and difficult to do business in. One of the reasons is that the allocating grid is relatively difficult. It's very regional in the US, and so it is a bottleneck there. In fact, I don't think the problem is that the grid procedures have got worse. I think the problem is that you've got more projects trying to get grid connection, and so it is the bottleneck. Whereas economics and power pursures agreements are not the bottle neck anymore. So it's just found
a new bottle neck. So on the supply side, things are easing up. On the US, prices for solar modules are still over twenty five cents or what which, considering we just said that the price is in the rest of the world were twelve point eight cents for what is quite difficult. But the US is used to having expensive modules. It always has had expensive modules, and the subsidy in the US is very generous, the Inflation Reduction
Act in the US. The effect on clean energy of that is basically pushing down the accelerator on a market that has the handbrake firmly on, So the US is skidding around. Modules are cheaper, they're inventory there as well, and there is about fifty giga what's a year of module manufacturing capacity planned in the US to be added now? I don't know what will happen now. Modules in the
rest of the world are so is so cheap. I suspect, just on a personal personally, I suspect someone that capacity will be canceled because why build a factory for something that's almost free, Even with the trade barriers and the trade barriers are significant. I mean, the Inflation Reduction Act is paying First Solar, the only fully integrated supplier, seventeen US cents per what to manufacture in the US, So the price elsewhere is twelve point eight. First Solder is
getting seventeen just from manufacturing in the US. There's also a four or five cent per watts premium for domestic content in the US, so the US module industry is going to be very heavily subsidized, probably enough that it survives against competition from Southeast Asia and India, and increasingly those are the companies that are selling into the US.
In the US, the economics are really good, but the bottlenecks are still getting your projects connected to the grid, and the independent system operators are working on making that easier, on finding the locations where they can safely be collected to the grid and letting those projects go ahead and then kicking everyone else out of the because there was no point in having a grid Q full of projects that are never going to get built.
Now, I do want to continue our world tour, but before we leave the US is solar creating jobs.
Yeah. The thing about having the accelerator on and the handbrake on is that it creates double the number of jobs because some of them work in the accelerator and some of them work in the handbreak. It's a great place to be a lawyer or a tax equity arranger. And yeah, some of the people are actually making solar modules and building solar systems as well.
Okay, let's continue around the world tour, and I'd like to next go to Brazil. Brazil is at this point in time vying for third maybe not quite there, depending on when we're pulling the numbers. Is a very competitive space in terms of demand for solar. What is driving Brazil to become well, to be so interested in solar at this point in time.
Subsidies. If you see a massive boom like that, it's usually subsidies. So it's a little more complicated than that. In Brazil, there's a net metering system where if you're a business or a company, you can build up to five megawatts of solar on your roofs and you can share that solar electricity between your different sites, and that solar when you feed it into the grid, it also
runs your meta backwards. Effectively. Now, minus some grid costs, you have to pay some grid costs on that, but the grid costs are pretty minor considering the price of energy, and so yeah, essentially it's net metering for large commercial systems in Brazil.
So continuing on, let's go now to another continent entirely, let's go to Africa. There have been grid reliability issues that have been well documented for many years in South Africa in Nigeria. Nigeria namely has a booming population, increasing demand for access to electricity. So is solar helping to alleviate this grid intermittency or is it feeding into it? And really what does the situation look like for solar growth in Africa right now?
So yes, in both Nigeria and South Africa, solar is helping to solve the problems power access. I would say that in South Africa, the latest data suggests that I got a bit over excited. Last time I did a forecast for South Africa, I said it would be five gigawatts new bill this year, but it's actually slowed down quite a lot since May and June, and it's probably
going to be more like three point five gigawatts. It's so hard to estimate these markets, but apparently May and June is when people have the worst blackouts, and so there was a peak of demand there which has not been sustained. It's quite down a bit, but three point five gigawats are still a lot, and there are increasingly commercial installations going in. So South Africa is booming. Nigeria we have even less data, but the exports from China
to Nigeria are still going up. So in both these places we think that solar is having a meaningful impact
on people's access to electricity. And of course we're watching the rest of Africa, or we're trying to watch the rest of Africa, because it's so important both for the solar industry to find new markets that are untapped and also for the people actually there that these countries can leapfrog, not go through the whole thing of building a fossil fuel powered grid, but go straight to something better and cheaper.
