5 Crystal Clear Wins - A summary of a cowboy's 15 Years in Solar

While nearing the Crystal Anniversary - my 15th year of riding on the 'solarcoaster', it is now crystal clear that the energy transition is unstoppable. And there are mostly winners.

And rightfully so. Because it all began way earlier.

• 1839 - a 19-year old French physicist Alexandre Edmond Becquerel creates the first solar cell.
• 1883 - Charles Fritts creates the first fully functioning solar panels with cells made from selenium wafers. The panels are mounted on a New York City rooftop, with energy conversion rate of 1%.
• 1905 - Albert Einstein publishes a paper on the "photovoltaic effect" and 17 years later wins a Nobel Prize with the same.
• 1954 - Bell Labs, an Exxon Mobile branch, exhibits the first high-power silicon solar PV cell that increases energy conversion efficiency by using silicone instead of selenium wafers.?
• 1963 - Sharp Corporation begins mass production of solar panels.
• 1964 - NASA launches the first Nimbus satellite, powered by a PV array.
• 1999 - Germany launches a $500M “100,000 Solar Roofs” program.
• 2007 - Solar becomes the leading clean tech, while global investments in clean energy exceed $100 billion.
• 2009 - The beginning of large solar production factories. Chinese manufacturing companies begin to build large automated solar cell and module production factories.

It took the world almost two centuries to understand, embrace, adopt and commercialise the discovery of Alexandre Becquerel. While the world's leadership was focused on the battle for dominance through industrialisation, fossil fuels and coal took over as reliable, cheap and fast-to-be-deployed energy source. Until it became crystal clear that something is terribly wrong. And the wrongdoing was crystal clear for a terribly long time.

• 1896 - Svante Arrhenius constructs the first climate model about the influence of the atmospheric carbon dioxide (CO2).
• 1920 - Large scale petroleum development begins in the US and the Persian Gulf.
• 1957 - Roger Revelle and Hans Suess write "the human beings are now carrying out a large scale geophysical experiment" in a paper examining CO2 uptake by the oceans.
• 1960 - American scientist Charles Keeling begins to track atmospheric CO2 concentration. In 1960 the value is 315 parts per million (ppm).
• 1974 - First evidence published on chlorine chemicals being involved in ozone depletion.
• 1980 - CO2 concentration now at 337 ppm.
• 1992 - United Nations conference in Rio de Janeiro creates the UN Framework Convention on Climate Change.
• 1997 - Kyoto Protocol is created with the intend to limit Greenhouse Gas emissions (GHG) from industrialised countries.
• 2000 - CO2 concentration at 367 ppm.
• 2007 - Forth IPCC report notes the effects of global warming are occurring.

When I joined the industry, there was some quiet and rather resistant talk on Climate Change. "It is just a novel way to print cash" most would state. And it was a true story. In those years the industry was led by cowboys, inspired by their own version of The Wolf of Wall Street. Umbrella and shoe manufacturing companies across hidden villages across China converted their production lines for days or even hours, because solar panels were now the new gold.

In 2009 the solar panel average selling prices (ASPs) were approx. $4.00 per Watt peak (Wp). In 2024 the ASP is a margin of error of that number. $0.10/Wp. The profit margin in 2009 was reaching 50%. In 2024? Negative.

In 2009 the annual global installed capacity of solar power was at its highest point - at 15 Gigawatt peak (GWp). This year it is expected to cross 500 GWp.

In 2009 the annual cumulative equity investments in solar accounted for nearly $25 billion. Today - $300 billion. Back then an asset class for Sustainability/Renewables was hardly seen on the investment portfolios of the large equity funds. 15 years later - holding solar assets became as instrumental asset class as real estate and infrastructure, at least for most of the big fund managers.

Today even most conservative investors out there are quite comfortable with the fact that having a solar generating facility is probably as good as a 5-star hotel. Except all rooms are sold for the next 25 years with almost no maintenance and SG&A. No brand management needed. Yet, despite the fact that a solar asset maturity value declines over the years, unlike a 5-star hotel, whose value is generally expected to grow, the stable and foreseeable returns attracted an astronomical number of traditional and non-traditional investors in the last 15 years - everything from small family offices, all the way to huge sovereign wealth funds.

The biggest driver for one of the fastest growing industries in the world hasn't really been the climate change. The industry was technically born and accelerated based on government stimulus, such as incentives, tax credits and others - true, however in 2023 74% of the newly added solar installations worldwide are subsidy-free. Private power purchase agreements (PPAs) are today mostly without any feed-in-tariff (FiT), driven largely by the savings generated due to the lower levelized cost of electricity (LCOE) of solar.

