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PROFESSOR: The equivalent cost
of manufacturing in China,

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as best as we can determine,
is in the order of $1, $1.30,

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$1.50-- somewhere in that
range with the error bars.

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So keep those numbers in your
head as we dive into price.

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Because now we're
going to be talking

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about what the market
is offering to pay

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and what that spread is
between the cost and the price.

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So you have, in your slide deck,
a list of different websites.

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00:00:55,330 --> 00:00:57,719
I guess you have web
[? e-sits. ?] You have

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00:00:57,719 --> 00:01:00,010
websites, email list serves,
blogs, and Twitter feeds--

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00:01:00,010 --> 00:01:05,630
different sources of information
for collecting data from PV.

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And I should add one more
to this list, which wasn't

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on there, but should be there.

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00:01:10,910 --> 00:01:11,535
PVinsights.com.

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This is where you can find
it pretty up-to-date spot

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00:01:18,540 --> 00:01:22,720
prices for wafers, cells,
modules, and so forth.

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Does anybody know
what a spot price is?

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What does it mean, a spot price?

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00:01:28,300 --> 00:01:29,920
Spot price means I'm
desperate to buy.

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I need to buy it right now.

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I pick up a phone and
call somebody and say,

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00:01:32,983 --> 00:01:34,000
I'm willing to pay you.

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00:01:34,000 --> 00:01:35,750
So there's no long
term contract involved.

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It's usually a one-time deal.

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00:01:37,570 --> 00:01:38,540
That's a spot price.

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00:01:38,540 --> 00:01:40,206
A long term contract,
on the other hand,

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says, no, no, really.

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I have a factory.

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It's 100 megawatts.

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And I need wafer
supply for five years.

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00:01:45,630 --> 00:01:47,850
Let's lock ourselves
into a price.

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00:01:47,850 --> 00:01:49,880
Maybe we visit it
every 2 and 1/2 years,

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00:01:49,880 --> 00:01:52,830
but that's a long term contract.

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00:01:52,830 --> 00:01:54,940
So these are spot
prices and they provide

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00:01:54,940 --> 00:01:56,830
a variety of information.

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00:01:56,830 --> 00:01:59,209
The information
for today is free.

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00:01:59,209 --> 00:02:00,750
If you want historical
data, you have

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00:02:00,750 --> 00:02:02,900
to sign up, become
a member, and pay.

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00:02:02,900 --> 00:02:06,850
But there are other websites
like this-- various consulting

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00:02:06,850 --> 00:02:09,970
groups-- that acquire and
gather information, PVinsights.

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00:02:09,970 --> 00:02:11,990
So you have a variety
of different sites

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to grab information
that could be

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00:02:13,620 --> 00:02:15,620
useful for your class projects.

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00:02:15,620 --> 00:02:19,010
We're going to talk again
about the dynamics of price.

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And that is driven, in
large part, by-- well,

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we agreed to call
it different things.

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00:02:24,430 --> 00:02:26,930
Support mechanisms, tax breaks,
incentives-- but in reality,

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00:02:26,930 --> 00:02:29,270
they're support for PV.

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00:02:29,270 --> 00:02:34,890
Recognizing that with
$1.30, $1.10 cost,

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and then you add on top
of that the profit margin,

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even if you assume a very
meager margin of 15%,

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you're-- and then
the balances systems,

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and then the installation
costs on top of that--

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00:02:45,870 --> 00:02:48,930
you're not reaching grid parity
in the majority of markets.

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Not with that sort of
cost structure today.

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With innovation
and moving forward

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00:02:53,030 --> 00:02:55,520
into the future and
scale-- we'll get there,

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I'm fairly confident--
but today, we

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don't have the cost structure
necessary to match, say,

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00:03:00,770 --> 00:03:03,590
a subsidized
coal-fired power plant.

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So there are a variety of
different support mechanisms,

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a variety of different subsidies
in different countries,

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and different states
within the United States.

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And you can think about these
as the carrot, the stick,

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and the hybrid.

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The carrot meaning the margin
enhancement, the stick being

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the penalty if you
produce too much carbon,

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00:03:22,800 --> 00:03:27,662
for instance, and some variety
of mixtures between the two.

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00:03:27,662 --> 00:03:29,120
So in terms of
margin enhancement--

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the carrot-- what
mechanisms exist?

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Let me break it down
very simply into-- we'll

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00:03:34,360 --> 00:03:36,550
look in two
different categories.

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We'll look at what the United
States has mostly done,

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which are tax relief and
grants and soft loans.

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00:03:42,850 --> 00:03:45,770
So let's describe
what that means.

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When I bought the panels on
top of the house in 2007,

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we paid out of the box somewhere
in the order of $7 to $8

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per watt peak.