Now, you said at the beginning of the show that these market outlooks force us to think about things in these kind of restricted timelines, which is actually quite useful for thinking about short, medium, long term because we do look at all of these different aspects of the industry. So over the course of the rest of this year and into next year, are we going to continue to see growth?
So we absolutely do see growth in the solar industry. It will continue, it will be almost universal. I think when some people are forecasting, they want to just carry the line on the line up, and I've got to caution as a forecaster that you cannot just do that because exponential growth is a mathematically terrifying thing, and if you're forecast involved covering the entire world with solar panels,
they are probably wrong. We're getting to the point as an analysis team where you have to start asking questions about when solar does slow down, and there are negative feedback mechanisms in solar. Once you get a certain amount of solar in the grid, power should cost less at midday on a Sunday Sunday day. Given the growth rates we're looking at, it should probably be free on a Sunday day during sunny hours by twenty thirty and that will affect the economics of solar and make people less
plately to build more solar. Now there are a lot more batteries than we thought there would be as well. Batteries are also booming, and of course batteries can shift at least the daily generation to the evening when the sun goes down, which helps solar by propping up the prices in the middle of the day and meaning that solar projects get paid more for their output. But there
are limits to integrating solar. We can work on those limits in many ways, but there are negative feedback mechanisms that do cause certain solar markets to slow down, and forecasting when they will is very, very difficult, and you can't just extrapolate an exponential line forever.
Well, So let's talk about this growth then in light of the upcoming Climate Conference COP twenty eight, which will be in Dubai and the United Arab Emirates. And one of the things that the COP presidency has outlined is this concept of triplingles by twenty thirty as being a goal that we should be striving towards. And I know that we are publishing a report that looks at that specific goal and talks about various aspects of it, including
whether or not we think it's attainable. So, Jenny, what are your views on tripling renewables by twenty thirty for solar?
So we're expecting the pledge to be negotiated at COP twenty eight to be that the renewables capacity at the end of twenty twenty two worldwide will be triple to twenty thirty, which would take it to about eleven terrawatts of renewables capacity by twenty thirty. And this won't be homogeneous.
I mean Brazil already Brazil has loads of renewables. Brazil gets about eighty five percent of its power from renewables, including large hydro, so it doesn't really make sense for Brazil to triple that, Whereas there are parts of the world like Africa, like Southeast Asia that wants to more than triple, not just for their own economic reasons, but also to be on a net zero pathway to twenty fifty.
We think though as a global target, it's in line with our net zero pathway, and so that's probably a good thing, but it will have to be implemented differently
in different countries. And the other thing is, as a solar analyst, don't make it all bloomin solar, because if you triple global renewables capacity with solar, solar capacity, factors structurally are at most thirty percent, and that's in a truly exceptionally sunny place, whereas wind capacity factors should be higher than forty percent, and hydrocapacity factors can be highest still. And also the wind blows at night and in the winter. So we must not take this tripling renewables capacity and
say it'll be all solar. We should be building wind as well. As a solar analyst, my tea takeaway is we should be building wind.
It should be an increasingly diversified grade. We need to lea see a lot of different things that are doing different things for the mix in order to handle intermittency. But as a solar analyst, then would you still say, assuming that it's not the only but part of the mix, should solar still be at the center and perhaps the dominant source of energy.
Solar will get built whatever you do.
So it's going to happen. Regarding because of web solar.
You couldn't stop solar if you wanted to. What we need to be doing, what government should be focusing on is grids and wind.
So on the range of things that could be keeping you up at night in the solar industry, you've already identified that we needed to be thinking about grids. We need to be thinking about the various sources that are
going on to the grid. But I've got two things that I think we're often considering for the future, maybe even right now, and they are one the semiconductor trade wars that are taking place currently, and then also future land use constraints, which would you say you are watching most closely.
