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PROFESSOR: Today we're going to
dive into Cost, Price, Markets,

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and Support Mechanisms.

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The support mechanisms
otherwise known as subsidies.

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So this is Lecture 18.

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We're approaching the end
of our course, actually.

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We have about, we have a
handful of lectures left,

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and then we go
our separate ways.

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This particular lecture will be
followed up not this Thursday

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but the following Thursday.

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We'll have a guest
speaker come in

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and talk about the
cost model that he's

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developed for PV into a
very high level of detail,

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so it'll be a lot of fun.

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And you'll be able
to use that cost

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model to model your own
PV devices, apparatus,

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and so forth.

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Next Tuesday, a week from today,
we'll be touring a PV facility.

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It'll be here on campus to
make it easy for everybody.

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We'll go over to
the student center

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and tour the PV system up on the
roof there, as well the balance

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of system components.

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So we'll be able
to have a close-up

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look at how that works.

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But today, cost, price,
markets, and subsidies.

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We want to talk
about those items

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because, at the
end of the day, PV

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is a product that is competing
against bulk electricity.

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And if we can't compete
against the bulk electricity,

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then our on-grid applications
are going to be rather limited.

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So we want to understand how all
this works and fits together.

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I'll be providing you several
snapshots and several pieces

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of the puzzle with a lot of
discussion back and forth

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00:01:49,260 --> 00:01:52,710
over the course of
today's lecture.

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First off, let's dive
into PV cost and price.

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What is the difference
between cost and price?

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They're used interchangeably
in colloquial language,

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but there's a big difference.

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00:02:04,150 --> 00:02:04,956
Jessica?

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00:02:04,956 --> 00:02:07,247
AUDIENCE: Cost might be what
it costs the manufacturer,

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and price is what it's
sold at [INAUDIBLE].

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PROFESSOR: Absolutely.

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So cost is what it actually
costs to make, to manufacture,

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and price is what people
are willing to pay for it,

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what the market is demanding.

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So sometimes price can be
above costs-- you're hopefully

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in that situation most of the
time-- and sometimes price

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can actually be low cost.

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What is an example of when
price could be below cost?

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AUDIENCE: The Amazon Kindle?

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PROFESSOR: The Amazon Kindle?

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Why would it be doing that?

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AUDIENCE: Because they want
get people to adopt the device

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and then make money on
subscriptions to books

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or [INAUDIBLE].

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PROFESSOR: Hm.

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A loss leader, right?

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Something like, for example,
if you buy your razor handle,

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and that's really cheap, but
then they gouge you on blades.

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Or other examples
include the cheap items

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in the front of a store.

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You walk inside the
store, and then you're

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barraged by all the more
expensive ones right inside.

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So loss leading can be one
example of price below cost.

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Another?

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Other examples?

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What if I start
making a gizmo, and I

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pocket an enormous profit.

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And all of you start watching
me make that gizmo and say, hey,

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I can do that.

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It's pretty simple.

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It doesn't take a
rocket scientist

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to manufacturer that gizmo.

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I can do it too.

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And everybody starts
manufacturing gizmos.

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Pretty soon, we overwhelm the
demand, at least at that given

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price point, and the
price is depressed

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as we enter a price war.

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We enter what is called
an oversupply condition.

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That's another example where
price can fall below cost.

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And another reason
why price can fall

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below cost is simply
the price, or the market

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you're trying to address,
simply won't buy your product

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at that cost.

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And that's the case with
substitution economics.

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If we're competing against
fossil fuel-based electricity,

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let's say, and we want
to compete against that,

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we might not be
able to manufacture

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00:04:00,960 --> 00:04:03,810
solar panels cheap enough
to address certain markets.

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For example, Wyoming, which
has $0.05 per kilowatt hour

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00:04:06,270 --> 00:04:10,920
electricity due to
cheap fossil fuel.

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00:04:10,920 --> 00:04:12,590
The southeast of
the United States

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00:04:12,590 --> 00:04:15,460
as well, where the TVA, the
Tennessee Valley Authority,

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00:04:15,460 --> 00:04:18,570
has very low-priced
nuclear and coal power.

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So these are examples of where
price might be below cost.

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We're going to get more into
that over the course of today's

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lecture, because
there are some very

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interesting geopolitical
debates occurring right now.

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Oftentimes the two sides are
very staunch in their positions

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00:04:34,540 --> 00:04:37,140
and there isn't much nuance,
there isn't much shade of gray,

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00:04:37,140 --> 00:04:39,420
there aren't many rational
arguments presented.

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00:04:39,420 --> 00:04:42,050
And instead, we're going to
be diving into some of that,

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discussing the nuance
over today's lecture.

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00:04:44,870 --> 00:04:47,370
Let's dive into cost first up.

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This is a paper that I
presented already in class.

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00:04:50,520 --> 00:04:53,940
I've also steered some of
the project groups toward it.

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This is a proceeding
back in-- whoa.

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00:04:56,680 --> 00:04:57,830
This wasn't 2009.

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00:04:57,830 --> 00:04:58,440
My apologies.

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00:04:58,440 --> 00:05:00,730
This is 2003.

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This was presented at
the 3rd World Conference

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00:05:03,300 --> 00:05:06,850
of Photovoltaic Energy
Conversion by Tom Surek,

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00:05:06,850 --> 00:05:10,040
presenting a very
simple cost model,

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00:05:10,040 --> 00:05:13,310
if you will, for PV, more
specifically the impact

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00:05:13,310 --> 00:05:14,455
of efficiency on cost.

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00:05:14,455 --> 00:05:16,400
And by no means was
this the first time

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that something like this
had ever been presented,

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00:05:18,700 --> 00:05:21,270
but it was a nice
summary of the work

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00:05:21,270 --> 00:05:25,030
to date, highlighting
several, I would say,

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00:05:25,030 --> 00:05:27,050
key levers, cost levers.

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Efficiency-- that's the
solar conversion efficiency.

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00:05:30,170 --> 00:05:33,270
Processing costs-- that's
the materials and processing

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00:05:33,270 --> 00:05:37,520
costs for the module in
dollars per meter squared.

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00:05:37,520 --> 00:05:40,090
The manufacturing
yield-- that means out

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00:05:40,090 --> 00:05:42,430
of, say, 100 cells into
your manufacturing line,

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00:05:42,430 --> 00:05:44,180
how many make it through
to the other side

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00:05:44,180 --> 00:05:48,110
without breaking
or being discarded

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00:05:48,110 --> 00:05:49,920
due to manufacturing defects?

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Capital equipment cost-- that's
depreciated over several years,

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00:05:52,832 --> 00:05:54,290
meaning you buy
equipment up front,

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00:05:54,290 --> 00:05:56,330
but then due to
financial gimmicks,

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00:05:56,330 --> 00:05:59,860
you're allowed to
allow that cost

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00:05:59,860 --> 00:06:02,100
to hit your books over an
extended period of time,

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00:06:02,100 --> 00:06:04,080
not all at once upfront.

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00:06:04,080 --> 00:06:07,070
Overhead, and so forth--
overhead being the health

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00:06:07,070 --> 00:06:10,010
insurance, if it is
paid to the workers,

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00:06:10,010 --> 00:06:13,860
and, of course, R&D
and the CEO's salary,

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00:06:13,860 --> 00:06:16,520
and so forth could be lumped in.

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00:06:16,520 --> 00:06:19,590
So this is a very simple
way of estimating cost.

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00:06:19,590 --> 00:06:24,660
It's a linear equation,
a direct relationship.

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00:06:24,660 --> 00:06:28,680
What is, I would
say, the economics,

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00:06:28,680 --> 00:06:31,550
or a more sophisticated
way of looking at cost?

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00:06:31,550 --> 00:06:36,090
Other than just saying it's
the dollars per watt-peak,

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you would look at it in terms
of cents per kilowatt hour.

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Right?

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You would look at
it in terms of,

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how much do you pay for
your electricity coming out

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00:06:42,715 --> 00:06:43,270
of the wall?

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Or in this case,
out of the panels?

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00:06:45,370 --> 00:06:48,260
What would factor
in to what is called

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the levelized cost
of electricity,

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00:06:49,845 --> 00:06:52,220
when you're actually calculating
cents per kilowatt hour?

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00:06:52,220 --> 00:06:55,150
How would you convert
dollars per watt-peak-- OK, I

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00:06:55,150 --> 00:06:58,090
know how many dollars it
took to manufacture this.

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00:06:58,090 --> 00:07:02,390
I can also depreciate
my equipment costs

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00:07:02,390 --> 00:07:05,310
over several years
to manufacture this.

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00:07:05,310 --> 00:07:07,900
How would I go from dollars
per watt-peak into cents

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00:07:07,900 --> 00:07:09,550
per kilowatt hour?

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00:07:09,550 --> 00:07:11,300
We all agree that cents
per kilowatt hours

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is the metric of
importance, right?

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00:07:12,600 --> 00:07:14,433
That's what we pay on
our electricity bills,

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00:07:14,433 --> 00:07:15,739
or at least some of us do.

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00:07:15,739 --> 00:07:17,280
So when we pay our
electricity bills,

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00:07:17,280 --> 00:07:19,672
we're paying in cents per
kilowatt hour from the grid.

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00:07:19,672 --> 00:07:21,380
And when we manufacture
our solar panels,

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we pay in dollars per watt-peak.

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Let's start simple.

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Why is dollars per
watt-peak at all useful?

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00:07:27,430 --> 00:07:29,610
It's so far removed
from cents per kilowatt

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00:07:29,610 --> 00:07:32,200
hour that it almost seems
an artificial metric.

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00:07:32,200 --> 00:07:35,310
Why, again, do we use
dollars per watt-peak?

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00:07:35,310 --> 00:07:35,810
Jessie?

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00:07:35,810 --> 00:07:39,912
AUDIENCE: Because most
coal-based or most

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00:07:39,912 --> 00:07:44,892
fossil fuel-based electricity
is based on a capacity factor,

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00:07:44,892 --> 00:07:46,844
which is measured in kilowatts.

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00:07:46,844 --> 00:07:48,760
PROFESSOR: That's a good
way of looking at it.

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00:07:48,760 --> 00:07:53,750
And then the capacity factor of
solar would be based on what?

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00:07:53,750 --> 00:07:56,940
On the solar resource
locally, right?

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00:07:56,940 --> 00:07:58,881
And that might vary from
location to location.

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00:07:58,881 --> 00:07:59,380
OK.

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00:07:59,380 --> 00:08:01,330
So what dollars per
watt-peak allows you to do

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00:08:01,330 --> 00:08:04,930
is, given a rated nameplate
capacity, you can calculate,

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00:08:04,930 --> 00:08:06,930
based on the solar
resource locally,

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00:08:06,930 --> 00:08:10,720
how much energy will be produced
over a certain period of time.

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00:08:10,720 --> 00:08:12,720
And then from that, you
can calculate your cents

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00:08:12,720 --> 00:08:16,290
per kilowatt hour, because now
we're converting from power,

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00:08:16,290 --> 00:08:20,170
or rated nameplate power,
into energy, which we can use,

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00:08:20,170 --> 00:08:23,080
and which has economic value.

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00:08:23,080 --> 00:08:28,220
So there is a rationale, then,
for giving nameplate capacity

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00:08:28,220 --> 00:08:29,750
in terms of watt-peak.

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00:08:29,750 --> 00:08:32,720
In other words, rating a factory
in terms of megawatts per year

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00:08:32,720 --> 00:08:35,340
or gigawatts per year produced.

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00:08:35,340 --> 00:08:38,030
That means that each module
that goes on to the cell tester

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00:08:38,030 --> 00:08:40,274
is rated, and
there's an estimate

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00:08:40,274 --> 00:08:42,190
based on the cumulative
module production what

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00:08:42,190 --> 00:08:45,120
the total watt-peak output
of that factory was.

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00:08:45,120 --> 00:08:47,540
And then depending on where
those modules go in the world,

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00:08:47,540 --> 00:08:49,721
they might produce
different amounts of energy.

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00:08:49,721 --> 00:08:51,637
If you take those same
models and install them

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00:08:51,637 --> 00:08:53,053
in Alaska or
Arizona, you're going

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00:08:53,053 --> 00:08:55,130
to get widely varying
energy outputs.

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00:08:55,130 --> 00:08:55,700
OK.

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00:08:55,700 --> 00:08:57,430
So then, how do we transition?

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00:08:57,430 --> 00:09:00,310
We have the dollars
per watt-peak.

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00:09:00,310 --> 00:09:03,340
We have to know the local
solar insulation that

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00:09:03,340 --> 00:09:05,980
would allow us to calculate
what the cents per kilowatt hour

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00:09:05,980 --> 00:09:08,940
would be, assuming a
certain cost of capital.

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00:09:08,940 --> 00:09:11,820
We have to buy those
panels up front.

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00:09:11,820 --> 00:09:15,510
You have to buy from me a huge
number of panels, which are

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00:09:15,510 --> 00:09:16,970
going to last for 20, 25 years.

217
00:09:16,970 --> 00:09:18,180
I'll guarantee it.

218
00:09:18,180 --> 00:09:20,440
But you have to front
that money up front,

219
00:09:20,440 --> 00:09:23,790
which means that you need to
lend that money from a bank

220
00:09:23,790 --> 00:09:26,250
or from a financial
institution, and then you'll

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00:09:26,250 --> 00:09:28,399
be paying a certain amount
of interest every year.

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00:09:28,399 --> 00:09:30,940
And it's the spread, it's the
difference between the interest

223
00:09:30,940 --> 00:09:34,060
payments and the money
saved that's going

224
00:09:34,060 --> 00:09:35,920
to turn your profit.

225
00:09:35,920 --> 00:09:38,420
And that's what's called
the rate of return

226
00:09:38,420 --> 00:09:39,750
of your investment.

227
00:09:39,750 --> 00:09:42,210
And there's also a payback
period, or a monetary payback

228
00:09:42,210 --> 00:09:45,980
period, over which you're
not going to be making money

229
00:09:45,980 --> 00:09:48,630
on average, but after the
payback period is finished,

230
00:09:48,630 --> 00:09:52,060
then your solar array
will be a money press.

231
00:09:52,060 --> 00:09:53,130
It'll be printing money.

232
00:09:53,130 --> 00:09:55,460
And so over the entire
lifetime of the investment,

233
00:09:55,460 --> 00:09:58,320
you can calculate an
average rate of return.

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00:09:58,320 --> 00:09:59,020
OK.

235
00:09:59,020 --> 00:10:04,200
So given that setup,
we're going to be talking

236
00:10:04,200 --> 00:10:09,610
about some incentive
mechanisms and, today, really,

237
00:10:09,610 --> 00:10:11,540
really simple cost model.

238
00:10:11,540 --> 00:10:15,250
More on Thursday
when we get back

239
00:10:15,250 --> 00:10:19,470
to this, how we calculate cost
in a more sophisticated manner.

240
00:10:19,470 --> 00:10:23,920
I want to introduce this
concept very simply at first,

241
00:10:23,920 --> 00:10:26,490
just because there are
some parameters here

242
00:10:26,490 --> 00:10:29,260
in the sensitivity analysis
that overwhelm all the others.

243
00:10:29,260 --> 00:10:32,140
And they can be very simply
seen an equation like that right

244
00:10:32,140 --> 00:10:33,070
up there.

245
00:10:33,070 --> 00:10:34,700
And one of them is efficiency.

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00:10:34,700 --> 00:10:37,990
The processing costs
also matter quite a bit.

247
00:10:37,990 --> 00:10:38,850
OK.

248
00:10:38,850 --> 00:10:42,150
Inside of processing
costs, you also

249
00:10:42,150 --> 00:10:45,950
have labor and
commodity materials.

250
00:10:45,950 --> 00:10:48,260
And those can vary significantly
from region to region.

251
00:10:51,540 --> 00:10:56,310
There are a number of
assessments out there.

252
00:10:56,310 --> 00:11:00,250
I'm going to be leading us into
the current big debate which

253
00:11:00,250 --> 00:11:03,710
has exploded in Washington
DC, the case of Solyndra,

254
00:11:03,710 --> 00:11:11,710
and then SolarWorld filing the
complaint with the US Commerce

255
00:11:11,710 --> 00:11:14,260
Department.

256
00:11:14,260 --> 00:11:16,110
I'll be easing us into
this whole question

257
00:11:16,110 --> 00:11:21,130
of US and foreign manufacturing,
using that more as a hook

258
00:11:21,130 --> 00:11:24,070
to get us interested in the
overall topics of the day.

259
00:11:24,070 --> 00:11:25,860
And then toward the
end, hopefully you'll

260
00:11:25,860 --> 00:11:28,330
be able to see, with
more shades of gray,

261
00:11:28,330 --> 00:11:30,350
what exactly is going
on and perhaps formulate

262
00:11:30,350 --> 00:11:31,910
opinions of your own.

263
00:11:31,910 --> 00:11:34,700
So where is PV cost actually at?

264
00:11:34,700 --> 00:11:39,580
Where do the current cost
numbers currently stand?

265
00:11:39,580 --> 00:11:42,140
It is extremely difficult
to get at true cost.

266
00:11:42,140 --> 00:11:42,710
Price?

267
00:11:42,710 --> 00:11:43,572
Price is easy.

268
00:11:43,572 --> 00:11:45,030
You go out there,
probe the market,

269
00:11:45,030 --> 00:11:47,079
see what people are
willing to sell panels at,

270
00:11:47,079 --> 00:11:49,370
maybe send a few emails to
a few companies saying, hey,

271
00:11:49,370 --> 00:11:51,417
I want to install
100 of your panels.

272
00:11:51,417 --> 00:11:53,250
How much are you willing
to sell them to me?

273
00:11:53,250 --> 00:11:54,050
This is what people do.

274
00:11:54,050 --> 00:11:54,840
They probe the market.

275
00:11:54,840 --> 00:11:55,381
They test it.

276
00:11:55,381 --> 00:11:57,640
So price is fairly
easy to gauge.

277
00:11:57,640 --> 00:11:59,420
But manufacturing cost?

278
00:11:59,420 --> 00:12:01,270
If I go up to you
and say, hey, can you

279
00:12:01,270 --> 00:12:03,440
tell me how much it costs
to manufacture panels

280
00:12:03,440 --> 00:12:04,419
in your factory?

281
00:12:04,419 --> 00:12:06,460
Would you be willing to
give me that information?

282
00:12:06,460 --> 00:12:08,240
They'd probably say no.

283
00:12:08,240 --> 00:12:08,990
Probably say no.

284
00:12:08,990 --> 00:12:11,060
Definitely to me,
as a professor.