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And after tax rebate coming
from the federal government,

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00:04:04,040 --> 00:04:07,110
and some additional support
from the state of Massachusetts,

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00:04:07,110 --> 00:04:11,270
the final price tag wound up
being from say $18,000 plus

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00:04:11,270 --> 00:04:14,960
down to about
$12,000 to $14,000.

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00:04:14,960 --> 00:04:18,660
And then there's revenue coming
in from offsets and so forth.

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So this is a one-time deal.

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I could have installed
those panels in my basement

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and still gotten the
tax break, right?

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00:04:26,300 --> 00:04:29,750
Because it's per watt peak,
not per kilowatt hour produced.

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00:04:29,750 --> 00:04:31,650
The rebates based
on carbon emissions

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00:04:31,650 --> 00:04:33,610
is based on the amount
of energy it produces.

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00:04:33,610 --> 00:04:37,140
That gives you an incentive
to maximize the efficiency

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00:04:37,140 --> 00:04:38,266
of the installation.

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00:04:38,266 --> 00:04:39,890
But just a one-time
tax rebate doesn't.

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00:04:39,890 --> 00:04:43,390
However, what the one-time
tax rebate allows you to do

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00:04:43,390 --> 00:04:45,790
is decrease the
upfront sticker price.

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So if I'm trying to sell
you system on your house,

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US installers are
convinced that it's

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00:04:50,780 --> 00:04:53,190
a lot easier to
sell you the system

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00:04:53,190 --> 00:04:55,130
if the price tag is lower.

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00:04:55,130 --> 00:04:57,760
If I can say, well this is
the real cost, but wait, wait,

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00:04:57,760 --> 00:04:58,610
there's more.

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00:04:58,610 --> 00:05:01,530
We'll give you this tax rebate,
this tax rebate, draw a line.

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00:05:01,530 --> 00:05:05,740
The final amount you pay is
this lower amount right here.

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00:05:05,740 --> 00:05:10,460
The other mechanism of margin
enhancement, if you will,

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00:05:10,460 --> 00:05:12,310
is what's called
a feed-in tariff.

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00:05:12,310 --> 00:05:14,460
Now, a feed-in tariff
works as follows.

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A feed-in tariff says, OK,
if you're paying-- let's say,

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00:05:17,536 --> 00:05:19,830
in the state of Massachusetts,
we don't have one.

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We don't have a feed-in
tariff here in Massachusetts.

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00:05:22,038 --> 00:05:23,460
But imagine if we did.

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00:05:23,460 --> 00:05:26,080
You, as a residential
customer, are paying $0.18

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00:05:26,080 --> 00:05:28,400
per kilowatt hour
for your electricity.

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00:05:28,400 --> 00:05:32,241
But if you have solar panels
on your roof, the utility,

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00:05:32,241 --> 00:05:33,990
if you will-- the state
of Massachusetts--

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00:05:33,990 --> 00:05:37,850
is willing to pay you $0.30
per kilowatt hour for that PV

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00:05:37,850 --> 00:05:38,660
electricity.

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00:05:38,660 --> 00:05:41,310
Recognizing the additional
value that that PV

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00:05:41,310 --> 00:05:43,230
is adding to the state.

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00:05:43,230 --> 00:05:46,690
Reducing the need for
additional transmission lines,

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00:05:46,690 --> 00:05:48,460
reducing the amount
of investment

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00:05:48,460 --> 00:05:52,170
in new coal-fired power plants,
reducing the health detriment

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00:05:52,170 --> 00:05:56,260
to the local communities around
the coal plants, and so forth.

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00:05:56,260 --> 00:06:01,060
So a feed-in tariff is meant
to give an incentive-- a market

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00:06:01,060 --> 00:06:04,900
pull incentive, if you will--
to install PV on your house.

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Or in a field.

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00:06:06,920 --> 00:06:10,350
And this is the mechanism that
has been in use in Germany.

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And because it's a
market-driven mechanism,

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00:06:12,870 --> 00:06:16,260
it rewards the most efficient
systems that are out there.

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00:06:16,260 --> 00:06:18,210
If you install that
system in your basement,

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00:06:18,210 --> 00:06:19,920
you're not going to be
producing kilowatt hours,

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00:06:19,920 --> 00:06:21,461
and hence you're
not going to benefit

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00:06:21,461 --> 00:06:22,830
from the feed-in tariff.

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00:06:22,830 --> 00:06:25,950
Now it's a tricky business
to decide where exactly

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00:06:25,950 --> 00:06:27,560
to fit that feed-in tariff.

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00:06:27,560 --> 00:06:28,130
Right?

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00:06:28,130 --> 00:06:30,540
If you go too low, people
aren't going to move.

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00:06:30,540 --> 00:06:32,540
They're going to say,
eh, no, not enough.

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00:06:32,540 --> 00:06:34,660
Not enough to make me
want to install solar.