And so, today, 185 years after a French teenager invented the solar cell, we have a win-win-win-win-win situation. To save you the trouble of counting - we have a 5-win situation.

The gold winner is really all of us. All humans, species, plants, the whole planet. Because renewables deployment leads to offsetting or rather preventing expansion of dirty oil and coal. Not quite there yet, but the messages from COP28 in Egypt made it clear - we need to triple renewables by 2030. I am sure if I asked you to guess which year accounted for the highest GHG emissions yet, you would point it out correctly. Yes correct, it is 2023. We haven't reached the turning point yet. Unfortunately.

In 2023 the CO2 emissions in the atmosphere are at their highest level ever recorded - 419 ppm.         

Despite all the talk, all technology improvements, all investments, policies, efforts on a global level for the last few decades, despite all of that, in 2023 we have the highest emissions ever recorded!

"So, what the heck?" you would spontaneously ask. Well, there are good news. Plenty of them actually. On a daily basis. Now we know how to reverse this madness. In order for the 1.5 degrees target to work, it is clear that we need to triple the renewable installed capacity. That's an indisputable green check. Well China, the biggest polluter out there didn't sign that. But that's only because they have way bigger plans than the rest of the world. In 2023 China installed half of the world's cumulative newly added capacity. Half of it. Nearly 200 GWp.

It is clear that we need to get rid of as much as realistically possible fossil fuel engines and power stations, without hurting further the already fragile global economy. And this leads me to winner number 2.

The governments. If your title happens to be Sheikh, you most likely buy solar energy for around $1c per kilowatt hour (kWh). It's a true story. In Dubai the lowest awarded tender contracts in the recent years are below $2c/kWh. And it is happening in scale. Big scale. But while you keep the scale there, you don't have to be an Emirate in order to buy cheap solar.

Recently I was advising an African government agency in structuring a tender for investments into solar power and despite the heavy resistance, the conclusion was clear. There are a few ingredients, which when assorted wisely, can get you the best soup. Investors (particularly foreign) are willing to take a certain return level with a certain risk exposure. This ratio is fixed. Once you reduce the risk, you can reduce the returns as well. And Dubai did it just nicely:

1. You tie up your credit rating to your strongest sovereign instrument. You can think of government bonds, or if these are worthless, go and find this one public asset, that acts as a government guarantee and use it to de-risk your overall offtaker credit score.
2. If you are not called Singapore, you probably have plenty of land. State owned land. Unless you grow crops, but even despite that, your land is perfect incentive for investors. Give them land title free of cost for the duration of the PPA. If you are patient and have no major plans to grow your cities, allocate the land for 50 years. It became a norm to add after-life revenues on the investor's financial models for post-PPA income.
3. Take the currency risk. Invite investors to sign the PPAs in USD or any major currency. As a government you have a lot more options to hedge your currency risk, compared to a foreign investor.
4. Use tax holidays and VAT-free import to attract even lower electricity rates. Give investors additional incentive to use local labour or materials if feasible and cost competitive.
5. Cut the bureaucracy and give a permitting "green lane" for class A investments.
6. Remember: think big. You can solve all your regional electricity needs in one shot.
7. Engage with public or private local and international banks to compete on the debt side. The lower the interest rates, the lower the tariffs.
8. Take the curtailment risk. If your grid infrastructure sucks, do the exact same thing to upgrade it with private investment.
9. Last but not least - make sure your utility companies, whether public or private, benefit financially as well.

It is really that simple for governments to attract significant investments in renewables. And the second win goes to them, because there is nothing better for any industrialised economy to have a cheap source of electricity. Plenty of industries are drafting their business plans, based on geographical advantages for manufacturing base. Data centers, heavy manufacturing, construction, electronics and many more are heavily dependant on the cost of electricity. While you get lower cost electricity compared to your neighbours, you have it hedged for at least 25 years. And above all - it comes with $0.00 public investment. Incorrect. You would probably spend a few grand for paperwork. But that's all about it.         

Once you run this exercise couple of times, you can do the math and would realise that it actually makes sense to offset all the existing coal power plants, generating at $4-5c/kWp and gradually replace them with solar (or wind). In the span of 10 years, you can become clean, you can attract plenty of foreign investment, including from the manufacturing sector and unless you are caught in a sex or a bribe scandal, your party's reelection is kind of sealed.