285
00:12:11,060 --> 00:12:12,964
Maybe you as students,
they might show you

286
00:12:12,964 --> 00:12:15,380
a little bit more of how it
actually works under the hood,

287
00:12:15,380 --> 00:12:17,900
since many people believe
in the educational mission.

288
00:12:17,900 --> 00:12:20,750
But, by and large, people are
fairly secretive about this,

289
00:12:20,750 --> 00:12:23,000
because they realize that
their stock price is heavily

290
00:12:23,000 --> 00:12:24,220
dependent on market perception.

291
00:12:24,220 --> 00:12:26,345
And if I go out there and
write an article and say,

292
00:12:26,345 --> 00:12:28,770
hey, your company
produces panels

293
00:12:28,770 --> 00:12:30,312
at twice the cost
of yours, investors

294
00:12:30,312 --> 00:12:32,728
are going to flee your company,
especially if it comes out

295
00:12:32,728 --> 00:12:34,350
of a university like MIT.

296
00:12:34,350 --> 00:12:37,620
And so there are big
repercussions associated

297
00:12:37,620 --> 00:12:40,430
with the divulgation
of cost numbers,

298
00:12:40,430 --> 00:12:42,900
and that's why it's very hard
to get to the bottom of it.

299
00:12:42,900 --> 00:12:45,290
What you find most
often are aggregators.

300
00:12:45,290 --> 00:12:49,030
These are consultancies that
work with several companies.

301
00:12:49,030 --> 00:12:51,920
They may be, for example,
photon consulting

302
00:12:51,920 --> 00:12:53,830
across the river in Boston.

303
00:12:53,830 --> 00:12:55,960
It might be Greentech
Media consulting

304
00:12:55,960 --> 00:12:58,867
branch, which is located here
in Cambridge, Massachusetts.

305
00:12:58,867 --> 00:13:01,200
There are many consulting
companies, and several of them

306
00:13:01,200 --> 00:13:03,930
based here in the Boston area.

307
00:13:03,930 --> 00:13:06,660
And these consulting
companies work with several PV

308
00:13:06,660 --> 00:13:08,720
manufacturers and,
over time, begin

309
00:13:08,720 --> 00:13:11,520
aggregating data and
presenting market trends,

310
00:13:11,520 --> 00:13:13,015
generalized market trends.

311
00:13:13,015 --> 00:13:15,620
A few of them single
out specific companies,

312
00:13:15,620 --> 00:13:17,700
but most of them just
aggregate the data

313
00:13:17,700 --> 00:13:19,690
and present general trends.

314
00:13:19,690 --> 00:13:24,510
I presented to you this,
a few articles as of late.

315
00:13:24,510 --> 00:13:28,860
These are relatively recent--
within the last three to four

316
00:13:28,860 --> 00:13:31,260
years-- and because
there has been

317
00:13:31,260 --> 00:13:33,990
so much change over the
last three to four years

318
00:13:33,990 --> 00:13:36,620
within the PV market, even
an article three years ago

319
00:13:36,620 --> 00:13:38,540
is highly outdated.

320
00:13:38,540 --> 00:13:41,530
So you'll want information
that's within the last year

321
00:13:41,530 --> 00:13:44,020
if you're going to be
using cost and price

322
00:13:44,020 --> 00:13:45,560
information for your projects.

323
00:13:45,560 --> 00:13:47,939
Even within the last few months.

324
00:13:47,939 --> 00:13:49,980
And if any of you have
any doubts in that regard,

325
00:13:49,980 --> 00:13:51,530
you can come talk to me.

326
00:13:51,530 --> 00:13:54,620
So the fully loaded
module manufacturing cost

327
00:13:54,620 --> 00:13:56,340
is shown here.

328
00:13:56,340 --> 00:13:57,920
An estimate, again.

329
00:13:57,920 --> 00:14:02,300
An aggregation based on access
to multiple companies' data.

330
00:14:02,300 --> 00:14:05,000
Polysilicon-- this, of course,
being crystalline silicon

331
00:14:05,000 --> 00:14:07,750
technology, which
accounts for about 85%

332
00:14:07,750 --> 00:14:08,970
of the current market.

333
00:14:08,970 --> 00:14:12,622
Polysilicon in blue,
depreciation in red.

334
00:14:12,622 --> 00:14:13,455
What's depreciation?

335
00:14:16,580 --> 00:14:21,327
AUDIENCE: Is that the
discounting of the capital

336
00:14:21,327 --> 00:14:22,410
that we just talked about?

337
00:14:22,410 --> 00:14:23,750
PROFESSOR: Exactly.

338
00:14:23,750 --> 00:14:24,280
Exactly.

339
00:14:24,280 --> 00:14:27,510
So what that means is,
I borrow a lot of money

340
00:14:27,510 --> 00:14:30,560
to manufacture these panels,
to buy the equipment,

341
00:14:30,560 --> 00:14:33,230
to buy the factory
and set everything up.

342
00:14:33,230 --> 00:14:36,570
And then I have to pay
interest on my loans.

343
00:14:36,570 --> 00:14:40,260
I have to pay interest on
the loans, and what I do is,

344
00:14:40,260 --> 00:14:42,360
I start writing
off the equipment

345
00:14:42,360 --> 00:14:44,740
as a loss to the company.

346
00:14:44,740 --> 00:14:48,480
So that equipment is going to
be useful over a certain period

347
00:14:48,480 --> 00:14:51,050
of time, and then we can
assume that it's outdated

348
00:14:51,050 --> 00:14:52,925
and that I'll need to
buy the next generation

349
00:14:52,925 --> 00:14:54,150
of manufacturing equipment.

350
00:14:54,150 --> 00:14:56,930
So I can begin writing off
the value of that equipment

351
00:14:56,930 --> 00:14:59,360
over a certain schedule, over
a certain period of years.

352
00:14:59,360 --> 00:15:01,420
Five, seven, depending
on the company,

353
00:15:01,420 --> 00:15:04,880
depending on the way they're--
I don't want to say cooking

354
00:15:04,880 --> 00:15:08,139
their books, but the way
they're manipulating the numbers

355
00:15:08,139 --> 00:15:09,180
in the accounting sector.

356
00:15:09,180 --> 00:15:12,490
So the depreciation varies.

357
00:15:12,490 --> 00:15:16,060
And it varies because the
interest rate at which you

358
00:15:16,060 --> 00:15:19,500
acquire the loan,
and the interest

359
00:15:19,500 --> 00:15:24,090
rate-- or the inflation rate
of the particular currency

360
00:15:24,090 --> 00:15:26,380
in question, is different
in different regions.

361
00:15:26,380 --> 00:15:28,356
So when you're
calculating depreciation

362
00:15:28,356 --> 00:15:29,980
both of those things
matter, and that's

363
00:15:29,980 --> 00:15:32,560
why those numbers can
vary from place to place.

364
00:15:32,560 --> 00:15:33,420
Materials.

365
00:15:33,420 --> 00:15:34,080
Materials cost.

366
00:15:34,080 --> 00:15:35,690
These are the materials
used to manufacture

367
00:15:35,690 --> 00:15:37,731
the module, typically
called commodity materials.

368
00:15:37,731 --> 00:15:41,050
You would look at them as the
extruded aluminum components,

369
00:15:41,050 --> 00:15:44,919
the glass in the front side,
the encapsulant materials,

370
00:15:44,919 --> 00:15:45,460
and so forth.

371
00:15:45,460 --> 00:15:48,050
All the fancy stuff that we
saw when we visited Fraunhofer

372
00:15:48,050 --> 00:15:50,877
last week.

373
00:15:50,877 --> 00:15:51,710
Let's see what else.

374
00:15:51,710 --> 00:15:52,790
We have labor.

375
00:15:52,790 --> 00:15:55,020
That's pretty
straightforward to see.

376
00:15:55,020 --> 00:15:58,450
If we're manufacturing in China,
we are looking at a labor rate,

377
00:15:58,450 --> 00:16:02,890
could be as low-- base
labor without adding housing

378
00:16:02,890 --> 00:16:05,420
and so forth-- the base labor
rate could be as low as $2.75

379
00:16:05,420 --> 00:16:07,710
an hour in US dollars.

380
00:16:07,710 --> 00:16:10,340
And in US dollars in
the United States,

381
00:16:10,340 --> 00:16:13,460
we could be looking at
labor rates of somewhere

382
00:16:13,460 --> 00:16:16,380
in the range of $16
an hour before you

383
00:16:16,380 --> 00:16:19,830
start adding in Social Security
and benefits and so forth.

384
00:16:19,830 --> 00:16:23,310
And there may be
different levels

385
00:16:23,310 --> 00:16:25,480
of automation in the two
different places, which

386
00:16:25,480 --> 00:16:29,260
shifts costs from labor
into capital equipment.

387
00:16:29,260 --> 00:16:32,150
So if you realize that you
have a much higher labor cost,

388
00:16:32,150 --> 00:16:35,315
you might want to buy more
robots to do the manufacturing.

389
00:16:35,315 --> 00:16:37,440
And vice versa, if you're
in China and you realize,

390
00:16:37,440 --> 00:16:39,290
oh my goodness,
our labor rates are

391
00:16:39,290 --> 00:16:41,740
increasing almost
exponentially, definitely

392
00:16:41,740 --> 00:16:43,730
super linearly with time.

393
00:16:43,730 --> 00:16:46,045
As the country
takes off and there

394
00:16:46,045 --> 00:16:50,440
is inflation, wage
inflation, a company that

395
00:16:50,440 --> 00:16:53,439
is trying to project forward
five or seven years might say,

396
00:16:53,439 --> 00:16:55,230
well goodness, it
doesn't make sense for me

397
00:16:55,230 --> 00:16:56,980
to flood my manufacturing
line with people

398
00:16:56,980 --> 00:16:59,290
right now, because that
manufacturing line still has

399
00:16:59,290 --> 00:17:01,530
to make a profit in five years.

400
00:17:01,530 --> 00:17:03,610
And so I'm going to
buy more robots now.

401
00:17:03,610 --> 00:17:05,380
Even though I might
not need it today,

402
00:17:05,380 --> 00:17:06,794
I might need in five years.

403
00:17:06,794 --> 00:17:08,460
And so there's a bit
of risk calculation

404
00:17:08,460 --> 00:17:11,250
that gets thrown
into this as well.

405
00:17:11,250 --> 00:17:12,359
Utilities and overhead.

406
00:17:12,359 --> 00:17:13,609
That's pretty straightforward.

407
00:17:13,609 --> 00:17:16,770
For looking at utilities, that
means the electricity, mostly,

408
00:17:16,770 --> 00:17:18,349
to run the lines.

409
00:17:18,349 --> 00:17:22,020
It could also be water which
is used in the manufacturing

410
00:17:22,020 --> 00:17:22,520
process.

411
00:17:25,450 --> 00:17:27,849
Note the caveats in
several of these studies,

412
00:17:27,849 --> 00:17:30,160
especially the one out of
Lawrence Berkeley National

413
00:17:30,160 --> 00:17:31,790
Laboratory.

414
00:17:31,790 --> 00:17:36,460
Manufacturing cost, you can do
a number of things with that.

415
00:17:36,460 --> 00:17:39,260
You can assume that you're
buying your polysilicon,

416
00:17:39,260 --> 00:17:42,160
you're buying the polysilicon,
manufacturing cells, modules,

417
00:17:42,160 --> 00:17:43,030
and systems.

418
00:17:43,030 --> 00:17:45,820
Or you can assume that
you're buying the cells,

419
00:17:45,820 --> 00:17:48,271
and the cells are commodity
products equal in price

420
00:17:48,271 --> 00:17:50,020
throughout the world,
and that you're just

421
00:17:50,020 --> 00:17:51,600
manufacturing the modules.

422
00:17:51,600 --> 00:17:54,500
So you can cut costs
in many different ways,

423
00:17:54,500 --> 00:17:56,380
depending on what
assumptions you make.

424
00:17:56,380 --> 00:17:58,972
The price of the cell on
the international market

425
00:17:58,972 --> 00:18:00,430
may be very different
than the cost

426
00:18:00,430 --> 00:18:03,750
to manufacture that cell
in your particular country.

427
00:18:03,750 --> 00:18:05,570
And cost is almost
one of those things

428
00:18:05,570 --> 00:18:07,410
that you can torture
until it tells you

429
00:18:07,410 --> 00:18:09,620
the story you want it to tell.

430
00:18:09,620 --> 00:18:12,685
It's one of those
things where, if you

431
00:18:12,685 --> 00:18:14,890
did these numbers a little
bit differently and said,

432
00:18:14,890 --> 00:18:19,990
OK, we're buying cells and just
making modules, and then adding

433
00:18:19,990 --> 00:18:22,180
shipment fees-- let's say
transport fees from China

434
00:18:22,180 --> 00:18:26,450
to the United States-- China
and US might look almost equal.

435
00:18:26,450 --> 00:18:28,714
Whereas if you integrate
over the entire supply chain

436
00:18:28,714 --> 00:18:31,130
and say, OK, I'm going to be
manufacturing my polysilicon,

437
00:18:31,130 --> 00:18:35,170
then my wafers, then my cells,
and finally the modules,

438
00:18:35,170 --> 00:18:36,920
then you might start
seeing some disparity

439
00:18:36,920 --> 00:18:39,425
based on these other
parameters shown here.

440
00:18:39,425 --> 00:18:44,520
The point being, be careful
when you see a cost assessment.

441
00:18:44,520 --> 00:18:46,990
Probe their base
assumptions and try

442
00:18:46,990 --> 00:18:49,880
to understand what their
biases and motivations were

443
00:18:49,880 --> 00:18:53,180
for presenting that
particular comparison.

444
00:18:53,180 --> 00:18:56,490
Especially nowadays, where
you have more and more parties

445
00:18:56,490 --> 00:18:58,290
with vested interests
in presenting

446
00:18:58,290 --> 00:19:00,530
one story or another.

447
00:19:00,530 --> 00:19:02,330
We'll get to that
in a few slides.

448
00:19:02,330 --> 00:19:03,920
Experience learning curve.

449
00:19:03,920 --> 00:19:05,760
Now we're getting into price.

450
00:19:05,760 --> 00:19:08,870
We're venturing beyond
cost and into the regime

451
00:19:08,870 --> 00:19:12,020
of price, which is definitely
more easily measurable.

452
00:19:12,020 --> 00:19:16,410
And that's why we have some
fairly good data going back

453
00:19:16,410 --> 00:19:17,880
several decades.

454
00:19:17,880 --> 00:19:21,800
And you can see here,
this is cumulative sales

455
00:19:21,800 --> 00:19:22,790
in gigawatt peak.

456
00:19:22,790 --> 00:19:24,850
That means the cumulative
number of widgets,

457
00:19:24,850 --> 00:19:28,290
in, this case, watt-peaks,
produced by solar industries

458
00:19:28,290 --> 00:19:29,370
worldwide.

459
00:19:29,370 --> 00:19:33,550
And this is a global average
module selling price.

460
00:19:33,550 --> 00:19:35,640
Not the system, the module.

461
00:19:35,640 --> 00:19:38,090
So not the balance of
system installation, labor,

462
00:19:38,090 --> 00:19:41,360
and so forth, but just the
manufacturing of the module.

463
00:19:41,360 --> 00:19:43,900
And what we can see
here is a general trend

464
00:19:43,900 --> 00:19:46,060
over time with a
decreasing price.

465
00:19:46,060 --> 00:19:46,760
That's good.

466
00:19:46,760 --> 00:19:48,430
Sorry, decreasing
price with time.

467
00:19:48,430 --> 00:19:50,350
That's excellent.

468
00:19:50,350 --> 00:19:53,150
What is that called?

469
00:19:53,150 --> 00:19:55,730
This curve here, plotted
in a log-log scale,

470
00:19:55,730 --> 00:19:59,890
where you have a line through
the cumulative manufacturing

471
00:19:59,890 --> 00:20:02,330
production versus price.

472
00:20:02,330 --> 00:20:03,466
What is that curve called?

473
00:20:03,466 --> 00:20:05,340
AUDIENCE: Is it an
experience learning curve?

474
00:20:05,340 --> 00:20:07,214
PROFESSOR: It's an
experience learning curve.

475
00:20:07,214 --> 00:20:10,510
And you'll get something similar
for any high-tech product--

476
00:20:10,510 --> 00:20:13,550
computers, toasters-- as long
as the product isn't changing

477
00:20:13,550 --> 00:20:14,710
significantly with time.

478
00:20:14,710 --> 00:20:16,931
And even sometimes
if they are, as is

479
00:20:16,931 --> 00:20:18,180
the case with the solar panel.

480
00:20:18,180 --> 00:20:20,720
Solar panels back in the
1960s, or the 1970s, rather,

481
00:20:20,720 --> 00:20:22,511
looked very different
than the solar panels

482
00:20:22,511 --> 00:20:24,830
today in terms of the materials
and the processes used.

483
00:20:24,830 --> 00:20:26,880
And it all falls along this
very interesting experience

484
00:20:26,880 --> 00:20:27,600
learning curve.

485
00:20:27,600 --> 00:20:30,200
So it's extremely
tempting to say, oh well,

486
00:20:30,200 --> 00:20:33,550
what price do we need
to reach to be cost

487
00:20:33,550 --> 00:20:35,360
competitive-- or
competitive, let's say,

488
00:20:35,360 --> 00:20:36,571
with bulk electricity?

489
00:20:36,571 --> 00:20:38,820
We need to reach a price of,
say, $0.50 per watt-peak?

490
00:20:38,820 --> 00:20:40,050
Oh, easy.

491
00:20:40,050 --> 00:20:41,550
We'll just project
forward and we'll

492
00:20:41,550 --> 00:20:44,160
see how much cumulative
production is needed,

493
00:20:44,160 --> 00:20:45,830
and then we'll
subsidize until we get

494
00:20:45,830 --> 00:20:47,080
to that cumulative production.

495
00:20:47,080 --> 00:20:49,530
And bingo, voila,
it'll happen by magic.

496
00:20:49,530 --> 00:20:52,930
Well, the reality is that
each little bump here

497
00:20:52,930 --> 00:20:55,407
along the learning curve was
some-- if you look closely,

498
00:20:55,407 --> 00:20:57,240
you can kind of see
these little bumps here.

499
00:20:57,240 --> 00:20:59,490
There were many traumatic
events within the industry

500
00:20:59,490 --> 00:21:04,670
that forced people to innovate,
to produce better technology,

501
00:21:04,670 --> 00:21:07,580
whether it's the technology
itself, something designed here

502
00:21:07,580 --> 00:21:09,820
in the laboratory
at MIT or Harvard,

503
00:21:09,820 --> 00:21:12,800
or whether it's something
innovated on the manufacturing

504
00:21:12,800 --> 00:21:14,550
line where they
realized, oh, this

505
00:21:14,550 --> 00:21:16,966
is a more efficient way of
manufacturing the solar panels.