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00:06:34,660 --> 00:06:36,600
If the feed-in
tariff is too high,

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00:06:36,600 --> 00:06:39,290
you're going to get this
massive onrush of people

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00:06:39,290 --> 00:06:41,780
coming to install solar.

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00:06:41,780 --> 00:06:44,330
And now you're going to
have to finance it, right?

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00:06:44,330 --> 00:06:46,540
And the money has to
come from somewhere.

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00:06:46,540 --> 00:06:50,230
In Germany, the money
comes from the rate payers,

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00:06:50,230 --> 00:06:51,690
not from the state.

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00:06:51,690 --> 00:06:55,240
Which means that if you install
solar panels on your house,

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00:06:55,240 --> 00:06:58,330
all of us have to help
pay for the electricity

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00:06:58,330 --> 00:07:00,170
that you sell back to the grid.

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00:07:00,170 --> 00:07:03,650
So our rate goes up from $0.18
per kilowatt hour to, say,

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00:07:03,650 --> 00:07:05,760
18.2 cents per kilowatt hour.

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00:07:05,760 --> 00:07:07,800
In the beginning, we
don't notice it at all.

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00:07:07,800 --> 00:07:11,100
But then if Joe starts putting
solar panels up, as well,

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00:07:11,100 --> 00:07:13,960
and then, let's say, 50%
of us put solar panels up,

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00:07:13,960 --> 00:07:17,060
now obviously we're
paying a lot more.

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00:07:17,060 --> 00:07:20,276
And it gives more of an
incentive for more people

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00:07:20,276 --> 00:07:21,900
to put the solar
panels up on the roof.

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00:07:21,900 --> 00:07:23,275
And of course,
the price goes up.

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00:07:23,275 --> 00:07:27,360
So the feed-in
tariff is a very--

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00:07:27,360 --> 00:07:29,030
it is a market-driven incentive.

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00:07:29,030 --> 00:07:32,720
And hence, it is very skillful
at rewarding the most efficient

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00:07:32,720 --> 00:07:33,620
installations.

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00:07:33,620 --> 00:07:35,120
But from a government
point of view,

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00:07:35,120 --> 00:07:39,210
it requires very
structured, rigorous,

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00:07:39,210 --> 00:07:41,540
and deaf-to-manipulation
of the feed-in tariff

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00:07:41,540 --> 00:07:45,940
rate-- the decline of the rate
versus time-- to ensure that A,

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00:07:45,940 --> 00:07:51,290
the installers aren't reaping
an enormous profit, and B,

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00:07:51,290 --> 00:07:53,610
that the system doesn't become
unsustainable over time.

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00:07:53,610 --> 00:07:55,310
That the burden
on the rate payers

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00:07:55,310 --> 00:07:58,070
is not so great that
they're shouldered

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00:07:58,070 --> 00:08:01,180
in for 20 years paying these
excessively high rates.

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00:08:01,180 --> 00:08:08,010
So it rewards first adopters,
it allows the market to predict,

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00:08:08,010 --> 00:08:11,760
versus rate of growth, what
the reward rate will be.

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00:08:11,760 --> 00:08:15,110
And it allows you to
glide into grid parity.

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00:08:15,110 --> 00:08:18,040
So we're at a situation today
where we're not at grid parity.

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00:08:18,040 --> 00:08:20,670
In 10, 20 years, we're
likely to be there.

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00:08:20,670 --> 00:08:24,040
And so the declining rate
of the feed-in tariff

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00:08:24,040 --> 00:08:26,110
allows you to glide back in.

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00:08:26,110 --> 00:08:30,185
In the United States, the
tax rebate, unfortunately--

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00:08:30,185 --> 00:08:31,810
because of the way
our political system

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00:08:31,810 --> 00:08:36,220
works-- it tends to get renewed
in a very frequent rate.

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00:08:36,220 --> 00:08:38,059
Every two years, it
seems, it's going up

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00:08:38,059 --> 00:08:39,283
for debate and discussion.

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00:08:39,283 --> 00:08:40,199
Should we continue it?

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00:08:40,199 --> 00:08:41,282
Should we not continue it?

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00:08:41,282 --> 00:08:44,550
It becomes a big political
struggle just to get it passed.

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00:08:44,550 --> 00:08:47,110
And as a result,
everybody uses up

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00:08:47,110 --> 00:08:48,740
their energy trying
to pass this thing

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00:08:48,740 --> 00:08:50,770
and renew it, as
opposed to saying,

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00:08:50,770 --> 00:08:53,784
gee, what's the best way
to decrease this over time

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00:08:53,784 --> 00:08:55,700
so that we can kind of
glide into grid parity?

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00:08:55,700 --> 00:08:57,800
So we have some
issues in the US,

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00:08:57,800 --> 00:09:01,830
more related to how our
political system doesn't work.