The third crystal clear winner is the corporate world. The decarbonisation of big corporations has been one of the major pocket-filling scams of the last decade. The first Ponzi scheme were the carbon credits. Big time. So big, that 1MDB looks like the warm up lap.

Now imagine the following. In unfortunate circumstances one is diagnosed with lung cancer. The doctor tells them to immediately quit smoking. They go home however and their blonde wife tells them that they can keep smoking, but from now on they have to pay more money for the cigarettes. Sounds familiar?

Exactly this is the role of carbon credits. "Keep doing your sh*t, but pay for it!" This is what corporates were told with the introduction of the carbon instruments. This is the major reason why in 2023 we still have the highest CO2 emissions ever recorded.

Supporters of the idea would argue that carbon credits were just a transitional instrument. Basically implemented to help corporates transition into carbon free manufacturing. A sort of a first stimulus. But the fact is that it didn't work. The only beneficiaries of this Ponzi were.... yep, the carbon credit traders. A bunch of jokers with basic IT skills, able to wrap up a trading website... counted billions of dollars of revenues.

No one ever asked a very simple question - was any of these carbon credit dollars spent on fighting the climate change? Moreover, the entire scheme got really lost with the pricing of those credits. It was a demand-supply trade and guess who bought over all certificates in the early days in Europe. Ta-daaa, yep, the traders did.

The second Ponzi was basically an upgrade of the carbon credits, but a bit more pristine and fancy. RECs they called them. Stands for Renewable Energy Certificate. Basically the same non-sense, but at least this time the idea was that the clean energy generators will benefit with additional revenues from selling their certificates to corporates who use brown (dirty) electricity.

So, again, "You do your sh*t, using coal power to manufacture tons toilet paper to cope with the surging demand during Covid, but this time you have to pay for RECs to claim that you use clean energy."

Wait, what? Oh, it is voluntary.

Corporates at large didn't buy that story. Some did. The ones that had the most urgent and immediate needs to show some clean-ness. Aviation, chemical manufacturers, etc. were the early adopters of RECs. Particularly in countries where sourcing renewable energy was impossible. But there are 3 big problems with RECs:

1. The financial benefits of RECs end up again to a) traders and b) to asset owners, whose assets are already existing and operational. Essentially there is no circularity, no added value to the climate fight, simply because the proceeds of RECs just make profitable projects a little more profitable. That's it. Again, no accountability for reinvestment into climate related activities.
2. The lack of standards on carbon accounting led to an absolute mess in the annual ESG reports of corporates. Plenty of MNCs went to try accounting the procurement of RECs as carbon offsetting. It didn't work. It created double-counting problem. First the utility company or the state electricity operator accounts the portion of green energy injected into the national grid and it provides data for its distribution. And so, if you purchase RECs from a power plant, that is already included in the energy mix of the country (or a company as a private offtaker) and you account those RECs separately on your corporate report, you create a double-counting.
3. In 2024 in most of the developed world corporates can procure clean energy through direct or virtual PPAs. The only viable CO2 offsetting solution is to buy clean energy as an offtaker. Adding cost for carbon credits or RECs to your already high electricity bill, while you can purchase solar at a much lower cost (in some cases up to 50% lower), makes absolutely no sense.

The good news is that corporate PPAs are nowadays leading the industry. In 2023 big organisations not only adopt renewable energy purchase agreements in significant scale, but in addition become investors and asset owners. One of the biggest renewable energy IPPs in the world is a company called Amazon. Well, that's for their own needs, but still - being an IPP is not even on their business agenda.         

My humble advise to all sustainability departments is to create a long-term strategy towards PPAs, which again has clear advantages:

a) Monetary savings from electricity cost;

b) Hedging electricity price over a long period of time;

c) Transparent and clean carbon accounting.

With the advancement of technology and reduction of cost of solar and wind storage systems, nowadays battery energy storage systems (BEES) are reaching grid parity (where the price of electricity from the grid matches the price of an external supplier). With grid parity on solar and storage, corporates have 24/7 uninterrupted supply of clean energy. Corporates should make sure they own the rights of RECs on their PPAs.

The 4th winner is the entire renewable energy industry. As of 2023 around 15 million people are employed in the industry. The demand for sustainability jobs is increasing steadily with over 10% per year for a decade. 4 of top 10 job titles in 2023 included the words "sustainability", "ESG" or "carbon".

This win goes to the entire value chain of the industry - from raw material manufacturers all the way to investors, involved in renewables. As in any industry, there have been failures. In the current market environment the profit margins of the upstream players are absorbed by the high financing cost on the top of the value chain. But this has not always been the case. Historically, lending institutions have never been short of margins (as you could possibly guess) and solar panel manufacturers have always been there to absorb the shockwaves of a turbulence.