506
00:21:16,966 --> 00:21:19,120
It's cheaper.

507
00:21:19,120 --> 00:21:21,615
This little bump
right here, boom.

508
00:21:21,615 --> 00:21:23,865
This represents a period in
which prices actually went

509
00:21:23,865 --> 00:21:25,870
back up year in and year out.

510
00:21:25,870 --> 00:21:29,130
What could cause
prices to go up?

511
00:21:29,130 --> 00:21:31,686
What are some of the
motivations for that?

512
00:21:31,686 --> 00:21:32,810
I mean, scale's increasing.

513
00:21:32,810 --> 00:21:33,990
The market's growing.

514
00:21:33,990 --> 00:21:35,250
It's not shrinking at all.

515
00:21:35,250 --> 00:21:38,382
It's not like the points went
back here as they went up.

516
00:21:38,382 --> 00:21:40,840
So the market continued to
grow, the manufacturing capacity

517
00:21:40,840 --> 00:21:42,756
continued to grow, but
the price went back up.

518
00:21:42,756 --> 00:21:44,280
What could have caused that?

519
00:21:44,280 --> 00:21:46,630
AUDIENCE: Demand
outpaces supply?

520
00:21:46,630 --> 00:21:48,520
PROFESSOR: Demand
outpaces supply.

521
00:21:48,520 --> 00:21:49,030
Exactly.

522
00:21:49,030 --> 00:21:52,020
So in this specific
case, what happened

523
00:21:52,020 --> 00:21:54,890
was the polysilicon
feedstock, which

524
00:21:54,890 --> 00:21:57,370
is the input material
into this entire process,

525
00:21:57,370 --> 00:21:59,010
was in short supply.

526
00:21:59,010 --> 00:22:02,640
It takes about, in those days
it took about 24 to 36 months

527
00:22:02,640 --> 00:22:04,180
to get a new plant online.

528
00:22:04,180 --> 00:22:06,960
Long lead time and billions
of dollars of investment.

529
00:22:06,960 --> 00:22:09,640
And so the polysilicon
suppliers didn't really

530
00:22:09,640 --> 00:22:13,230
want to invest unless they knew
photovoltaics was for real.

531
00:22:13,230 --> 00:22:15,280
And the PV industry
had exhausted

532
00:22:15,280 --> 00:22:18,030
the elasticity of
the supply market

533
00:22:18,030 --> 00:22:20,430
in the polysilicon business.

534
00:22:20,430 --> 00:22:22,770
And polysilicon suppliers
looked at the situation

535
00:22:22,770 --> 00:22:25,610
and said, well, let's let
prices go up a little bit.

536
00:22:25,610 --> 00:22:28,180
It can't hurt us too bad.

537
00:22:28,180 --> 00:22:30,740
We've been starved for
several years because

538
00:22:30,740 --> 00:22:32,910
of low polysilicon
feedstock prices.

539
00:22:32,910 --> 00:22:35,480
Let's let this increased
demand kind of push prices

540
00:22:35,480 --> 00:22:37,895
up a little bit before we
really decide what to do.

541
00:22:37,895 --> 00:22:39,270
And by the time
they decided what

542
00:22:39,270 --> 00:22:42,230
to do, there was a lot of
them getting in the market

543
00:22:42,230 --> 00:22:44,200
all at once, which
had this effect.

544
00:22:44,200 --> 00:22:44,770
Boom.

545
00:22:44,770 --> 00:22:47,500
Now, it's not only the
polysilicon, but also

546
00:22:47,500 --> 00:22:50,270
the cell manufacturers,
the wafer manufacturers,

547
00:22:50,270 --> 00:22:54,900
that expanded their capacity
during this time between 2007

548
00:22:54,900 --> 00:22:55,840
and 2010.

549
00:22:55,840 --> 00:22:59,420
Now today's most
recent price point,

550
00:22:59,420 --> 00:23:05,060
as I saw it on one of our
more trusted websites,

551
00:23:05,060 --> 00:23:09,880
put us down at around
$1.03, $1.05 per watt-peak.

552
00:23:09,880 --> 00:23:10,730
So we're down here.

553
00:23:10,730 --> 00:23:13,310
We're well below the
historical average trend.

554
00:23:13,310 --> 00:23:17,090
We're in an oversupply
condition right now.

555
00:23:17,090 --> 00:23:20,040
Why did the oversupply
condition come about?

556
00:23:20,040 --> 00:23:23,320
Well, partly because of
this undersupply condition,

557
00:23:23,320 --> 00:23:25,060
many people saw an
opportunity and said,

558
00:23:25,060 --> 00:23:26,970
well, we can
address that demand.

559
00:23:26,970 --> 00:23:29,280
We can grow in this
industry right here.

560
00:23:29,280 --> 00:23:31,950
To grow in the industry,
you need capital.

561
00:23:31,950 --> 00:23:35,400
You need access to
finances to expand.

562
00:23:35,400 --> 00:23:40,030
What happened in 2008 in
Western countries-- and 2008

563
00:23:40,030 --> 00:23:45,410
was more or less when it really
hit the fan, if you will,

564
00:23:45,410 --> 00:23:48,440
in the United States
in particular.

565
00:23:48,440 --> 00:23:50,510
What happened in
the capital markets?

566
00:23:53,060 --> 00:23:56,896
AUDIENCE: Capital was severely
restricted becase we're not

567
00:23:56,896 --> 00:23:58,390
providing a lot bones.

568
00:23:58,390 --> 00:23:59,220
PROFESSOR: Exactly.

569
00:23:59,220 --> 00:24:02,200
We had the financial
crisis here in the US.

570
00:24:02,200 --> 00:24:08,100
So in the United States, there
was a pull back of lending.

571
00:24:08,100 --> 00:24:10,485
The government stepped
in shortly thereafter,

572
00:24:10,485 --> 00:24:12,360
realizing that this was
going to be an issue.

573
00:24:12,360 --> 00:24:13,720
There was the ARRA.

574
00:24:13,720 --> 00:24:15,670
Does anybody know what that is?

575
00:24:15,670 --> 00:24:17,860
It's not the American
Association of Retired People.

576
00:24:17,860 --> 00:24:19,630
This is very different.

577
00:24:19,630 --> 00:24:22,330
ARRA is the American Recovery
and Reinvestment Act, right?

578
00:24:22,330 --> 00:24:23,950
This was the Stimulus Act.

579
00:24:23,950 --> 00:24:28,935
And this act actually did
inject a lot of money,

580
00:24:28,935 --> 00:24:31,970
or a lot of capital, into
renewable energy projects that

581
00:24:31,970 --> 00:24:35,850
began hitting in
sometime between 2009,

582
00:24:35,850 --> 00:24:40,790
let's say, at the
beginning, until 2011.

583
00:24:40,790 --> 00:24:43,740
In this period right over here.

584
00:24:43,740 --> 00:24:45,182
Anybody hear of
the word Solyndra?

585
00:24:45,182 --> 00:24:45,682
Yeah?

586
00:24:45,682 --> 00:24:47,265
You've heard about it?

587
00:24:47,265 --> 00:24:48,640
Solyndra was one
of the companies

588
00:24:48,640 --> 00:24:52,672
that received funding
under the ARRA, or "arra."

589
00:24:52,672 --> 00:24:54,820
Under the Stimulus Act.

590
00:24:54,820 --> 00:24:57,260
So a lot of
interesting things were

591
00:24:57,260 --> 00:25:00,890
happening during this brief
little period right here.

592
00:25:00,890 --> 00:25:06,730
During the mid 2000s, China
was getting a lot of bad rap

593
00:25:06,730 --> 00:25:09,240
by environmental groups,
and the United States

594
00:25:09,240 --> 00:25:11,850
as well, for its growing
greenhouse gas emissions.

595
00:25:11,850 --> 00:25:15,580
There was a growing concern
over greenhouse gases

596
00:25:15,580 --> 00:25:18,150
culminating in the
Copenhagen Discussions,

597
00:25:18,150 --> 00:25:20,860
that countries, especially
developing countries,

598
00:25:20,860 --> 00:25:24,660
had to do more to reduce their
greenhouse gas production.

599
00:25:24,660 --> 00:25:27,960
And this, of course,
invited a wonderful tug

600
00:25:27,960 --> 00:25:30,050
of war between a
developing country

601
00:25:30,050 --> 00:25:32,450
bloc-- the most progressive
of the developing countries,

602
00:25:32,450 --> 00:25:37,400
let's say, normally described
as BRICO, so Brazil, Russia,

603
00:25:37,400 --> 00:25:41,640
India, China, and other,
including South Africa--

604
00:25:41,640 --> 00:25:43,030
and the developed countries.

605
00:25:43,030 --> 00:25:47,080
And you can see perspectives
from both, and it's wonderful.

606
00:25:47,080 --> 00:25:50,000
The sophistication
of that debate

607
00:25:50,000 --> 00:25:54,547
in terms of poli-sci arguments
was just beautiful to watch.

608
00:25:54,547 --> 00:25:56,380
On one hand you had the
developing countries

609
00:25:56,380 --> 00:25:58,320
that said, well, wait a second.

610
00:25:58,320 --> 00:26:00,080
You folks in the
developed world,

611
00:26:00,080 --> 00:26:02,190
you used a lot of fossil fuels.

612
00:26:02,190 --> 00:26:04,900
And the majority of
the CO2 emissions

613
00:26:04,900 --> 00:26:08,380
that have occurred to date
were from developed countries,

614
00:26:08,380 --> 00:26:09,460
today.

615
00:26:09,460 --> 00:26:11,680
So it's a bit unfair
that you're asking

616
00:26:11,680 --> 00:26:14,590
us to reduce our CO2
intensity, because that might

617
00:26:14,590 --> 00:26:16,280
hamper our own development.

618
00:26:16,280 --> 00:26:20,220
Why don't you pay
reparations for the CO2

619
00:26:20,220 --> 00:26:21,830
that you've already
emitted and help

620
00:26:21,830 --> 00:26:24,145
us decrease our CO2 intensity?

621
00:26:24,145 --> 00:26:26,520
So there were these beautiful
arguments being constructed

622
00:26:26,520 --> 00:26:29,010
on both sides of the debate.

623
00:26:29,010 --> 00:26:31,590
What China decided to do-- so
on the international spectrum,

624
00:26:31,590 --> 00:26:33,050
not much happened.

625
00:26:33,050 --> 00:26:36,900
And that's fairly-- sadly,
it's fairly typical of most

626
00:26:36,900 --> 00:26:40,960
of today's-- I'd say the
larger the body happens to be,

627
00:26:40,960 --> 00:26:44,860
whether it's the federal
government or the world

628
00:26:44,860 --> 00:26:47,700
institutions, it seems that
things happen at a much slower

629
00:26:47,700 --> 00:26:50,220
pace the larger the entity is.

630
00:26:50,220 --> 00:26:53,510
But at a smaller entity, for
example, the state level, which

631
00:26:53,510 --> 00:26:55,680
we'll see in a few slides,
in the United States,

632
00:26:55,680 --> 00:26:57,440
a lot's happening right now.

633
00:26:57,440 --> 00:26:59,250
And within China's
central government,

634
00:26:59,250 --> 00:27:01,560
a lot happened in response
to some of that criticism.

635
00:27:01,560 --> 00:27:04,730
They said well, there's a point.

636
00:27:04,730 --> 00:27:07,150
More a point that
fossil fuel emissions

637
00:27:07,150 --> 00:27:09,115
really decreases
our quality of life.

638
00:27:09,115 --> 00:27:11,240
If you look at some of the
pollution in our cities,

639
00:27:11,240 --> 00:27:14,320
that's not very becoming.

640
00:27:14,320 --> 00:27:15,930
We can do better.

641
00:27:15,930 --> 00:27:17,680
And furthermore,
we can create jobs

642
00:27:17,680 --> 00:27:19,521
for the people who are
flooding our cities

643
00:27:19,521 --> 00:27:21,770
from the countryside looking
for economic opportunity.

644
00:27:21,770 --> 00:27:24,080
We can create new
jobs in this industry.

645
00:27:24,080 --> 00:27:26,890
And we'll do it
by making capital

646
00:27:26,890 --> 00:27:30,090
available to this new
nascent industry at a time

647
00:27:30,090 --> 00:27:32,340
when it's very difficult to
achieve capital or acquire

648
00:27:32,340 --> 00:27:35,300
capital in the West, in
Europe and the United States.

649
00:27:35,300 --> 00:27:39,980
And so that's again happening
really in the mid 2000s.

650
00:27:39,980 --> 00:27:42,660
And what we'll see
in a few slides

651
00:27:42,660 --> 00:27:45,820
is the massive growth of
the Chinese manufacturing

652
00:27:45,820 --> 00:27:49,500
market in response to the
availability of capital

653
00:27:49,500 --> 00:27:50,790
in those countries.

654
00:27:50,790 --> 00:27:53,110
Let me go back to a
slide that I presented,

655
00:27:53,110 --> 00:27:54,980
I think it was lecture
number 1, where

656
00:27:54,980 --> 00:27:57,410
we looked at the
cumulative production of PV

657
00:27:57,410 --> 00:27:58,880
as a function of year.

658
00:27:58,880 --> 00:28:02,390
And if we plot this on
the log-linear plot,

659
00:28:02,390 --> 00:28:07,150
we can read the growth rate
off of the slope of that curve.

660
00:28:07,150 --> 00:28:12,400
So this was somewhere around
10%, 40%, maybe upwards to 60%,

661
00:28:12,400 --> 00:28:17,230
depending on what data points
you include in those lines.

662
00:28:17,230 --> 00:28:19,340
Interestingly,
back in 1990, if we

663
00:28:19,340 --> 00:28:22,840
look at the distribution
of different technologies,

664
00:28:22,840 --> 00:28:25,880
multicrystalline silicon was
1/3, single-crystalline silicon

665
00:28:25,880 --> 00:28:28,660
about 1/3, and thin-film
technology, namely,

666
00:28:28,660 --> 00:28:30,807
pushed by amorphous
silicon, was about 1/3

667
00:28:30,807 --> 00:28:32,140
of all manufacturing production.

668
00:28:34,670 --> 00:28:38,270
As the market evolved--
sorry about this.

669
00:28:38,270 --> 00:28:38,820
There we go.

670
00:28:38,820 --> 00:28:40,384
So again, the
different technologies,

671
00:28:40,384 --> 00:28:42,300
just to situate ourselves,
single-crystalline,

672
00:28:42,300 --> 00:28:44,020
multicrystalline,
and thin films.

673
00:28:44,020 --> 00:28:47,050
As the market evolved
going into the 2000s,

674
00:28:47,050 --> 00:28:51,020
we saw this type
of breakdown occur.

675
00:28:51,020 --> 00:28:54,470
We have silicon, or
crystalline silicon comprising

676
00:28:54,470 --> 00:28:59,370
around 85% to 90% of the market,
and thin films not growing

677
00:28:59,370 --> 00:29:01,790
as fast as crystalline silicon.

678
00:29:01,790 --> 00:29:02,940
It was still growing.

679
00:29:02,940 --> 00:29:04,930
The market overall
is going gangbusters,

680
00:29:04,930 --> 00:29:07,330
but crystalline silicon
technology was going faster

681
00:29:07,330 --> 00:29:08,640
than the others.

682
00:29:08,640 --> 00:29:10,640
And in part, this
was due to the fact

683
00:29:10,640 --> 00:29:14,200
that crystalline silicon
technology was a bit cheaper

684
00:29:14,200 --> 00:29:17,150
than thin films at
the time, largely

685
00:29:17,150 --> 00:29:18,730
driven by the
efficiency parameter

686
00:29:18,730 --> 00:29:21,080
that we've just seen
in the previous slides.

687
00:29:21,080 --> 00:29:24,580
And turnkey equipment
was available.

688
00:29:24,580 --> 00:29:27,880
So if you had capital
someplace in the world,

689
00:29:27,880 --> 00:29:31,350
anywhere in the world, and the
labor and commodities were such

690
00:29:31,350 --> 00:29:32,930
that you could
compete in the market,

691
00:29:32,930 --> 00:29:37,900
and the shipping costs weren't
extremely prohibitive to get

692
00:29:37,900 --> 00:29:39,870
your product to the
most interesting markets

693
00:29:39,870 --> 00:29:43,070
in the world, you could
compete because you

694
00:29:43,070 --> 00:29:44,344
could buy turnkey equipment.

695
00:29:44,344 --> 00:29:45,760
Even if you knew
nothing about how

696
00:29:45,760 --> 00:29:47,780
to manufacture a solar
cell, knew nothing

697
00:29:47,780 --> 00:29:49,804
about semiconductors
or solid-state physics,

698
00:29:49,804 --> 00:29:51,470
what we've discussed
here in this class,

699
00:29:51,470 --> 00:29:54,260
you could still go out and buy
a turnkey manufacturing line

700
00:29:54,260 --> 00:29:56,110
and get technicians to
come in and teach you

701
00:29:56,110 --> 00:29:58,610
how to manufacture solar cells.

702
00:29:58,610 --> 00:30:01,540
That was the beauty of
these equipment companies.

703
00:30:01,540 --> 00:30:03,860
And so the equipment
companies specialized

704
00:30:03,860 --> 00:30:05,710
in crystalline
silicon technologies.

705
00:30:05,710 --> 00:30:08,550
And as such, many
of the turnkey lines

706
00:30:08,550 --> 00:30:13,960
that grew up out of
Greenfield factories,

707
00:30:13,960 --> 00:30:18,260
especially in China, Taiwan, and
other places around the world,

708
00:30:18,260 --> 00:30:20,490
leveraged these
turnkey manufacturers

709
00:30:20,490 --> 00:30:21,240
to a great extent.

710
00:30:25,710 --> 00:30:27,350
So price, markets,
and subsidies.

711
00:30:27,350 --> 00:30:31,670
We're going to be
looking at-- it's

712
00:30:31,670 --> 00:30:33,440
a bit of a hodgepodge
in the sense,

713
00:30:33,440 --> 00:30:37,220
if we're addressing cost, price,
and manufacturing all together

714
00:30:37,220 --> 00:30:40,370
in one big stew, I
think that's useful

715
00:30:40,370 --> 00:30:43,260
because the three
are interrelated.