I'm not that worried about land use constraints, to be absolutely honest, maybe except in city states where they literally do not have much land. Most countries could meet a sensible amount of their electricity supply with solar on the ground, and they could alternatively and probably should, put solo on the roofs instead. I think rooftop solar makes a huge amount of sense, and you should not build solo on land that is otherwise useful. But there does tend to
be a lot of land. The difficulty as most of it doesn't have a grid connection, and some of it probably doesn't have space for a grid connection. I think there probably is. I think land use constraints are frankly probably overblown, and sometimes they're based on official data of what land is good for that doesn't reflect what the land is actually good for. Like a lot of land z owned as agricultural land kind of isn't it's not
in use, and sometimes it can't be in use. But at the same time, like solar on roofs, is a no regrets option, So not so worried about land use. I am worried about trade wars making things difficult. Just the fact that China is selling modules for less than thirteen US censor while the US is trying to get people to pay for twenty five cents of what modules. It clearly is a bit of a problem. And it's not just a price thing. It's also it's quite difficult
to get the paperwork to get modules into the US. However, companies are very, very ingenious and they have been managing, which is why there is now a massive inventory of solar modus in the US. So I am worried about trade war was because we did not want a situation where China is happily running on renewables, whereas the US refuses to use the latest tech and is therefore still burning fossil fuels when it doesn't have to.
And you reference the fact that the latest tech is always coming out, what is the latest tech as of right now?
In solar top con which stands for and you don't have to know this. I have trouble remembering it a lot of the time. Tunnel oxidated, pastivated contact cell.
I promise you I'm not going to remember that.
You don't have to. They're pop con cells and they replace the old perk cells pastivated emitter rear contact cells. They're about a percentage point more efficient. Everyone's built factories to make them. And all that means is what was a five hundred what solar module? The same size module is now sort of five hundred and twenty five? What you get a little bit more for your materials in your space. And this is how solar works. There is not a visible difference between the old model and the
noon model. But if you don't have a factory for the new model, your old factory is obsolete. And if you're still paying debt on that, bad luck.
So one of the things that happened in this most recent market outlook is you actually revised your numbers up. That doesn't happen all that often. Actually it does.
Sadly, it happens all the time. Actually, see actually often then we revise it downwards.
Well, so, but you've revised it up, and I want to know, then, why are we not seeing that reflected with publicly traded companies. Solar stock prices seem to be doing poorly across the board at the moment, but would demand so high, why is this not reflected?
So we thought we last quarter, we thought that three hundred and ninety two gigawatts of solar models would be installed worldwide this quarter. We think this is in twenty twenty three, which bend mine. It's almost over, and we still don't know what was built, but we now think it's probably going to turn out to a B four hundred and ten, four hundred and fifteen gigawatts of solar modules worldwide, and that upwards revision is mostly China. But at the same time, supply is even more than that.
We knew there's loads of supply. We know that there's over five hundred gigawats of modules being made this year, but suddenly it seems to have caught up with the market, and therefore the price is right down. So demand is high, but supply is higher, and in consequence, price is right down, and that's why solar stocks are suffering.
So, Jenny, we came into this room with me very much looking at this market outlook and thinking about Okay, well, let's talk about what's in there, But I want to know what's not in there? Jenny, what have I missed? What question should I have asked? As the expert? What are you concerned about?
So what you should have asked? Something about power price calonalization, because it is my opinion that everyone is worried too little about power price calonalization or hedging it with words about market structure and market design. It is not a market design thing. It is a problem that solar panels in one place or generate at the same time, which is when it's and that means that the power price when it's sunny is going to If the market is
being at all rational, it should drop to zero. It makes no sense to add more solar to generate at sunny times when you've already covering the whole of your demand. Obviously that also helps at times when it's not as sunny, it's just a little bit sunny. But this is going to be fundamentally one of the major negative feedback mechanisms on solar build in the next ten years. And the things that I'm interested in are ways in which flexible
demand is emerging. So demand for electricity that can usefully be used only on sunny days. This is actually way harder than it sounds, because most sources of demand are capex intensive, and so they need to be using cheap energy more often than just in sunny hours of sunny days. Like you can't make hydrogen just on the sunny hours of sunny days. The cost of building electricizers is too high. You can't make steel just on sunny day hours of
sunny days. You can probably make your freezer extra cold, or pre cool your house with aircon, or load your electric vehicle. Those are all useful, and I'm interested in mechanisms to encourage users to do that. Even with all the batteries and even all the flexibility in the world.
This is going to be the big challenge in the next ten years, integrating cheap power in the sunny hours so that both the thirds of the power to actually get some money for it, and also that it alleviates the later surge of demand for electricity at night when the sun goes down.
Jenny, it has been a pleasure having you here as always to give us a snapshot of what's actually happening in the solar industry. We look forward to having you back and I look forward to reading your next book.
Have a great day everyone.
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