Despite troublesome times, despite countless quarters of thick red inc, companies that have not existed some 20 years ago, are today bigger than ever, with market caps reaching tens of billions of dollars. But this was not an easy battle for them.

The first shockwave started in the mid 2010s when the European Union decided that solar panels made in China are dumping the prices of European manufacturers, who can no longer compete for market share. True story. But can you name any sort of European manufacturers that can compete with Chinese products apart of 3 German car brands (whose manufacturing plants are nowadays in China by the way)?

These were the times when the solar trade wars began. As a consequence of the government imposed anti-dumping tax, the industry slowed down due to higher ASPs. The developers, manufacturers and consumers suffered, because the European products couldn't really catch up on a) the demand and b) the ASPs that were needed to make all stranded projects pick up again.

A few years later the US slapped the face of Chinese (and subsequently all Southeast Asian) manufacturers once again with the exact same result. Out of this, one US manufacturer benefited largely, while the entire industry was growing on the back of consumers, who were essentially paying the price for the anti-dumping policies with higher electricity bills. Still, today, the solar panel prices in the US are the highest in the world, while US is the third largest market by installation volume.

Last but not least, on a sunny morning, in 2020s, the Indian government decided to have their own solar manufacturing industry. Massive subsidy schemes were put into play to enable local manufacturers investing in production lines.

Despite the above, in 2023 about 83% of all solar panels installed globally are made in China (or elsewhere in Asia by Chinese manufacturers with facilities overseas).

The 5th winner is yet to be announced. Hopefully soon.

Despite all progress with the residential solar applications, the electricity cost for households is globally still on the rise. Residential solar is mostly affordable in the middle- and upper classes of the developed world, whereby the majority of the population lives in developing countries or in high-rise buildings. Still around 700 million people today live without access to electricity. In the same time in some Western European countries, you are able to switch your solar panels on your house' rooftop to direct supply or to a grid injection mode with a single click on your mobile phone.

It is just a matter of time however, until each and every single building would have solar panels on its roof. Turning buildings into micro-generators has multiple benefits to the household, to the environment, to the grid operator and to the industry. Plenty of countries around the world, led by the European Union, have implemented regulations for mandatory "solar-ready roofs" for new buildings.

With increasing efficiency of solar panels, their weight per Wp is being reduced, thus more rooftops become suitable for installation. For the last 15 years, the efficiency increased from an average 15% to almost 23% today. We see more and more integrated micro-inverters, which brings us a lot closer to a plug-and-play mode. Even IKEA is selling solar panel kits these days.

There are losers as well. However, are there really?

All mature coal power plant operators have their investments paid back long ago. All big Oil and Gas conglomerates sit on tremendous amounts of cash. Most of them are nowadays deploying the dirty cash in clean energy anyway. Conventional engine car manufacturers had enough lead time to switch to batteries. Some of them, like the Daimler Group for example, keep posting increasing revenues thanks to their e-models.

Since the energy transition began, traditional utility companies are losing market share, some would argue. But this is also a misleading statement. While electricity retail tariffs are rising ever faster, the electricity demand by end consumers is increasing too. Utilities have the golden opportunity (most of them already grasping successfully - EDF, Engie, EDP to name a few) to add more renewable capacity, and because of their vast reach and in most cases dominant position as a grid operator, their entry is a lot easier and their CapEx a lot lower.

The grid networks are heavily congested with intermittent power. And this is valid. Particularly so in countries where the grid network has not been designed with the purpose of extending it (like Vietnam). There are grid curtailment issues, which cause severe operational, financial and legal complications. But this crisis presents an opportunity as well. Now those grid operators have an additional incentive to upgrade their networks, modernise them and prepare them for a brown-free energy. Grid level battery storage systems are picking up in the effort to help regulate the power supply and solve the curve issue. Smart grids are becoming a thing. These grid infrastructure investments today will be of a benefit to the operators for a century to come.

The first 15 years of my experience in solar were turbulent. A lot has happened. But this is just the beginning. It is astonishing how much has been achieved in only 15 years. It is incredible experience to see small ventures growing huge within just a few years.

In the same time, no real progress has been achieved. In the last 20 years the GHG emissions content in the atmosphere is growing twice faster than the previous period. There is a lot more to be done. And it's not just money that is needed. It is will. The will of governments, corporates and citizens. And we will get there.