716
00:30:43,260 --> 00:30:46,120
A price is difficult
to set without a cost,

717
00:30:46,120 --> 00:30:49,080
and the manufacturing
is part of that story

718
00:30:49,080 --> 00:30:51,280
and can help us tease
apart what exactly

719
00:30:51,280 --> 00:30:54,800
is going on right now with
Solyndra, with SolarWorld,

720
00:30:54,800 --> 00:30:55,400
and so forth.

721
00:30:55,400 --> 00:30:56,250
OK.

722
00:30:56,250 --> 00:30:58,890
So let's start with
customer needs.

723
00:30:58,890 --> 00:31:01,350
Just to acquaint ourselves,
if we're talking about price,

724
00:31:01,350 --> 00:31:05,820
we can't divorce price
from our customer.

725
00:31:05,820 --> 00:31:08,140
And in terms of what
our customer needs are,

726
00:31:08,140 --> 00:31:09,540
we have on-grid applications.

727
00:31:09,540 --> 00:31:11,490
That's represented
by, for example,

728
00:31:11,490 --> 00:31:13,789
a solar system on my house,
on the student center.

729
00:31:13,789 --> 00:31:15,580
These are systems that
are tied to the grid

730
00:31:15,580 --> 00:31:19,980
and using the grid as a battery
to store the excess energy.

731
00:31:19,980 --> 00:31:22,880
Off-grid, this represents, for
example, the Lighting Africa

732
00:31:22,880 --> 00:31:26,110
project here within our class.

733
00:31:26,110 --> 00:31:28,870
These are folks who don't have
access to an electrical grid

734
00:31:28,870 --> 00:31:32,255
and who need to have
that electricity there.

735
00:31:32,255 --> 00:31:33,880
So while people on
the grid are worried

736
00:31:33,880 --> 00:31:36,580
about cents per kilowatt
hour, people off the grid

737
00:31:36,580 --> 00:31:38,920
might be worried about the
dollars per hour of light.

738
00:31:38,920 --> 00:31:41,472
That might be their
metric of merit.

739
00:31:41,472 --> 00:31:42,930
So from the customer's
perspective,

740
00:31:42,930 --> 00:31:44,300
what is their value?

741
00:31:44,300 --> 00:31:48,407
What do they get from the
solar PV system on the roof?

742
00:31:48,407 --> 00:31:50,240
These parameters under
here, underneath each

743
00:31:50,240 --> 00:31:53,040
of the pictures, represent
the value parameter.

744
00:31:53,040 --> 00:31:55,700
And again, it's a
very cartoonish way

745
00:31:55,700 --> 00:31:56,699
of thinking about it.

746
00:31:56,699 --> 00:31:59,240
It's a lot more complex when
you start getting into the weeds

747
00:31:59,240 --> 00:32:01,239
and figure out what the
customer actually wants.

748
00:32:01,239 --> 00:32:05,030
Reliability factors in,
access to the product, repair,

749
00:32:05,030 --> 00:32:06,910
reliability, and so
forth, factor in as well.

750
00:32:06,910 --> 00:32:09,420
There are many factors
that add in to value.

751
00:32:09,420 --> 00:32:12,290
But what we've done
here is emphasize

752
00:32:12,290 --> 00:32:14,535
the biggest levers,
if you will, and some

753
00:32:14,535 --> 00:32:16,910
of the biggest differences
between different applications

754
00:32:16,910 --> 00:32:18,380
of PV.

755
00:32:18,380 --> 00:32:21,780
If you're looking at the solar
panels on top of the Toyota

756
00:32:21,780 --> 00:32:24,996
Prius, you might not
really care about the cents

757
00:32:24,996 --> 00:32:26,370
per kilowatt hour,
because you're

758
00:32:26,370 --> 00:32:29,880
paying $20,000 for your car, so
what's a few extra dollars here

759
00:32:29,880 --> 00:32:30,590
or there?

760
00:32:30,590 --> 00:32:32,120
But you might care
about the watts

761
00:32:32,120 --> 00:32:34,810
per meter squared, which is
really an efficiency parameter.

762
00:32:34,810 --> 00:32:37,302
You might want it to
satisfy a certain function

763
00:32:37,302 --> 00:32:39,260
that it could not do
otherwise if the panel was

764
00:32:39,260 --> 00:32:40,614
too low efficiency.

765
00:32:40,614 --> 00:32:42,780
If you're sending something
into outer space, again,

766
00:32:42,780 --> 00:32:44,738
you might not care about
the manufacturing cost

767
00:32:44,738 --> 00:32:47,640
of the panel, , because the
shipment costs, in other words,

768
00:32:47,640 --> 00:32:50,139
putting it onto the rocket and
sending it up in outer space,

769
00:32:50,139 --> 00:32:51,810
is $10,000 per kilogram.

770
00:32:51,810 --> 00:32:54,150
You might be more worried
about, how much does it weigh?

771
00:32:54,150 --> 00:32:57,020
What is the specific
power of the solar panels?

772
00:32:57,020 --> 00:32:59,730
Likewise, if you're installing
them in a big-box company,

773
00:32:59,730 --> 00:33:01,960
for example at Walmart
or Kmart, and you

774
00:33:01,960 --> 00:33:04,720
have a big flat roof
that isn't very strong,

775
00:33:04,720 --> 00:33:07,730
isn't well reinforced, you
might care about that parameter

776
00:33:07,730 --> 00:33:10,570
as well, or the grams
per meter squared.

777
00:33:10,570 --> 00:33:12,500
I'm sure that
factors in somewhere.

778
00:33:12,500 --> 00:33:13,470
Actually, it doesn't.

779
00:33:13,470 --> 00:33:16,690
So there are many
other parameters

780
00:33:16,690 --> 00:33:21,070
that could matter for a
particular application.

781
00:33:21,070 --> 00:33:23,880
Dollars per meter squared
for aesthetics for a building

782
00:33:23,880 --> 00:33:25,700
integrated system.

783
00:33:25,700 --> 00:33:27,940
I've had architects
come to me and say,

784
00:33:27,940 --> 00:33:30,119
can you make a
yellow solar panel?

785
00:33:30,119 --> 00:33:31,660
I'd really like a
yellow solar panel.

786
00:33:31,660 --> 00:33:33,460
And here I am thinking
of the solar spectrum

787
00:33:33,460 --> 00:33:35,959
and seeing the biggest, the
peak of the solar spectrum being

788
00:33:35,959 --> 00:33:38,700
reflected away from the panel
into the observer's eye,

789
00:33:38,700 --> 00:33:41,480
and I'm thinking, well, I can
make it kind of dark yellow,

790
00:33:41,480 --> 00:33:42,720
yellowish.

791
00:33:42,720 --> 00:33:43,220
OK.

792
00:33:43,220 --> 00:33:45,360
How much are you willing to pay?

793
00:33:45,360 --> 00:33:48,580
And there are many different
parameters here that matter

794
00:33:48,580 --> 00:33:50,820
for the customer.

795
00:33:50,820 --> 00:33:53,345
This one right here is
a concentrator system,

796
00:33:53,345 --> 00:33:55,470
so you have these optics
that concentrate the light

797
00:33:55,470 --> 00:33:57,450
into a small little
spot, and they're

798
00:33:57,450 --> 00:34:00,230
looking at the watts
per millimeter squared.

799
00:34:00,230 --> 00:34:03,010
A very small device, how
much power does it output?

800
00:34:03,010 --> 00:34:06,330
The cost of the actual
device is almost irrelevant.

801
00:34:06,330 --> 00:34:08,050
It's the power
output that matters,

802
00:34:08,050 --> 00:34:11,070
because the majority of the cost
is sunk in all the commodity

803
00:34:11,070 --> 00:34:12,290
materials around it.

804
00:34:12,290 --> 00:34:12,790
All right.

805
00:34:12,790 --> 00:34:15,159
So we're getting into
this because we're

806
00:34:15,159 --> 00:34:17,710
going to focus largely
on on-grid applications,

807
00:34:17,710 --> 00:34:19,392
and I'm going to
explain to you why.

808
00:34:19,392 --> 00:34:21,100
If you're in the
Lighting Africa project,

809
00:34:21,100 --> 00:34:23,230
you probably care
mostly about that.

810
00:34:23,230 --> 00:34:24,909
But the on-grid
applications currently

811
00:34:24,909 --> 00:34:27,860
comprise 95% of
the current market.

812
00:34:27,860 --> 00:34:28,850
Substitution economics.

813
00:34:28,850 --> 00:34:32,310
We're substituting
PV with, or we're

814
00:34:32,310 --> 00:34:34,850
substituting fossil
fuel-based power,

815
00:34:34,850 --> 00:34:38,130
on average in the United States,
somewhere around 600 grams

816
00:34:38,130 --> 00:34:40,510
of CO2 per kilowatt hour.

817
00:34:40,510 --> 00:34:42,219
We're substituting
that with PV which

818
00:34:42,219 --> 00:34:46,580
is on the order of a
factor of 5 to 20 lower.

819
00:34:46,580 --> 00:34:50,044
So what types of grid
electricity will PV substitute?

820
00:34:50,044 --> 00:34:51,960
What does this mean for
traditional generation

821
00:34:51,960 --> 00:34:53,909
companies, also called gencos?

822
00:34:53,909 --> 00:34:57,365
And what is a fair selling
price for PV electricity?

823
00:34:57,365 --> 00:34:58,490
Very interesting questions.

824
00:34:58,490 --> 00:35:01,290
So in terms of
markets, this is just

825
00:35:01,290 --> 00:35:05,350
a breakdown of off-grid consumer
applications and on-grid.

826
00:35:05,350 --> 00:35:08,680
When I first got into this,
somewhere around here,

827
00:35:08,680 --> 00:35:12,420
it was broken down about
50-50, PV on-grid and off-grid.

828
00:35:14,990 --> 00:35:18,790
Today, much further down,
off-grid applications, probably

829
00:35:18,790 --> 00:35:19,882
below 10%.

830
00:35:19,882 --> 00:35:21,590
I don't know the
precise numbers for you,

831
00:35:21,590 --> 00:35:24,960
but it's stayed relatively
flat compared to the growth

832
00:35:24,960 --> 00:35:26,680
rate of the on-grid.

833
00:35:26,680 --> 00:35:30,150
And the reasons for this, we'll
see in a couple of slides.

834
00:35:30,150 --> 00:35:35,300
This is the value of PV
electricity, per a 2008 report.

835
00:35:35,300 --> 00:35:41,370
If you look at what is easily
monetized-- easily monetized

836
00:35:41,370 --> 00:35:44,650
depending on the policy
in a particular case--

837
00:35:44,650 --> 00:35:48,550
you have the cost of
fuel, the cost of capital,

838
00:35:48,550 --> 00:35:53,120
typically for a power plant,
the CO2 emissions offset.

839
00:35:53,120 --> 00:35:55,060
This is if you have
a price of carbon.

840
00:35:55,060 --> 00:35:58,820
Notice how small it actually
is, leading a lot of people

841
00:35:58,820 --> 00:36:02,080
to conclude that maybe carbon
pricing isn't the biggest lever

842
00:36:02,080 --> 00:36:03,447
for bringing PV onto the grid.

843
00:36:03,447 --> 00:36:04,780
That's a whole other discussion.

844
00:36:04,780 --> 00:36:06,280
We can have that later.

845
00:36:06,280 --> 00:36:07,220
Grid losses.

846
00:36:07,220 --> 00:36:09,440
These are the transmission
and distribution losses,

847
00:36:09,440 --> 00:36:12,160
the difference between having
the PV mounted or distributed,

848
00:36:12,160 --> 00:36:13,970
the power generation
source mounted right

849
00:36:13,970 --> 00:36:16,736
on the site of use, as opposed
to a centralized location that

850
00:36:16,736 --> 00:36:18,940
has to distribute it.

851
00:36:18,940 --> 00:36:21,820
These are much more
difficult to monetize.

852
00:36:21,820 --> 00:36:24,750
And you can add in here health
impacts related to emissions,

853
00:36:24,750 --> 00:36:26,720
and so forth.

854
00:36:26,720 --> 00:36:29,760
You're looking at the
security, the reduced

855
00:36:29,760 --> 00:36:33,170
risk of having a product
producing electricity

856
00:36:33,170 --> 00:36:36,280
at a certain known
price for 20 years.

857
00:36:36,280 --> 00:36:38,820
You're also looking
at tax bonuses.

858
00:36:38,820 --> 00:36:43,140
These are tricky because
tax policy can change.

859
00:36:43,140 --> 00:36:46,720
You're looking at uncertainty
in your raw feedstock

860
00:36:46,720 --> 00:36:49,650
material, the fuel.

861
00:36:49,650 --> 00:36:52,310
And the need for
backup is something

862
00:36:52,310 --> 00:36:54,870
that reduces the value
of PV electricity.

863
00:36:54,870 --> 00:36:56,520
If you, at some
point in the future,

864
00:36:56,520 --> 00:36:59,660
will need to back up PV
power with something that

865
00:36:59,660 --> 00:37:01,870
is more dispatchable
and it's still

866
00:37:01,870 --> 00:37:03,810
an uncertainty in
the power grid,

867
00:37:03,810 --> 00:37:07,070
that's something that
is reducing the value

868
00:37:07,070 --> 00:37:08,450
of installing the PV today.

869
00:37:08,450 --> 00:37:11,330
Some might argue that that
$0.01 negative is actually

870
00:37:11,330 --> 00:37:14,710
a drastic underestimation
of the risk associated

871
00:37:14,710 --> 00:37:16,450
with backup power needs.

872
00:37:16,450 --> 00:37:23,070
But this is a fair look at
what the so-called true value

873
00:37:23,070 --> 00:37:24,930
of PV electricity
might be, which

874
00:37:24,930 --> 00:37:26,230
would lead us into pricing.

875
00:37:26,230 --> 00:37:29,010
If we know the value,
we can enter pricing.

876
00:37:29,010 --> 00:37:31,460
And not many people can
argue with this, because this

877
00:37:31,460 --> 00:37:32,546
is substitution economics.

878
00:37:32,546 --> 00:37:33,920
This is just
saying, OK, how much

879
00:37:33,920 --> 00:37:38,660
does it cost to produce
fossil fuel electricity?

880
00:37:38,660 --> 00:37:41,020
And let's substitute that.

881
00:37:41,020 --> 00:37:44,110
Anything over here in the yellow
is what people might say, well

882
00:37:44,110 --> 00:37:47,700
gee, if we really look at the
true price, or the true cost

883
00:37:47,700 --> 00:37:50,000
of fossil fuels, this
is what it really

884
00:37:50,000 --> 00:37:51,960
costs if we take away
all of the subsidies

885
00:37:51,960 --> 00:37:54,390
and add in all of
the externalities.

886
00:37:54,390 --> 00:37:56,465
What's an externality?

887
00:37:56,465 --> 00:37:57,590
What's an externality mean?

888
00:38:00,364 --> 00:38:00,864
Yeah?

889
00:38:00,864 --> 00:38:02,780
AUDIENCE: Is it
when the consumer

890
00:38:02,780 --> 00:38:05,954
isn't aware of something that
the [INAUDIBLE] is doing?

891
00:38:05,954 --> 00:38:06,620
PROFESSOR: Yeah.

892
00:38:06,620 --> 00:38:09,740
So when the consumer--
or let's put it this way.

893
00:38:09,740 --> 00:38:13,770
When the true
impact, price impact,

894
00:38:13,770 --> 00:38:16,270
is not factored into
the selling price.

895
00:38:16,270 --> 00:38:20,370
Let's say-- hm.

896
00:38:20,370 --> 00:38:24,510
Let's say that I sell
you a miracle drug.

897
00:38:24,510 --> 00:38:27,810
And it allows you to be
5 times more productive

898
00:38:27,810 --> 00:38:29,410
than you are right now.

899
00:38:29,410 --> 00:38:34,740
But then every time
you have your needs,

900
00:38:34,740 --> 00:38:36,840
down the toilet goes
a bunch of chemicals

901
00:38:36,840 --> 00:38:39,980
that the water plant
now needs to filter out,

902
00:38:39,980 --> 00:38:41,820
and the water plant
begins failing

903
00:38:41,820 --> 00:38:45,930
some of its standard tests when
they measure water quality.

904
00:38:45,930 --> 00:38:48,601
So they add in some more
filters into their system.

905
00:38:48,601 --> 00:38:50,600
They figure out how to
get rid of this compound.

906
00:38:50,600 --> 00:38:53,252
And now all of the water
treatment facilities

907
00:38:53,252 --> 00:38:55,460
around the country begin
adding in these new filters,

908
00:38:55,460 --> 00:38:57,543
and it costs somewhere on
the order of $1 billion.

909
00:38:57,543 --> 00:38:58,730
That is an externality.

910
00:38:58,730 --> 00:38:59,950
That's something
that wasn't factored

911
00:38:59,950 --> 00:39:01,880
into the price of selling
you that miracle drug that

912
00:39:01,880 --> 00:39:03,830
allowed you to be 5
times more productive.

913
00:39:03,830 --> 00:39:07,000
It's an example of
how everybody pays

914
00:39:07,000 --> 00:39:11,300
for the acts or the
purchases of a few.

915
00:39:11,300 --> 00:39:14,640
And that's the case with
energy production as well.

916
00:39:17,430 --> 00:39:21,330
So it's difficult to
argue in economic terms--

917
00:39:21,330 --> 00:39:24,020
or it's difficult to
put a specific price

918
00:39:24,020 --> 00:39:26,090
on externalities, because
these could be things

919
00:39:26,090 --> 00:39:27,850
like premature deaths.

920
00:39:27,850 --> 00:39:30,214
And there are statisticians
who will calculate

921
00:39:30,214 --> 00:39:31,880
the number of people
who die prematurely

922
00:39:31,880 --> 00:39:35,676
as a result of exposure
to mercury or cadmium

923
00:39:35,676 --> 00:39:37,050
or some other
emission coming off

924
00:39:37,050 --> 00:39:39,130
of a fossil fuel-burning plant.

925
00:39:39,130 --> 00:39:41,500
But then how do
you monetize that?

926
00:39:41,500 --> 00:39:44,230
You have to assign a
value to a human life

927
00:39:44,230 --> 00:39:48,366
and say that a certain economic
value was lost, both in terms

928
00:39:48,366 --> 00:39:49,990
of productivity cost,
but also in terms

929
00:39:49,990 --> 00:39:53,110
of the investment due
to that person dying.

930
00:39:53,110 --> 00:39:54,560
And they do that.

931
00:39:54,560 --> 00:39:57,580
In government, there is
a value to a human life,

932
00:39:57,580 --> 00:40:01,410
and it can vary somewhat
from one group to another.

933
00:40:01,410 --> 00:40:05,710
But it's very difficult
to price in externalities.

934
00:40:05,710 --> 00:40:08,450
And that's why oftentimes
these things in yellow

935
00:40:08,450 --> 00:40:10,780
here are neglected
or not considered.

936
00:40:10,780 --> 00:40:12,600
For the purposes of
today's discussion,

937
00:40:12,600 --> 00:40:14,950
we're just going to factor
in mostly these parameters

938
00:40:14,950 --> 00:40:19,680
right here because we have
a greater hold on them.

939
00:40:19,680 --> 00:40:22,820
So in terms of PV
installations worldwide

940
00:40:22,820 --> 00:40:25,100
cumulative, I want to
compare and contrast

941
00:40:25,100 --> 00:40:29,670
where our customers are versus
where our manufacturing is.

942
00:40:29,670 --> 00:40:32,580
And we'll get to some
really interesting questions

943
00:40:32,580 --> 00:40:33,750
associated with that.

944
00:40:33,750 --> 00:40:36,770
So look at that.

945
00:40:36,770 --> 00:40:38,549
Where would you expect
PV to be installed?

946
00:40:38,549 --> 00:40:40,840
You'd expect it to be installed
in the sunniest places.

947
00:40:40,840 --> 00:40:41,389
Why?

948
00:40:41,389 --> 00:40:42,930
Because the amount
of energy produced

949
00:40:42,930 --> 00:40:47,190
is related, proportional, to
the amount of solar resource

950
00:40:47,190 --> 00:40:49,280
that's available in that spot.

951
00:40:49,280 --> 00:40:51,970
But from a customer's
point of view,

952
00:40:51,970 --> 00:40:53,400
solar resource isn't everything.

953
00:40:53,400 --> 00:40:56,250
They're also looking at
the cost of displacement.

954
00:40:56,250 --> 00:40:58,622
What is the price of
electricity I'm paying?

955
00:40:58,622 --> 00:41:00,080
And how much of
that can I displace

956
00:41:00,080 --> 00:41:01,940
with my PV electricity?

957
00:41:01,940 --> 00:41:05,800
So there's some more
sophisticated concern here.

958
00:41:05,800 --> 00:41:08,250
And further, the
price of electricity

959
00:41:08,250 --> 00:41:11,910
might not only be dictated by
the true cost of production

960
00:41:11,910 --> 00:41:14,224
of the fossil fuel power plants.

961
00:41:14,224 --> 00:41:15,890
There may be a few
governments out there

962
00:41:15,890 --> 00:41:17,920
that say, well, look at
all these externalities.

963
00:41:17,920 --> 00:41:19,920
We want to begin
factoring those in.

964
00:41:19,920 --> 00:41:22,030
We want to provide an
incentive for people

965
00:41:22,030 --> 00:41:24,490
to produce PV electricity.

966
00:41:24,490 --> 00:41:26,430
That's commonly referred
to as a subsidy.

967
00:41:26,430 --> 00:41:28,950
So if we look at the
total installation,

968
00:41:28,950 --> 00:41:31,540
EU is really leading
the charge here.

969
00:41:31,540 --> 00:41:33,370
And we saw on those
installation maps,

970
00:41:33,370 --> 00:41:36,340
there's not a heck of a
lot of sun there in the EU.

971
00:41:36,340 --> 00:41:41,880
Germany has a solar radiance
similar to what we have here

972
00:41:41,880 --> 00:41:43,310
in the northeast of the country.

973
00:41:43,310 --> 00:41:46,030
And we know that most of the PV
installed in the United States

974
00:41:46,030 --> 00:41:48,000
is going into the southwest.

975
00:41:48,000 --> 00:41:53,650
Japan, rest of world, USA,
a relatively small fraction

976
00:41:53,650 --> 00:41:55,370
up there in China.

977
00:41:55,370 --> 00:41:56,450
Tiny, tiny little bleep.

978
00:41:56,450 --> 00:41:59,550
China's the peach one
right up there at the top.

979
00:41:59,550 --> 00:42:04,530
So I would say less than 5%
of total installed worldwide.

980
00:42:04,530 --> 00:42:06,360
Actually this is 1.5%.

981
00:42:06,360 --> 00:42:08,920
You can read it off
right here, the division.

982
00:42:08,920 --> 00:42:09,420
OK.

983
00:42:09,420 --> 00:42:13,850
So we have a very
interesting perspective

984
00:42:13,850 --> 00:42:16,680
here about our customers.

985
00:42:16,680 --> 00:42:19,970
This is a breakdown, again,
in terms of customers again.

986
00:42:19,970 --> 00:42:22,530
A little bit better detail.

987
00:42:22,530 --> 00:42:26,000
Instead of just seeing EU,
we're looking at a variety

988
00:42:26,000 --> 00:42:28,510
of different customers.

989
00:42:28,510 --> 00:42:30,370
And this is new
installations worldwide.

990
00:42:30,370 --> 00:42:32,537
So if, for example,
this blue bar goes down,

991
00:42:32,537 --> 00:42:34,370
it just means we installed
less PV this year

992
00:42:34,370 --> 00:42:35,320
than we did last year.

993
00:42:35,320 --> 00:42:37,819
It doesn't mean that the total
amount on the grid went down.

994
00:42:37,819 --> 00:42:39,420
It's just new PV installs.

995
00:42:39,420 --> 00:42:42,420
So the blue down
here is now Germany.

996
00:42:42,420 --> 00:42:45,670
We have these countries that
are like flashes in the pan.

997
00:42:45,670 --> 00:42:48,260
Italy, for example--
sorry, Spain.

998
00:42:48,260 --> 00:42:51,570
This one, Spain, grew up really
quick and then disappeared.

999
00:42:51,570 --> 00:42:55,280
Italy grew up really quick
and then is shrinking.

1000
00:42:55,280 --> 00:42:57,560
If we extended out to
2011, it would be back

1001
00:42:57,560 --> 00:42:59,320
to a very small amount.

1002
00:42:59,320 --> 00:43:01,490
We have USA that's
consistently growing.

1003
00:43:01,490 --> 00:43:03,150
That's a nice healthy market.

1004
00:43:03,150 --> 00:43:06,540
In Germany, that's
growing as well.

1005
00:43:06,540 --> 00:43:07,810
Wow.

1006
00:43:07,810 --> 00:43:09,420
What an interesting dynamic.

1007
00:43:09,420 --> 00:43:12,500
Why did Spain have
this flash in the pan

1008
00:43:12,500 --> 00:43:14,220
and then shrink suddenly?

1009
00:43:14,220 --> 00:43:17,500
What did they do differently
than Germany did?

1010
00:43:17,500 --> 00:43:19,190
We'll start asking
those questions

1011
00:43:19,190 --> 00:43:21,484
and answering them
in a few slides.

1012
00:43:21,484 --> 00:43:23,400
If you really want to
get detailed information

1013
00:43:23,400 --> 00:43:25,870
about the US, where PV is
installed in the United

1014
00:43:25,870 --> 00:43:28,370
States, one of
your MIT colleagues

1015
00:43:28,370 --> 00:43:32,240
and a bunch of NREL folks
got together and put up

1016
00:43:32,240 --> 00:43:37,740
this beautiful archive, if
you will, compendex of as many

1017
00:43:37,740 --> 00:43:39,150
PV installations
as they possibly

1018
00:43:39,150 --> 00:43:40,510
could in the United States.

1019
00:43:40,510 --> 00:43:41,730
So that's the website.

1020
00:43:41,730 --> 00:43:44,490
Unfortunately, I didn't
include it in your slides,

1021
00:43:44,490 --> 00:43:46,520
so you might want to
write that down if you're

1022
00:43:46,520 --> 00:43:48,830
curious about it.

1023
00:43:48,830 --> 00:43:50,060
Wonderful resource.

1024
00:43:50,060 --> 00:43:53,090
Again, NREL, National
Renewable Energy Laboratory

1025
00:43:53,090 --> 00:43:54,960
based in Golden, Colorado.

1026
00:43:54,960 --> 00:43:57,342
And you can see the
install distribution

1027
00:43:57,342 --> 00:43:58,550
throughout the United States.

1028
00:43:58,550 --> 00:44:03,550
Again, a bias toward states that
have high electricity prices,

1029
00:44:03,550 --> 00:44:08,190
like New York and Massachusetts,
and lots of sun, like Arizona.

1030
00:44:08,190 --> 00:44:11,350
The price of electricity
is rather low in Arizona.

1031
00:44:11,350 --> 00:44:12,920
It's below $0.10
per kilowatt hour,

1032
00:44:12,920 --> 00:44:16,560
but the amount of sun
available is very high.

1033
00:44:16,560 --> 00:44:18,800
Whereas California has both.

1034
00:44:18,800 --> 00:44:19,330
OK.

1035
00:44:19,330 --> 00:44:21,060
So we talked about the customer.

1036
00:44:21,060 --> 00:44:23,850
Now here we're talking
about the manufacturers.

1037
00:44:23,850 --> 00:44:25,860
So we have the
customers, the demand;

1038
00:44:25,860 --> 00:44:28,900
the manufacturers, the supply.

1039
00:44:28,900 --> 00:44:32,360
Obviously, the manufacturers
are growing at the same rate

1040
00:44:32,360 --> 00:44:33,710
as our customers are installing.

1041
00:44:33,710 --> 00:44:35,740
Even faster, mind you.

1042
00:44:35,740 --> 00:44:39,160
Inventory rates are almost,
somewhere between 25% and 50%

1043
00:44:39,160 --> 00:44:39,660
nowadays.

1044
00:44:39,660 --> 00:44:43,730
So the production has grown
faster than the demand has,

1045
00:44:43,730 --> 00:44:45,780
at least at current prices.

1046
00:44:45,780 --> 00:44:48,370
What we've done right here,
or what is done right here

1047
00:44:48,370 --> 00:44:52,930
is a normalization
by market share,

1048
00:44:52,930 --> 00:44:55,340
just to demonstrate how
the market dynamics are

1049
00:44:55,340 --> 00:44:57,150
changing as the industry grows.

1050
00:44:57,150 --> 00:44:59,251
So from 2005 to 2009,
this doesn't mean

1051
00:44:59,251 --> 00:45:00,500
that the industry stayed flat.

1052
00:45:00,500 --> 00:45:02,330
It continued growing
at a breakneck pace,

1053
00:45:02,330 --> 00:45:06,870
but the countries which
comprise the manufacturers

1054
00:45:06,870 --> 00:45:08,364
have changed significantly.

1055
00:45:08,364 --> 00:45:09,780
So let's look at
Europe first off.

1056
00:45:09,780 --> 00:45:12,330
Europe pretty much
started really feeling it

1057
00:45:12,330 --> 00:45:13,960
during the financial crisis.

1058
00:45:13,960 --> 00:45:19,270
They couldn't keep
expanding in 2008,

1059
00:45:19,270 --> 00:45:22,610
and then when prices really
started to drop, 2009,

1060
00:45:22,610 --> 00:45:26,050
as we saw, they didn't
continue expanding.

1061
00:45:26,050 --> 00:45:28,690
Were a bit uncompetitive.

1062
00:45:28,690 --> 00:45:33,580
US, shown here in the
green, again, dropping.

1063
00:45:33,580 --> 00:45:37,960
India, I guess sort
of growing now.

1064
00:45:37,960 --> 00:45:40,440
It's definitely on the upswing.

1065
00:45:40,440 --> 00:45:43,920
Japan decreased
considerably, considerably.

1066
00:45:43,920 --> 00:45:47,400
During the 1990s
and the early 2000s,

1067
00:45:47,400 --> 00:45:51,130
Japan had the largest solar
company in the world, Sharp,

1068
00:45:51,130 --> 00:45:52,830
better known for
microelectronics

1069
00:45:52,830 --> 00:45:54,660
that you might find
around your house.

1070
00:45:54,660 --> 00:45:57,560
Somehow, some way, the
executives at Sharp

1071
00:45:57,560 --> 00:45:59,030
saw this coming.

1072
00:45:59,030 --> 00:46:02,960
Saw a huge rise in demand coming
from Europe, and ramped up

1073
00:46:02,960 --> 00:46:04,545
capacity in Japan.

1074
00:46:04,545 --> 00:46:05,920
And when they did
that, they were

1075
00:46:05,920 --> 00:46:07,544
able to address large
portions of that.

1076
00:46:07,544 --> 00:46:09,620
They made a healthy
profit for several years,

1077
00:46:09,620 --> 00:46:13,770
and then they just
stopped expanding in PV.

1078
00:46:13,770 --> 00:46:16,441
Part of it might have been
they saw the market dynamics

1079
00:46:16,441 --> 00:46:16,940
changing.

1080
00:46:16,940 --> 00:46:20,230
They saw their costs,
their manufacturing costs,

1081
00:46:20,230 --> 00:46:22,650
relative to, for
example, China--

1082
00:46:22,650 --> 00:46:27,590
this is the orange right
here-- and Taiwan, above China,

1083
00:46:27,590 --> 00:46:31,850
above the orange-- and comprised
today-- this is 2009 numbers,

1084
00:46:31,850 --> 00:46:33,890
if we fast-forward
to today in 2011,

1085
00:46:33,890 --> 00:46:38,490
China and Taiwan comprise
55% to 60% of the PV industry

1086
00:46:38,490 --> 00:46:39,080
worldwide.

1087
00:46:39,080 --> 00:46:43,072
Production,
manufacturing, production.

1088
00:46:43,072 --> 00:46:44,030
So what does that mean?

1089
00:46:44,030 --> 00:46:49,060
Let's explore together some
of the interesting results

1090
00:46:49,060 --> 00:46:51,170
of that.

1091
00:46:51,170 --> 00:46:52,880
Let's look at some
of the good things.

1092
00:46:52,880 --> 00:46:56,150
What are some of the good
things about production going

1093
00:46:56,150 --> 00:47:00,820
to China and Taiwan
from, say, Europe

1094
00:47:00,820 --> 00:47:03,010
and the United States,
of solar panels?

1095
00:47:03,010 --> 00:47:05,020
Let's look at that for a second.

1096
00:47:05,020 --> 00:47:07,850
So we'll look at the glass
half full perspective.

1097
00:47:07,850 --> 00:47:09,442
What are some of
the good things?

1098
00:47:09,442 --> 00:47:11,858
AUDIENCE: It's more likely
that these developing countries

1099
00:47:11,858 --> 00:47:12,934
will use solar panels?

1100
00:47:12,934 --> 00:47:15,100
PROFESSOR: More likely that
the developing countries

1101
00:47:15,100 --> 00:47:17,490
will use solar panels?

1102
00:47:17,490 --> 00:47:20,040
Was that the case over here?

1103
00:47:20,040 --> 00:47:21,550
Not really.

1104
00:47:21,550 --> 00:47:22,650
It's going.

1105
00:47:22,650 --> 00:47:23,730
It's going.

1106
00:47:23,730 --> 00:47:25,350
OK.

1107
00:47:25,350 --> 00:47:28,030
I suppose, if the
technology's available there.

1108
00:47:28,030 --> 00:47:30,940
Maybe the technology isn't
quite cost competitive

1109
00:47:30,940 --> 00:47:34,200
with local electricity
yet, so there's

1110
00:47:34,200 --> 00:47:36,660
isn't that demand pull locally.

1111
00:47:36,660 --> 00:47:39,560
Maybe the realization
is that, well, goodness,

1112
00:47:39,560 --> 00:47:41,110
we can address this
European market.

1113
00:47:41,110 --> 00:47:43,110
They're willing to pay a
lot more for the panels

1114
00:47:43,110 --> 00:47:45,414
than we are, so we might
as well export right now.

1115
00:47:45,414 --> 00:47:46,830
But at some point
in the future we

1116
00:47:46,830 --> 00:47:48,650
might be able to
satisfy internal demand.

1117
00:47:48,650 --> 00:47:49,190
Yeah.

1118
00:47:49,190 --> 00:47:52,420
And there are gigawatt plants,
PV installs going up in China

1119
00:47:52,420 --> 00:47:53,790
right now.

1120
00:47:53,790 --> 00:47:56,720
In part due to increased
electricity demand, in part

1121
00:47:56,720 --> 00:47:58,960
due to weakened demand
elsewhere in the world,

1122
00:47:58,960 --> 00:48:01,410
and a very large
manufacturing base in China

1123
00:48:01,410 --> 00:48:03,920
that has to put their
panels out somewhere.

1124
00:48:03,920 --> 00:48:06,660
So there is, yes, adoption.

1125
00:48:06,660 --> 00:48:08,810
I'll cede that point.

1126
00:48:08,810 --> 00:48:09,608
Yeah?

1127
00:48:09,608 --> 00:48:11,887
AUDIENCE: Lower cost
to the consumer?

1128
00:48:11,887 --> 00:48:13,720
PROFESSOR: Lower cost
to the consumer, yeah.

1129
00:48:13,720 --> 00:48:17,400
So in the United States, if you
look at the price of installing

1130
00:48:17,400 --> 00:48:20,210
a PV system in
the United States,

1131
00:48:20,210 --> 00:48:24,660
the price of installing the
PV system is around $5.20

1132
00:48:24,660 --> 00:48:26,590
on your roof today.

1133
00:48:26,590 --> 00:48:32,030
The cost of buying the module
is around $1.03, $1.05,

1134
00:48:32,030 --> 00:48:33,160
from China.

1135
00:48:33,160 --> 00:48:35,710
And so that means that
80% of the profit margin

1136
00:48:35,710 --> 00:48:40,750
right now is being gobbled
up by a US company.

1137
00:48:40,750 --> 00:48:42,730
The price came down--
let's see, when

1138
00:48:42,730 --> 00:48:45,070
I installed the
panels on my roof,

1139
00:48:45,070 --> 00:48:46,670
I got a little bit
of a better deal.

1140
00:48:46,670 --> 00:48:51,220
But I would say the average
price for a PV system in 2007

1141
00:48:51,220 --> 00:48:54,650
must've been somewhere
around $8 per watt-peak.

1142
00:48:54,650 --> 00:48:57,370
And now the price is
down at around $5.20.

1143
00:48:57,370 --> 00:48:59,860
That said, in
Europe, in Germany,

1144
00:48:59,860 --> 00:49:03,790
which has 10 times more
installed PV than the US does,

1145
00:49:03,790 --> 00:49:06,820
the price of installing
a PV system on your roof

1146
00:49:06,820 --> 00:49:09,920
could be below 3
euros per watt-peak.

1147
00:49:09,920 --> 00:49:13,210
So the price is lower
because the profit

1148
00:49:13,210 --> 00:49:16,910
margin that the installers are
getting right now is smaller.

1149
00:49:16,910 --> 00:49:17,990
So yes, absolutely.

1150
00:49:17,990 --> 00:49:20,390
Lower cost product
in US markets.

1151
00:49:20,390 --> 00:49:23,250
That isn't the whole story
about what you're going to pay,

1152
00:49:23,250 --> 00:49:25,000
because there's still
the installer that's

1153
00:49:25,000 --> 00:49:27,680
stuck in between the Chinese
manufacturer of the module

1154
00:49:27,680 --> 00:49:30,390
and you serving as
the middle person.

1155
00:49:30,390 --> 00:49:33,180
Providing you value,
still, but still extracting

1156
00:49:33,180 --> 00:49:36,650
a very large profit right now,
a disproportionately large

1157
00:49:36,650 --> 00:49:39,410
profit, shall I say.

1158
00:49:39,410 --> 00:49:42,074
What are some of the
other good things.

1159
00:49:42,074 --> 00:49:43,070
Yeah?

1160
00:49:43,070 --> 00:49:45,560
AUDIENCE: If cost in
big markets is reduced,

1161
00:49:45,560 --> 00:49:48,060
then that could lead to
more market penetration,

1162
00:49:48,060 --> 00:49:52,021
and then the [INAUDIBLE] adopted
more, and even if prices go up,

1163
00:49:52,021 --> 00:49:53,270
it might maintain [INAUDIBLE].

1164
00:49:53,270 --> 00:49:53,936
PROFESSOR: Yeah.

1165
00:49:53,936 --> 00:49:56,270
And so what you're
leading to here

1166
00:49:56,270 --> 00:49:59,310
is really what the demand
curve of PV looks like.

1167
00:49:59,310 --> 00:50:02,490
And in the past,
if you look at what

1168
00:50:02,490 --> 00:50:04,917
people are willing
to pay for PV,

1169
00:50:04,917 --> 00:50:07,250
let's say-- let's convert it
into dollars per watt-peak,

1170
00:50:07,250 --> 00:50:11,460
since that's the
universal unit of PV cost.

1171
00:50:11,460 --> 00:50:13,760
And this is the, let's
call it total market

1172
00:50:13,760 --> 00:50:22,010
size in terms of
watt-peak, and this being

1173
00:50:22,010 --> 00:50:23,780
a very, very large number.

1174
00:50:23,780 --> 00:50:25,460
What you can do
to-- first order.

1175
00:50:25,460 --> 00:50:28,010
Just how would we
construct the demand curve

1176
00:50:28,010 --> 00:50:29,730
for the United States for PV.

1177
00:50:29,730 --> 00:50:32,890
How would we go
about doing that?

1178
00:50:32,890 --> 00:50:35,500
How much are people willing
to pay for their PV modules

1179
00:50:35,500 --> 00:50:37,095
to offset the cost
of electricity?

1180
00:50:37,095 --> 00:50:39,095
Well, to do it right, we
need the levelized cost

1181
00:50:39,095 --> 00:50:40,110
of electricity analysis.

1182
00:50:40,110 --> 00:50:42,068
We'd assume we're borrowing
money from the bank

1183
00:50:42,068 --> 00:50:44,920
and do those fancy economics
that involve something

1184
00:50:44,920 --> 00:50:47,830
to the power of something, and
that being the interest rate,

1185
00:50:47,830 --> 00:50:49,390
and then we
calculate it through.

1186
00:50:49,390 --> 00:50:50,340
Just a first order.

1187
00:50:50,340 --> 00:50:51,750
Hand-wavy Mickey-Mousey.

1188
00:50:51,750 --> 00:50:54,540
We might take into consideration
the manufacturing cost

1189
00:50:54,540 --> 00:50:55,661
of the module.

1190
00:50:55,661 --> 00:50:56,160
Sorry.

1191
00:50:56,160 --> 00:50:56,881
Back up one step.

1192
00:50:56,881 --> 00:50:58,630
We might take into
consideration the cents

1193
00:50:58,630 --> 00:51:01,860
per kilowatt hour of the
electricity that we're

1194
00:51:01,860 --> 00:51:06,920
getting from the grid and the
insulation, the solar resource,

1195
00:51:06,920 --> 00:51:09,400
that is available at
that particular location.

1196
00:51:09,400 --> 00:51:11,680
So if we have data
granular to the state

1197
00:51:11,680 --> 00:51:14,279
level of the price
of electricity

1198
00:51:14,279 --> 00:51:16,570
on average throughout the
state, and the solar resource

1199
00:51:16,570 --> 00:51:18,610
availability on average
throughout the state,

1200
00:51:18,610 --> 00:51:21,570
we can immediately comprise
150 markets in the US.

1201
00:51:21,570 --> 00:51:25,500
Residential, commercial,
industrial for 50 states.

1202
00:51:25,500 --> 00:51:27,770
And then we'll have a demand
curve, a very simple one,

1203
00:51:27,770 --> 00:51:29,894
for how much people are
willing to pay for their PV

1204
00:51:29,894 --> 00:51:30,440
electricity.

1205
00:51:30,440 --> 00:51:31,940
And it looks more
or less like this,

1206
00:51:31,940 --> 00:51:36,020
if you start working it out.

1207
00:51:36,020 --> 00:51:37,090
Rough sketch.

1208
00:51:37,090 --> 00:51:38,370
Rough sketch.

1209
00:51:38,370 --> 00:51:40,445
This is Hawaii.

1210
00:51:40,445 --> 00:51:42,320
Those poor critters over
there, although they

1211
00:51:42,320 --> 00:51:44,590
have beautiful sun and
enjoy a wonderful life,

1212
00:51:44,590 --> 00:51:46,260
they're paying a lot
for their energy,

1213
00:51:46,260 --> 00:51:48,010
because they're on a
few rocks out there.

1214
00:51:48,010 --> 00:51:50,310
They have no natural
resource under the ground

1215
00:51:50,310 --> 00:51:53,150
to speak of, except
geothermal, I suppose.

1216
00:51:53,150 --> 00:51:55,374
But they're shipping
in a lot of their fuel.

1217
00:51:55,374 --> 00:51:57,790
That's why if you've ever gone
to Hawaii and rented a car,

1218
00:51:57,790 --> 00:52:00,260
you are surprised at
the sticker shock when

1219
00:52:00,260 --> 00:52:03,170
you go off to the gas
station and try to refuel.

1220
00:52:03,170 --> 00:52:06,840
Their price of electricity is
about $0.30 per kilowatt hour

1221
00:52:06,840 --> 00:52:08,910
residential.

1222
00:52:08,910 --> 00:52:11,040
But it's a very,
very tiny market.

1223
00:52:11,040 --> 00:52:13,320
So you're not going to be
able to satisfy much demand.

1224
00:52:13,320 --> 00:52:15,861
You're not going to be able to
produce too many panels there.

1225
00:52:15,861 --> 00:52:17,775
You start having
interesting things happen

1226
00:52:17,775 --> 00:52:19,150
when you start
hitting the bigger

1227
00:52:19,150 --> 00:52:21,240
markets, like the
tiers four and five

1228
00:52:21,240 --> 00:52:23,717
of California, Texas, New York.

1229
00:52:23,717 --> 00:52:26,050
These are big markets that
have a lot of people in them,

1230
00:52:26,050 --> 00:52:27,740
and they have larger
electricity prices

1231
00:52:27,740 --> 00:52:31,710
and/or large solar
resource available there.

1232
00:52:31,710 --> 00:52:33,970
And so at some point,
the demand curve

1233
00:52:33,970 --> 00:52:37,640
reaches these plateaus, where
if you decrease the price even

1234
00:52:37,640 --> 00:52:40,700
a little bit, of a sudden,
voom, the amount of market

1235
00:52:40,700 --> 00:52:43,280
you can address for
this amount of price

1236
00:52:43,280 --> 00:52:46,620
decrease, the amount of market
that you can address is huge.

1237
00:52:46,620 --> 00:52:49,280
And so the slope of this line,
the slope of the demand curve,

1238
00:52:49,280 --> 00:52:54,000
is indicative of what happens
when you reduce your price just

1239
00:52:54,000 --> 00:52:55,270
a little bit.

1240
00:52:55,270 --> 00:52:57,627
And so yes, producing
cheaper panels,

1241
00:52:57,627 --> 00:52:59,210
when you start hitting
these plateaus,

1242
00:52:59,210 --> 00:53:03,850
can result in massive, massive
demand pull, or market pull.

1243
00:53:03,850 --> 00:53:06,230
So that's another good
reason to have cheap panels.

1244
00:53:06,230 --> 00:53:09,030
Let's look at the flip side.

1245
00:53:09,030 --> 00:53:12,810
What would be some of
the downsides, let's say,

1246
00:53:12,810 --> 00:53:17,020
to module manufacturing
going into China?

1247
00:53:17,020 --> 00:53:19,900
You can assume anything
is on the table.

1248
00:53:19,900 --> 00:53:22,080
CO2 emissions, jobs, et cetera.

1249
00:53:22,080 --> 00:53:24,150
Let's start teasing into
some of those questions

1250
00:53:24,150 --> 00:53:25,192
and looking at some data.

1251
00:53:25,192 --> 00:53:27,316
I might flip back and forth
during the presentation

1252
00:53:27,316 --> 00:53:29,040
if we have to address
specific topics.

1253
00:53:33,694 --> 00:53:37,166
AUDIENCE: Bad politics
if American photovoltaic

1254
00:53:37,166 --> 00:53:42,096
manufacturers fail,
and it reflects poorly

1255
00:53:42,096 --> 00:53:45,547
on the industry and the
American political scene

1256
00:53:45,547 --> 00:53:47,824
and decreases support for that.

1257
00:53:47,824 --> 00:53:48,490
PROFESSOR: Yeah.

1258
00:53:48,490 --> 00:53:50,060
So bad politics.

1259
00:53:50,060 --> 00:53:54,840
In DC, this is often referred to
as the optics of the situation.

1260
00:53:54,840 --> 00:53:58,670
How people observe, or how
people perceive something.

1261
00:53:58,670 --> 00:54:02,820
The litmus test
is not DC itself.

1262
00:54:02,820 --> 00:54:05,370
I was down there on
Thursday, and everybody

1263
00:54:05,370 --> 00:54:08,420
in the solar space was-- I think
it was Wednesday and Thursday,

1264
00:54:08,420 --> 00:54:08,990
yeah.

1265
00:54:08,990 --> 00:54:11,100
Everybody in solar
space was freaking out

1266
00:54:11,100 --> 00:54:14,460
about a particular event that
was going on in Capitol Hill.

1267
00:54:14,460 --> 00:54:16,110
I was telling
folks, don't worry.

1268
00:54:16,110 --> 00:54:18,100
It's not going to--
I mean, in terms

1269
00:54:18,100 --> 00:54:19,285
of the rest of the
country and the perception

1270
00:54:19,285 --> 00:54:21,750
of the rest of the country,
it won't be that significant.

1271
00:54:21,750 --> 00:54:25,600
And I'm sure Secretary Chu will
do a phenomenal job up there

1272
00:54:25,600 --> 00:54:28,230
in front of the
congressional panel.

1273
00:54:28,230 --> 00:54:29,822
He did phenomenal.

1274
00:54:29,822 --> 00:54:31,530
And so people were
really, really worried

1275
00:54:31,530 --> 00:54:35,400
about something that didn't have
too big of an effect outside.

1276
00:54:35,400 --> 00:54:37,460
Granted, what people
should be worried about

1277
00:54:37,460 --> 00:54:39,900
is the impact, for example,
that desequestration

1278
00:54:39,900 --> 00:54:42,350
of the discretionary
funds will have on R&D

1279
00:54:42,350 --> 00:54:45,820
once they start
kicking in in 2013.

1280
00:54:45,820 --> 00:54:52,580
If you mandate a reduced funding
level for funding agencies,

1281
00:54:52,580 --> 00:54:57,620
you will have an impact, and a
long-term one, for that matter.

1282
00:54:57,620 --> 00:55:01,690
So the optics of the situation.

1283
00:55:01,690 --> 00:55:04,330
There has been a slight
decrease in public support,

1284
00:55:04,330 --> 00:55:06,680
I believe on the
order of 5% to 10%

1285
00:55:06,680 --> 00:55:10,570
since the beginning of the
whole Solyndra affair, support

1286
00:55:10,570 --> 00:55:12,210
for solar renewables.

1287
00:55:12,210 --> 00:55:14,310
But the support
remains high, and still

1288
00:55:14,310 --> 00:55:16,870
continues to be high among
Republicans and Democrats

1289
00:55:16,870 --> 00:55:18,320
alike.

1290
00:55:18,320 --> 00:55:20,890
Especially when compared to,
say, congressional approval

1291
00:55:20,890 --> 00:55:23,130
ratings.

1292
00:55:23,130 --> 00:55:25,180
But let's not look down.

1293
00:55:25,180 --> 00:55:27,270
Let's compare
ourselves to higher.

1294
00:55:27,270 --> 00:55:28,170
What else?

1295
00:55:28,170 --> 00:55:29,880
What are some of the
potential negatives?

1296
00:55:29,880 --> 00:55:32,440
Let me start guiding
you, because you

1297
00:55:32,440 --> 00:55:35,540
hear so much about bad
this-- jobs, whatever.

1298
00:55:35,540 --> 00:55:37,720
Let me guide you into
some of the questions

1299
00:55:37,720 --> 00:55:38,970
you might not have thought of.

1300
00:55:41,590 --> 00:55:44,070
There is a colleague
of ours here

1301
00:55:44,070 --> 00:55:46,420
at MIT, Tim
Gutowski's group, that

1302
00:55:46,420 --> 00:55:49,770
is looking into matters
concerning manufacturing of PV

1303
00:55:49,770 --> 00:55:53,700
and installation of PV
from a CO2 perspective.

1304
00:55:53,700 --> 00:55:57,510
So if you manufacture your PV
in a coal-rich country that

1305
00:55:57,510 --> 00:56:00,500
is spewing out
emissions into the air,

1306
00:56:00,500 --> 00:56:04,340
you are going to have a greater
CO2 intensity per kilowatt hour

1307
00:56:04,340 --> 00:56:07,125
of energy that the panels will
produce over their lifetime

1308
00:56:07,125 --> 00:56:08,500
than if the panels
were produced,

1309
00:56:08,500 --> 00:56:13,160
say, in a country that has a
large abundance of hydropower

1310
00:56:13,160 --> 00:56:15,540
or geothermal.

1311
00:56:15,540 --> 00:56:17,690
Or, hey, even
produces solar panels

1312
00:56:17,690 --> 00:56:19,210
using other solar panels.

1313
00:56:19,210 --> 00:56:21,040
That'd be nice.

1314
00:56:21,040 --> 00:56:23,490
But in the growth situation
where solar is rising,

1315
00:56:23,490 --> 00:56:26,070
or the manufacturing capacity
is rising at 60% a year,

1316
00:56:26,070 --> 00:56:28,720
it's a little bit unfeasible
to think that solar will

1317
00:56:28,720 --> 00:56:30,050
power itself forward.

1318
00:56:30,050 --> 00:56:34,020
It almost violates one of
the laws of thermodynamics.

1319
00:56:34,020 --> 00:56:37,260
So we look at the
CO2 balance, right?

1320
00:56:37,260 --> 00:56:40,470
We think about,
gee, what if we were

1321
00:56:40,470 --> 00:56:44,800
to be smart about where we
manufacture and install PV?

1322
00:56:44,800 --> 00:56:47,130
Then it might make more
sense to manufacture PV,

1323
00:56:47,130 --> 00:56:49,830
say, in Norway, which
is based on hydropower,

1324
00:56:49,830 --> 00:56:53,530
and install them in China, which
is largely running on coal.

1325
00:56:53,530 --> 00:56:59,600
So from the CO2, from the global
carbon perspective, again,

1326
00:56:59,600 --> 00:57:03,980
these are externalities
that aren't being priced in.

1327
00:57:03,980 --> 00:57:04,650
OK?

1328
00:57:04,650 --> 00:57:05,460
CO2 and-- yeah.

1329
00:57:05,460 --> 00:57:06,500
Go ahead, please.

1330
00:57:06,500 --> 00:57:08,124
AUDIENCE: But wouldn't
they actually be

1331
00:57:08,124 --> 00:57:12,110
priced in Norway, because
they are in the new emissions

1332
00:57:12,110 --> 00:57:12,760
trading scene?

1333
00:57:12,760 --> 00:57:14,540
I mean, they're not
priced in China,

1334
00:57:14,540 --> 00:57:17,724
but the cost of electricity
in Norway doesn't [INAUDIBLE].

1335
00:57:17,724 --> 00:57:18,390
PROFESSOR: Yeah.

1336
00:57:18,390 --> 00:57:19,960
So point conceded.

1337
00:57:19,960 --> 00:57:22,715
In certain countries,
some of the externalities

1338
00:57:22,715 --> 00:57:23,382
are factored in.

1339
00:57:23,382 --> 00:57:25,173
Not, perhaps, at the
levels they should be,

1340
00:57:25,173 --> 00:57:27,540
but some are factored in,
whereas in other countries,

1341
00:57:27,540 --> 00:57:29,460
they're not at all.

1342
00:57:29,460 --> 00:57:34,360
So we have what is
referred to in some terms

1343
00:57:34,360 --> 00:57:37,400
as an uneven playing field in
the sense that in some places

1344
00:57:37,400 --> 00:57:39,070
there are regulations
in place that

1345
00:57:39,070 --> 00:57:40,877
increase the price
of electricity,

1346
00:57:40,877 --> 00:57:42,710
whereas they aren't
present in other places.

1347
00:57:42,710 --> 00:57:45,334
And in some cases, they work to
your advantage, like in Norway,

1348
00:57:45,334 --> 00:57:47,080
for instance, or Switzerland.

1349
00:57:47,080 --> 00:57:50,110
Big hydro countries.

1350
00:57:50,110 --> 00:57:52,110
What are some other
potential disadvantages?

1351
00:57:52,110 --> 00:57:56,360
You hear a lot about jobs,
jobs moving overseas.

1352
00:57:56,360 --> 00:57:59,330
Let's start looking
at some of the numbers

1353
00:57:59,330 --> 00:58:02,580
next Thursday, when we
have Doug coming in here

1354
00:58:02,580 --> 00:58:05,450
and talking about
the cost model.

1355
00:58:05,450 --> 00:58:08,160
A good number to keep
in mind, a good number

1356
00:58:08,160 --> 00:58:11,170
to keep in mind for the
manufacturing of modules--

1357
00:58:11,170 --> 00:58:16,890
so back to this part right
over here-- for the module

1358
00:58:16,890 --> 00:58:21,354
itself, typical numbers would
be 2 to 12 people, depending

1359
00:58:21,354 --> 00:58:22,770
on what region of
the world you're

1360
00:58:22,770 --> 00:58:26,470
in, 2 to 12 people per megawatt.

1361
00:58:26,470 --> 00:58:29,790
So if you have a total market
of, say, 10 gigawatts--

1362
00:58:29,790 --> 00:58:30,970
it's larger than that.

1363
00:58:30,970 --> 00:58:32,920
We'll do quick math.

1364
00:58:32,920 --> 00:58:37,450
So if it's-- the megawatt would
be 20,000 people per gigawatt,

1365
00:58:37,450 --> 00:58:40,580
about 10 gigawatts, somewhere
in that range, on the low end.

1366
00:58:40,580 --> 00:58:44,050
And on the high end it would be
somewhere around 200,000 people

1367
00:58:44,050 --> 00:58:46,590
per gigawatt, on the high
end of the labor intensity.

1368
00:58:46,590 --> 00:58:48,173
So the high end of
the labor intensity

1369
00:58:48,173 --> 00:58:50,340
represents a company
like Trina Solar in China

1370
00:58:50,340 --> 00:58:52,060
that is extremely
labor intensive.

1371
00:58:52,060 --> 00:58:53,850
It's located in Changzhou.

1372
00:58:53,850 --> 00:58:59,606
It's on the high-speed rail
between Shanghai and Nanjing.

1373
00:58:59,606 --> 00:59:02,230
The low end of that scale would
be more representative of, say,

1374
00:59:02,230 --> 00:59:05,635
Suntech, which is almost next
door in Wuxi, which has adopted

1375
00:59:05,635 --> 00:59:07,760
a different approach,
saying, we're going to invest

1376
00:59:07,760 --> 00:59:09,754
in robots because we're
uncertain about where

1377
00:59:09,754 --> 00:59:11,670
the whole labor thing
is going to go in China,

1378
00:59:11,670 --> 00:59:13,045
where the prices
are going to go.

1379
00:59:13,045 --> 00:59:15,951
Or REC, which is a
Norwegian company,

1380
00:59:15,951 --> 00:59:18,450
but they opened a factory in
Singapore, which has very, very

1381
00:59:18,450 --> 00:59:22,135
low labor rates, because
they invested a lot of money

1382
00:59:22,135 --> 00:59:24,130
in capital equipment, in
robots to move modules

1383
00:59:24,130 --> 00:59:26,020
around their factories.

1384
00:59:26,020 --> 00:59:29,210
US, if you can look at
turnkey manufacturing lines,

1385
00:59:29,210 --> 00:59:31,897
are typically round 3,
3.5 people per megawatt.

1386
00:59:31,897 --> 00:59:33,730
Those are some good
numbers to keep in mind.

1387
00:59:33,730 --> 00:59:37,240
So when anybody comes to you
and says, jobs, solar jobs,

1388
00:59:37,240 --> 00:59:40,210
with these sorts of numbers
you can begin estimating, OK,

1389
00:59:40,210 --> 00:59:41,320
give me a number.

1390
00:59:41,320 --> 00:59:43,660
How big is the solar
market going to grow to?

1391
00:59:43,660 --> 00:59:45,190
What is the level of automation?

1392
00:59:45,190 --> 00:59:48,540
What is the labor intensity of
manufacturing of the modules?

1393
00:59:48,540 --> 00:59:50,540
And you can make an
estimate on the total number

1394
00:59:50,540 --> 00:59:53,120
of jobs, direct jobs,
direct jobs associated

1395
00:59:53,120 --> 00:59:54,440
with the module manufacturing.

1396
00:59:54,440 --> 00:59:56,170
Then there are all the
indirect jobs as well.

1397
00:59:56,170 --> 00:59:58,169
There are all the people
supplying the commodity

1398
00:59:58,169 --> 01:00:00,290
materials into your
manufacturing line.

1399
01:00:00,290 --> 01:00:02,270
There all the people
who are working

1400
01:00:02,270 --> 01:00:05,730
as administrative assistants
and R&D staff and so forth.

1401
01:00:05,730 --> 01:00:07,870
So it's not quite
as simple as that,

1402
01:00:07,870 --> 01:00:10,852
but it gives you a number
to really start grabbing.

1403
01:00:10,852 --> 01:00:13,310
And that, of course, doesn't
include all the installations,

1404
01:00:13,310 --> 01:00:15,400
installer jobs.

1405
01:00:15,400 --> 01:00:15,900
All right.

1406
01:00:15,900 --> 01:00:19,850
So we're talking about
grid-tied electricity.

1407
01:00:19,850 --> 01:00:23,270
I'd like to move on to
our next few topics here.

1408
01:00:23,270 --> 01:00:26,220
We're talking about
grid-tied electricity.

1409
01:00:26,220 --> 01:00:27,550
This is-- ooh, it's in German.

1410
01:00:27,550 --> 01:00:28,830
Sorry about that.

1411
01:00:28,830 --> 01:00:33,560
This is over a period-- "tag der
woche" means "day of the week."

1412
01:00:33,560 --> 01:00:38,080
And this is basically
the peak power

1413
01:00:38,080 --> 01:00:41,060
in gigawatts, instantaneous
at any given point.

1414
01:00:41,060 --> 01:00:43,350
So we have morning,
middle of the day,

1415
01:00:43,350 --> 01:00:44,980
night, middle of the day, night.

1416
01:00:44,980 --> 01:00:48,010
There's a little bump right
here during prime time TV.

1417
01:00:48,010 --> 01:00:53,020
And we have the output of PV
going from 5 gigawatt peak

1418
01:00:53,020 --> 01:00:55,100
to 30 gigawatt
peak, you can see,

1419
01:00:55,100 --> 01:00:58,500
beginning to eat into
the profits, essentially

1420
01:00:58,500 --> 01:01:01,360
the peak hours.

1421
01:01:01,360 --> 01:01:03,700
So let me differentiate
between base load and peak.

1422
01:01:03,700 --> 01:01:06,020
Base load power
would be voom, right?

1423
01:01:06,020 --> 01:01:08,550
Something providing a
constant power output

1424
01:01:08,550 --> 01:01:11,050
as a function of time, something
like a nuclear power plant,

1425
01:01:11,050 --> 01:01:12,240
coal fired power plant.

1426
01:01:12,240 --> 01:01:14,990
Peakers would be natural
gas fired power plants that

1427
01:01:14,990 --> 01:01:15,750
receive the call.

1428
01:01:15,750 --> 01:01:16,990
It's like, Jessica,
you're in charge

1429
01:01:16,990 --> 01:01:18,089
of the peaker over there.

1430
01:01:18,089 --> 01:01:19,630
Based on my weather
report today, I'm

1431
01:01:19,630 --> 01:01:21,579
going to need so many
gigawatts tomorrow

1432
01:01:21,579 --> 01:01:23,120
between the hours
of 10:00 and 12:00.

1433
01:01:23,120 --> 01:01:24,250
You think you can
turn yourself on then?

1434
01:01:24,250 --> 01:01:25,160
I'll pay this amount.

1435
01:01:25,160 --> 01:01:25,750
Yep.

1436
01:01:25,750 --> 01:01:26,833
Jessica's going to battle.

1437
01:01:26,833 --> 01:01:27,820
Yes, I can do that.

1438
01:01:27,820 --> 01:01:30,900
PV, on the other hand, is coming
on if the sun's coming on.

1439
01:01:30,900 --> 01:01:34,410
And to date, there isn't a
great degree of predictability.

1440
01:01:34,410 --> 01:01:36,070
We can see if that's
going to change,

1441
01:01:36,070 --> 01:01:37,740
based on one of our
class projects here.

1442
01:01:37,740 --> 01:01:39,823
But there wasn't a great
degree of predictability.

1443
01:01:39,823 --> 01:01:42,140
You can see here,
for example, and here

1444
01:01:42,140 --> 01:01:45,040
varying amounts of sunlight
from one day to the other

1445
01:01:45,040 --> 01:01:48,230
as a result of
changing insulation.

1446
01:01:48,230 --> 01:01:50,720
There's, of course, changing
demand as a day of the week

1447
01:01:50,720 --> 01:01:51,220
goes by.

1448
01:01:51,220 --> 01:01:54,470
On Saturday and Sunday there's
less demand for electricity.

1449
01:01:54,470 --> 01:01:56,570
So what PV is doing
is eating into some

1450
01:01:56,570 --> 01:01:58,790
of the highest-use
periods, which

1451
01:01:58,790 --> 01:02:02,690
is good from the market's
perspective-- from the, shall

1452
01:02:02,690 --> 01:02:05,120
we say, the "person in
charge of maintaining grid

1453
01:02:05,120 --> 01:02:08,517
stabilities" perspective,
because they want power

1454
01:02:08,517 --> 01:02:09,350
to be produced then.

1455
01:02:09,350 --> 01:02:11,433
They don't want to run out
of generation capacity.

1456
01:02:11,433 --> 01:02:14,110
And PV is avoiding
the situation,

1457
01:02:14,110 --> 01:02:16,550
or at least prolonging the
situation a few more years,

1458
01:02:16,550 --> 01:02:18,700
until we run out
of power generation

1459
01:02:18,700 --> 01:02:21,800
capacity on the grid.

1460
01:02:21,800 --> 01:02:24,530
As our population grows and
our energy intensity grows,

1461
01:02:24,530 --> 01:02:25,960
we're needing more
and more power,

1462
01:02:25,960 --> 01:02:27,584
but we're not building
new power plants

1463
01:02:27,584 --> 01:02:31,050
at that rate, generally, in
Germany and the United States.

1464
01:02:31,050 --> 01:02:33,540
And so PV is helping
to defray some

1465
01:02:33,540 --> 01:02:36,180
of that deferred investment
in new generation capacity.

1466
01:02:36,180 --> 01:02:37,140
So that's good.

1467
01:02:37,140 --> 01:02:41,310
On the bad side, somebody
who has invested--

1468
01:02:41,310 --> 01:02:45,430
let's say Mary's invested in a
natural gas generation plant.

1469
01:02:45,430 --> 01:02:47,280
She put the money down
for Jessica's plant.

1470
01:02:47,280 --> 01:02:48,420
Jessica's running it.

1471
01:02:48,420 --> 01:02:51,800
And now Mary realizes,
well goodness,

1472
01:02:51,800 --> 01:02:54,110
I thought I was going to
get a steady rate of return

1473
01:02:54,110 --> 01:02:56,760
over 20 years from my natural
gas fired power plant.

1474
01:02:56,760 --> 01:02:59,559
That rate of return was factored
into my economic analysis

1475
01:02:59,559 --> 01:03:01,850
when they borrowed money at
a certain rate from a bank,

1476
01:03:01,850 --> 01:03:04,440
and now you're telling me
that this upstart technology,

1477
01:03:04,440 --> 01:03:06,670
this new PV stuff,
is coming online

1478
01:03:06,670 --> 01:03:09,320
and is going to take
away some of my profit.

1479
01:03:09,320 --> 01:03:11,510
That doesn't work for me.

1480
01:03:11,510 --> 01:03:15,680
As a matter of fact, on
peak days in Bavaria,

1481
01:03:15,680 --> 01:03:18,220
which is the southeastern
part of Germany,

1482
01:03:18,220 --> 01:03:21,970
today PV can comprise as
much as 40% of electricity

1483
01:03:21,970 --> 01:03:25,470
on the grid during peak
hours during the summer.

1484
01:03:25,470 --> 01:03:31,220
And what that does sometimes is
force conventional electricity

1485
01:03:31,220 --> 01:03:34,820
producers to either turn off
or go into negative pricing,

1486
01:03:34,820 --> 01:03:36,429
meaning they shunt
the power to ground

1487
01:03:36,429 --> 01:03:37,970
so that they don't
have to pay to put

1488
01:03:37,970 --> 01:03:39,880
their electricity on the grid.

1489
01:03:39,880 --> 01:03:42,460
So that's an interesting
market dynamic

1490
01:03:42,460 --> 01:03:45,340
that's evolving as more and
more PV electricity enters

1491
01:03:45,340 --> 01:03:49,430
the grid in these regions of
high penetration, which include

1492
01:03:49,430 --> 01:03:52,520
California, Hawaii-- the
island of Lanai, I believe,

1493
01:03:52,520 --> 01:03:56,990
has up to 40% as
well on weekdays.

1494
01:03:56,990 --> 01:04:01,270
Bavaria in Germany, which is the
southeastern part of Germany.

1495
01:04:01,270 --> 01:04:04,130
Let me get to this
point right here.

1496
01:04:04,130 --> 01:04:05,870
Predicting where
the market will go,

1497
01:04:05,870 --> 01:04:07,560
we talked about the
demand curve for PV,

1498
01:04:07,560 --> 01:04:12,524
and we collapsed both
insulation and price

1499
01:04:12,524 --> 01:04:14,440
of electricity from the
grid into this dollars

1500
01:04:14,440 --> 01:04:16,180
per watt-peak figure, which
is how much people are

1501
01:04:16,180 --> 01:04:17,130
willing to pay.

1502
01:04:17,130 --> 01:04:20,520
We can also break it out into
annual solar energy yield.

1503
01:04:20,520 --> 01:04:22,980
This is the solar
resource available.

1504
01:04:22,980 --> 01:04:26,250
It's using the units of kilowatt
hours per kilowatt peak,

1505
01:04:26,250 --> 01:04:27,910
meaning the number
of kilowatt hours,

1506
01:04:27,910 --> 01:04:30,260
the amount of
energy, that a unit

1507
01:04:30,260 --> 01:04:32,857
of rated power, kilowatt
peak, of the solar panel

1508
01:04:32,857 --> 01:04:33,690
is going to produce.

1509
01:04:33,690 --> 01:04:36,800
So how much energy will a
unit of solar panel produce?

1510
01:04:36,800 --> 01:04:37,720
That's down here.

1511
01:04:37,720 --> 01:04:39,470
And of course,
larger amounts mean

1512
01:04:39,470 --> 01:04:41,720
more sun, more solar resource.

1513
01:04:41,720 --> 01:04:45,500
On the ordinate, we have average
power price of household.

1514
01:04:45,500 --> 01:04:47,440
This is US dollars.

1515
01:04:47,440 --> 01:04:50,400
It should be average
electricity price, US dollars

1516
01:04:50,400 --> 01:04:51,315
per kilowatt hour.

1517
01:04:51,315 --> 01:04:53,690
So that's how much people are
paying for the electricity,

1518
01:04:53,690 --> 01:04:54,897
what you're displacing.

1519
01:04:54,897 --> 01:04:57,230
And you can see that these
little bubbles here represent

1520
01:04:57,230 --> 01:04:58,188
the size of the market.

1521
01:04:58,188 --> 01:05:02,490
So as the price of PV
electricity comes down,

1522
01:05:02,490 --> 01:05:05,270
we are able to address
more and more markets.

1523
01:05:05,270 --> 01:05:09,590
As the subsidization of
PV electricity increases,

1524
01:05:09,590 --> 01:05:11,580
you move these little bubble up.

1525
01:05:11,580 --> 01:05:13,410
And as the subsidization
comes back down,

1526
01:05:13,410 --> 01:05:15,610
the market pull-- not the
manufacturing subsidies

1527
01:05:15,610 --> 01:05:19,400
but the use or
installation subsidies--

1528
01:05:19,400 --> 01:05:22,660
as they come back down, the
little bubbles move down,

1529
01:05:22,660 --> 01:05:25,800
and eventually rest at
their so-called true market

1530
01:05:25,800 --> 01:05:27,697
price without the
externalities factored in.

1531
01:05:27,697 --> 01:05:29,280
And so you can see
how we're beginning

1532
01:05:29,280 --> 01:05:32,860
to enter a regime where PV is
starting to look interesting

1533
01:05:32,860 --> 01:05:33,962
in a lot of places.

1534
01:05:33,962 --> 01:05:35,670
And as we begin
addressing these markets,

1535
01:05:35,670 --> 01:05:38,270
or hitting these markets, you
can imagine two Gaussian curves

1536
01:05:38,270 --> 01:05:40,664
intersecting, one being the
price of PV electricity,

1537
01:05:40,664 --> 01:05:42,580
the other being the price
of grid electricity,

1538
01:05:42,580 --> 01:05:44,176
as they intersect and overlap.

1539
01:05:44,176 --> 01:05:45,550
You expect an
exponential growth,

1540
01:05:45,550 --> 01:05:47,210
and that's what we're
seeing in the market today.

1541
01:05:47,210 --> 01:05:47,630
Question?

1542
01:05:47,630 --> 01:05:49,463
AUDIENCE: What is the
California [INAUDIBLE]

1543
01:05:49,463 --> 01:05:50,384
for tier 4 and tier 5?

1544
01:05:50,384 --> 01:05:51,050
PROFESSOR: Yeah.

1545
01:05:51,050 --> 01:05:56,400
So California decided
to implement more of a--

1546
01:05:56,400 --> 01:06:00,380
well, it is a little bit
regressive in that sense.

1547
01:06:00,380 --> 01:06:03,840
But what they did is,
they said let's, instead

1548
01:06:03,840 --> 01:06:06,295
of paying the same
price for electricity

1549
01:06:06,295 --> 01:06:09,245
for everybody--
which actually it

1550
01:06:09,245 --> 01:06:10,880
would be even the opposite way.

1551
01:06:10,880 --> 01:06:13,300
You know how residential, we
typically pay higher rates

1552
01:06:13,300 --> 01:06:14,340
than industrial?

1553
01:06:14,340 --> 01:06:16,020
That's because
industrial buys in bulk.

1554
01:06:16,020 --> 01:06:18,010
They buy electricity
Costco size.

1555
01:06:18,010 --> 01:06:20,799
We just buy it
corner-store size.

1556
01:06:20,799 --> 01:06:22,590
And so they pay less
for their electricity.

1557
01:06:22,590 --> 01:06:24,870
And California realized
this and said, well, this

1558
01:06:24,870 --> 01:06:26,419
is a perverse incentive.

1559
01:06:26,419 --> 01:06:28,460
What this does is it gives
an incentive to people

1560
01:06:28,460 --> 01:06:29,834
to use more electricity.

1561
01:06:29,834 --> 01:06:31,250
Because if you buy
in Costco size,

1562
01:06:31,250 --> 01:06:32,720
you pay less per
kilowatt hour than

1563
01:06:32,720 --> 01:06:34,430
if you buy in the corner store.

1564
01:06:34,430 --> 01:06:37,830
Instead, what we're going to
do is reverse that incentive

1565
01:06:37,830 --> 01:06:41,250
by penalizing the people
who buy more electricity,

1566
01:06:41,250 --> 01:06:43,650
so your rate is going to
be higher then if you just

1567
01:06:43,650 --> 01:06:45,405
bought a small amount.

1568
01:06:45,405 --> 01:06:47,530
So what they did is, the
government bureaucrats got

1569
01:06:47,530 --> 01:06:49,640
together with some of
the scholars and decided,

1570
01:06:49,640 --> 01:06:54,590
these are reasonable amounts for
a residential house to consume.

1571
01:06:54,590 --> 01:06:56,910
This is the next tier up,
this is the next tier up,

1572
01:06:56,910 --> 01:06:59,900
this is next tier up, and this
is completely unreasonable.

1573
01:06:59,900 --> 01:07:03,180
And so what they did is they
tiered their electricity.

1574
01:07:03,180 --> 01:07:06,780
And you have California
tiers 1, 2, and 3 represented

1575
01:07:06,780 --> 01:07:10,190
by the big bubble, and
tier 4 and tier 5 as

1576
01:07:10,190 --> 01:07:11,630
represented at higher pricing.

1577
01:07:11,630 --> 01:07:14,210
So if you happen to fall
into the tier 5 category,

1578
01:07:14,210 --> 01:07:17,050
you could be paying upward
of $0.30 per kilowatt hour

1579
01:07:17,050 --> 01:07:19,150
for your electricity.

1580
01:07:19,150 --> 01:07:22,830
And it's a way of penalizing
you for powering two swimming

1581
01:07:22,830 --> 01:07:26,400
pools in your backyard
along with, I don't know,

1582
01:07:26,400 --> 01:07:28,820
something in the range of
10 kilowatts of lighting

1583
01:07:28,820 --> 01:07:30,630
inside of your house.

1584
01:07:30,630 --> 01:07:33,830
Whereas, if you're running
on a meager budget,

1585
01:07:33,830 --> 01:07:36,130
you might do much better.

1586
01:07:36,130 --> 01:07:37,522
Do you have a
question over here?

1587
01:07:37,522 --> 01:07:39,715
AUDIENCE: Is it
only residential?

1588
01:07:39,715 --> 01:07:42,040
PROFESSOR: California's
tier 1, 2, 3, and 4, and 5?

1589
01:07:42,040 --> 01:07:43,380
That a great question.

1590
01:07:43,380 --> 01:07:46,070
Joe, would you happen to know
if commercial and industrial

1591
01:07:46,070 --> 01:07:48,853
fall into tiers as well, or
if it's just residential?

1592
01:07:48,853 --> 01:07:50,340
AUDIENCE: My guess would be no,
because that would be political

1593
01:07:50,340 --> 01:07:50,770
suicide.

1594
01:07:50,770 --> 01:07:51,955
PROFESSOR: Well,
even the residential

1595
01:07:51,955 --> 01:07:52,975
is political suicide.

1596
01:07:52,975 --> 01:07:53,600
AUDIENCE: Yeah.

1597
01:07:53,600 --> 01:07:55,899
The residential system is
actually kind of a bad one,

1598
01:07:55,899 --> 01:07:57,440
because if you have
like eight people

1599
01:07:57,440 --> 01:08:00,106
living in a house versus two, it
doesn't take that into account.

1600
01:08:00,106 --> 01:08:04,650
So it's not a per capita
thing. [INAUDIBLE].

1601
01:08:04,650 --> 01:08:07,510
PROFESSOR: So many
states and countries

1602
01:08:07,510 --> 01:08:10,780
have tried to adjust
incentive mechanisms.

1603
01:08:10,780 --> 01:08:12,300
And I'm not sure
specifically about

1604
01:08:12,300 --> 01:08:13,712
the commercial and industrial.

1605
01:08:13,712 --> 01:08:15,920
You might want to jot it
down and give a quick Google

1606
01:08:15,920 --> 01:08:18,729
search after.

1607
01:08:18,729 --> 01:08:19,260
Germany.

1608
01:08:19,260 --> 01:08:21,500
Growing gangbusters.

1609
01:08:21,500 --> 01:08:22,470
The market versus time.

1610
01:08:22,470 --> 01:08:25,750
This is installed capacity
annually versus year.

1611
01:08:25,750 --> 01:08:28,880
And again, subsidies, support
mechanisms, tax breaks,

1612
01:08:28,880 --> 01:08:30,060
incentives.

1613
01:08:30,060 --> 01:08:31,979
What we wanted to
emphasize here was

1614
01:08:31,979 --> 01:08:34,859
that Germany is not one of the
sunnier places in the world.

1615
01:08:34,859 --> 01:08:35,910
Look at this.

1616
01:08:35,910 --> 01:08:38,380
It's almost half of
the modulus installed,

1617
01:08:38,380 --> 01:08:44,479
and yet it has less insulation
than even here in the US

1618
01:08:44,479 --> 01:08:45,010
northeast.

1619
01:08:45,010 --> 01:08:46,630
Even the sunniest
places in Germany.

1620
01:08:46,630 --> 01:08:47,529
This is Bavaria.

1621
01:08:47,529 --> 01:08:50,880
This is the place that
hits 40% of electricity

1622
01:08:50,880 --> 01:08:53,170
on peak summer days
coming from PV.

1623
01:08:53,170 --> 01:08:56,090
And this is where we
are, right up there.

1624
01:08:56,090 --> 01:08:58,819
Same scale.

1625
01:08:58,819 --> 01:09:04,529
So something's going on in
Germany, and it's not sun.

1626
01:09:04,529 --> 01:09:07,880
The German government instituted
a number of-- this little D

1627
01:09:07,880 --> 01:09:09,760
represents
Deutschland, Germany--

1628
01:09:09,760 --> 01:09:13,120
implemented a number
of incentive programs

1629
01:09:13,120 --> 01:09:17,000
to increase the amount of
PV installed on the grid,

1630
01:09:17,000 --> 01:09:20,350
under the assumption that
if they had demand pull,

1631
01:09:20,350 --> 01:09:21,600
they would have a supply push.

1632
01:09:21,600 --> 01:09:24,040
Meaning, they would start
up local industries.

1633
01:09:24,040 --> 01:09:26,580
Initially it didn't quite take
off as fast as they hoped,

1634
01:09:26,580 --> 01:09:29,540
so they began providing
direct manufacturing support,

1635
01:09:29,540 --> 01:09:33,590
direct subsidies to install
PV manufacturing plants,

1636
01:09:33,590 --> 01:09:36,189
to the point where they
were willing to pay $0.50

1637
01:09:36,189 --> 01:09:39,529
on the euro for each piece of
capital equipment that moved

1638
01:09:39,529 --> 01:09:42,950
in on German soil to produce
plants in the mid 2000s.

1639
01:09:42,950 --> 01:09:45,399
So that combination
of events left them

1640
01:09:45,399 --> 01:09:48,649
with a booming market,
upwards of 100,000 jobs,

1641
01:09:48,649 --> 01:09:51,439
I believe, in Germany
related to PV manufacturing,

1642
01:09:51,439 --> 01:09:54,380
and a lot of PV
installed on their grid

1643
01:09:54,380 --> 01:09:56,240
as a result of the market pull.

1644
01:09:56,240 --> 01:09:58,700
So really, when it comes
to subsidies and support,

1645
01:09:58,700 --> 01:10:01,470
you have to decouple what
is market pull, which

1646
01:10:01,470 --> 01:10:03,390
means we want PV
installed on our grid

1647
01:10:03,390 --> 01:10:07,210
to offset our country's
carbon emissions,

1648
01:10:07,210 --> 01:10:09,429
versus manufacturing
push, which is to say,

1649
01:10:09,429 --> 01:10:11,220
you want to set up a
factory in my country?

1650
01:10:11,220 --> 01:10:11,719
Fine.

1651
01:10:11,719 --> 01:10:12,320
Come right in.

1652
01:10:12,320 --> 01:10:13,590
I'll provide you the finances.

1653
01:10:13,590 --> 01:10:15,840
I'll provide you a lower
cost of capital on your loan,

1654
01:10:15,840 --> 01:10:20,760
or help you by providing
a direct grant or loan.

1655
01:10:20,760 --> 01:10:24,170
And these are two different
support mechanisms,

1656
01:10:24,170 --> 01:10:26,960
and that's why you see that
dichotomy between Germany,

1657
01:10:26,960 --> 01:10:28,730
which installs a
lot of PV and has

1658
01:10:28,730 --> 01:10:30,270
a decent amount
of manufacturing;

1659
01:10:30,270 --> 01:10:32,350
the US, which has a
lot of installation

1660
01:10:32,350 --> 01:10:34,890
but not a whole lot of
manufacturing traditionally,

1661
01:10:34,890 --> 01:10:36,990
although it's changed,
the support has changed

1662
01:10:36,990 --> 01:10:39,111
over the last three
years; and China, which

1663
01:10:39,111 --> 01:10:40,610
has a heck of a lot
of manufacturing

1664
01:10:40,610 --> 01:10:42,540
but not a whole lot
of local demand.

1665
01:10:42,540 --> 01:10:45,350
It's because each country has
adopted a different approach

1666
01:10:45,350 --> 01:10:48,270
based on optimization
of different functions.

1667
01:10:48,270 --> 01:10:52,600
In terms of where a lot has
happened on the state level,

1668
01:10:52,600 --> 01:10:54,940
these are RPS, renewable
portfolio standard,

1669
01:10:54,940 --> 01:10:57,790
policies with solar and
distributed generation

1670
01:10:57,790 --> 01:11:00,530
provisions distributed
throughout the United States.

1671
01:11:00,530 --> 01:11:02,660
And you can see that the
states have picked up

1672
01:11:02,660 --> 01:11:06,060
where the federal government
lacked in terms of leadership.

1673
01:11:06,060 --> 01:11:07,560
In terms of getting
PV on the grid,

1674
01:11:07,560 --> 01:11:10,020
the states really pulled hard.

1675
01:11:10,020 --> 01:11:13,700
In, specifically, New Jersey--
some really oddball states,

1676
01:11:13,700 --> 01:11:17,490
like New Jersey here, installing
about 5 gigawatts of solar.

1677
01:11:17,490 --> 01:11:23,910
California had another more
of a market pull mechanism.

1678
01:11:23,910 --> 01:11:25,470
Rebate programs for
renewables, this

1679
01:11:25,470 --> 01:11:28,840
is if you install solar panels
you might get a few thousand

1680
01:11:28,840 --> 01:11:31,780
dollars back from
the state government.

1681
01:11:31,780 --> 01:11:35,990
And it just gives you a
sense of how the states have

1682
01:11:35,990 --> 01:11:40,160
filled in that void where
the federal government didn't

1683
01:11:40,160 --> 01:11:40,975
step in.

1684
01:11:40,975 --> 01:11:42,850
And this has come, in
part, to our detriment.

1685
01:11:42,850 --> 01:11:45,880
It's nice, because we can
allow-- the federalist

1686
01:11:45,880 --> 01:11:48,450
approach allows individual
states to say, hey,

1687
01:11:48,450 --> 01:11:49,541
we prioritize green jobs.

1688
01:11:49,541 --> 01:11:50,040
All right.

1689
01:11:50,040 --> 01:11:51,000
Let's support it.

1690
01:11:51,000 --> 01:11:52,090
Let's make it happen.

1691
01:11:52,090 --> 01:11:53,840
And that's certainly
Massachusetts' take.

1692
01:11:53,840 --> 01:12:00,030
California, Texas, certain
other states throughout the US,

1693
01:12:00,030 --> 01:12:02,660
including Mississippi
most recently.

1694
01:12:02,660 --> 01:12:05,080
But the downside
of that is that you

1695
01:12:05,080 --> 01:12:07,850
have each state doing its
own thing, each municipality,

1696
01:12:07,850 --> 01:12:11,750
each local electric utility
grid doing its own thing.

1697
01:12:11,750 --> 01:12:15,260
And what can happen
is diversification

1698
01:12:15,260 --> 01:12:17,760
of support mechanisms and
incentives to the point

1699
01:12:17,760 --> 01:12:19,800
now that if you want
to install panels

1700
01:12:19,800 --> 01:12:23,820
on your roof in the United
States, there over 18,000 ways

1701
01:12:23,820 --> 01:12:25,840
you could do it
within the US alone.

1702
01:12:25,840 --> 01:12:29,030
18,000 unique types
of paperwork that you

1703
01:12:29,030 --> 01:12:30,980
have to fill out,
depending on where

1704
01:12:30,980 --> 01:12:32,290
you are in the United States.

1705
01:12:32,290 --> 01:12:35,360
In Germany, you have
one unified paperwork

1706
01:12:35,360 --> 01:12:38,340
for the entire country,
and it's very short.

1707
01:12:38,340 --> 01:12:39,910
I believe it's two pages.

1708
01:12:39,910 --> 01:12:41,780
And in the United
States, you can fill out

1709
01:12:41,780 --> 01:12:43,390
a few reams of paper.

1710
01:12:43,390 --> 01:12:45,330
One of our friends
in California once

1711
01:12:45,330 --> 01:12:49,570
estimated it takes about $1
a watt to fill out paperwork

1712
01:12:49,570 --> 01:12:51,315
and to get certifications
and so forth.

1713
01:12:51,315 --> 01:12:53,190
Maybe it was a little
bit of an exaggeration,

1714
01:12:53,190 --> 01:12:54,940
but the price is high.

1715
01:12:54,940 --> 01:12:56,500
And so recently the
DOE has attempted

1716
01:12:56,500 --> 01:12:58,540
to address this as
well by fostering

1717
01:12:58,540 --> 01:13:00,800
a "race to the
top" type incentive

1718
01:13:00,800 --> 01:13:04,050
mechanism for states to
facilitate installation.

1719
01:13:04,050 --> 01:13:06,535
But still, in Massachusetts,
we had-- remember

1720
01:13:06,535 --> 01:13:08,910
for the system on my roof, we
had at least two inspectors

1721
01:13:08,910 --> 01:13:11,010
come by from different agencies.

1722
01:13:11,010 --> 01:13:13,420
That could have been
consolidated into one.

1723
01:13:13,420 --> 01:13:17,050
So while state
independence is good,

1724
01:13:17,050 --> 01:13:18,932
and local utility
independence is great,

1725
01:13:18,932 --> 01:13:21,390
from the perspective that the
federal government is lacking

1726
01:13:21,390 --> 01:13:23,090
in terms of moving
forward, the states

1727
01:13:23,090 --> 01:13:25,730
can push forward at
their comfortable speed.

1728
01:13:25,730 --> 01:13:28,870
On the downside, it makes it
very difficult for an installer

1729
01:13:28,870 --> 01:13:31,940
company to reduce
its costs because it

1730
01:13:31,940 --> 01:13:34,940
has to address a
multitude of local markets

1731
01:13:34,940 --> 01:13:36,100
throughout the US.

1732
01:13:36,100 --> 01:13:38,690
And that adds to cost.

1733
01:13:38,690 --> 01:13:40,850
In terms of projections,
I really hesitate.

1734
01:13:40,850 --> 01:13:44,210
Because in 2006, there were
a number projections of where

1735
01:13:44,210 --> 01:13:48,350
we'd be in 2010,
and many of them--

1736
01:13:48,350 --> 01:13:51,180
you can see the range here,
going from 4 gigawatts up to,

1737
01:13:51,180 --> 01:13:53,600
actually, I think Photon
Consulting had us close

1738
01:13:53,600 --> 01:13:58,680
to 30 gigawatts back in 2010.

1739
01:13:58,680 --> 01:14:00,310
Photon Consulting
was closer to right

1740
01:14:00,310 --> 01:14:02,920
than most of the other
groups, interestingly.

1741
01:14:02,920 --> 01:14:05,370
The 4 gigawatts was
obviously pretty far off.

1742
01:14:05,370 --> 01:14:07,520
So projections are very
dangerous because you

1743
01:14:07,520 --> 01:14:09,040
could be easily wrong.

1744
01:14:09,040 --> 01:14:12,337
This is just to
show you an example.

1745
01:14:12,337 --> 01:14:14,420
These are projections of
where the solar market is

1746
01:14:14,420 --> 01:14:15,750
going to go.

1747
01:14:15,750 --> 01:14:18,630
From the EPIA, which is the
European Photovoltaics Industry

1748
01:14:18,630 --> 01:14:21,330
Association, it's one
of the better sources

1749
01:14:21,330 --> 01:14:23,840
that I could find with the
various scenarios giving you

1750
01:14:23,840 --> 01:14:25,830
an indication, a tornado
plot, if you will,

1751
01:14:25,830 --> 01:14:32,170
of where the market is going
to head over the future.

1752
01:14:32,170 --> 01:14:34,610
And the bottom line
is that most likely

1753
01:14:34,610 --> 01:14:35,690
it will continue to grow.

1754
01:14:35,690 --> 01:14:37,731
Even though it's going to
enter a difficult year,

1755
01:14:37,731 --> 01:14:39,860
a difficult two years as
the oversupply condition

1756
01:14:39,860 --> 01:14:41,600
works itself out of
the market, we're

1757
01:14:41,600 --> 01:14:43,191
headed for some
pretty massive growth.

1758
01:14:43,191 --> 01:14:44,690
And just keep those
numbers in mind.

1759
01:14:44,690 --> 01:14:49,200
If this grows up to be, say,
a 100-gigawatt industry,

1760
01:14:49,200 --> 01:14:50,910
and there's two
people per megawatt,

1761
01:14:50,910 --> 01:14:53,670
that's 200,000
people employed just

1762
01:14:53,670 --> 01:14:56,470
in the manufacturing of modules.

1763
01:14:56,470 --> 01:14:58,600
Not counting all
the other people

1764
01:14:58,600 --> 01:15:00,760
on top of that, maybe
another order of magnitude,

1765
01:15:00,760 --> 01:15:03,420
if we use the car
industry as an example.

1766
01:15:03,420 --> 01:15:06,830
So we could be looking at
two million jobs worldwide.

1767
01:15:06,830 --> 01:15:11,180
And where they are, who works
on them, how the value chain is

1768
01:15:11,180 --> 01:15:14,990
distributed between
R&D, manufacturing,

1769
01:15:14,990 --> 01:15:17,326
this is all open.

1770
01:15:17,326 --> 01:15:18,700
The next decade
will decide that.

1771
01:15:18,700 --> 01:15:20,080
You'll help decide that.

1772
01:15:20,080 --> 01:15:24,140
So with that message,
I let you go.