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00:09:01,830 --> 00:09:05,990
But there are examples of
this throughout the world,

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00:09:05,990 --> 00:09:09,890
in terms of what are
states and countries doing

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00:09:09,890 --> 00:09:14,580
to enhance the margins to create
market-pull incentives to allow

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00:09:14,580 --> 00:09:17,130
solar to be installed
on the grid?

203
00:09:17,130 --> 00:09:20,380
And the panels
that are installed

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00:09:20,380 --> 00:09:21,910
could come from anywhere.

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00:09:21,910 --> 00:09:25,830
They could be produced
in Guam and they could

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00:09:25,830 --> 00:09:27,920
qualify for the feed-in tariff.

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00:09:27,920 --> 00:09:31,080
So it doesn't discriminate
against particular regions

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00:09:31,080 --> 00:09:32,410
of the world.

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00:09:32,410 --> 00:09:36,860
Another thing to add
here is that this is just

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00:09:36,860 --> 00:09:42,150
the support from the state,
from the public sector.

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00:09:42,150 --> 00:09:44,440
From the private sector,
what is possible?

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00:09:44,440 --> 00:09:47,070
Well what is possible is
what's called a power purchase

213
00:09:47,070 --> 00:09:48,070
agreement.

214
00:09:48,070 --> 00:09:50,860
And this was alluded
to during our tour.

215
00:09:50,860 --> 00:09:52,640
What is a power
purchase agreement?

216
00:09:52,640 --> 00:09:56,542
A power purchase agreement is--
instead of you buying a system

217
00:09:56,542 --> 00:09:58,250
and putting it up on
your roof and having

218
00:09:58,250 --> 00:10:00,690
to pay all that money
up front, what you do

219
00:10:00,690 --> 00:10:03,700
is you enter an agreement
with the installer.

220
00:10:03,700 --> 00:10:05,959
They will put the panels
up on your roof for free

221
00:10:05,959 --> 00:10:08,250
because they're getting the
financing, say, from Morgan

222
00:10:08,250 --> 00:10:10,610
Stanley, from the Bank of Joe.

223
00:10:10,610 --> 00:10:13,612
So the Bank of Joe is financing
the panels on your roof.

224
00:10:13,612 --> 00:10:15,070
So the panels went
up on your roof.

225
00:10:15,070 --> 00:10:16,150
You didn't pay a penny.

226
00:10:16,150 --> 00:10:18,720
But you inked an agreement
with me, the installer,

227
00:10:18,720 --> 00:10:21,220
because I just borrowed money
from Joe at a certain interest

228
00:10:21,220 --> 00:10:21,724
rate.

229
00:10:21,724 --> 00:10:23,140
And you inked an
agreement with me

230
00:10:23,140 --> 00:10:25,500
that you'll pay a certain
amount for your electricity

231
00:10:25,500 --> 00:10:28,630
over the next 10, 15, 20
years, however long it

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00:10:28,630 --> 00:10:30,040
is-- usually 12.

233
00:10:30,040 --> 00:10:33,062
And that rate may be
a little bit higher

234
00:10:33,062 --> 00:10:34,770
than what it is today,
but it's certainly

235
00:10:34,770 --> 00:10:38,630
going to be lower if current
price inflation continues

236
00:10:38,630 --> 00:10:39,870
for the price of electricity.

237
00:10:39,870 --> 00:10:42,450
It will certainly be lower than
what the price of electricity

238
00:10:42,450 --> 00:10:43,900
will be in 12 years.

239
00:10:43,900 --> 00:10:45,760
And so you'll make money.

240
00:10:45,760 --> 00:10:48,620
I'll make money because there's
a spread between the rate

241
00:10:48,620 --> 00:10:50,570
at which I'm borrowing
the money from the bank

242
00:10:50,570 --> 00:10:53,110
and what you're paying
me for those panels--

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00:10:53,110 --> 00:10:55,200
for renting the panels
on the roof, if you will.

244
00:10:55,200 --> 00:10:57,340
For buying the electricity
from those panels.

245
00:10:57,340 --> 00:10:58,510
So everybody's making money.

246
00:10:58,510 --> 00:10:59,720
And the bank's making
money, obviously,

247
00:10:59,720 --> 00:11:02,180
because they're charging an
interest rate on the loan.

248
00:11:02,180 --> 00:11:05,000
And so with those
financing schemes,

249
00:11:05,000 --> 00:11:07,540
where it's called a power
purchase agreement, bank loans

250
00:11:07,540 --> 00:11:10,910
the money to the installer,
the installer loans the panels

251
00:11:10,910 --> 00:11:14,490
on the roof of the
customer, and the customer

252
00:11:14,490 --> 00:11:16,910
pays a fixed price
for the electricity.

253
00:11:16,910 --> 00:11:20,670
That allows everybody to
make money from day one,

254
00:11:20,670 --> 00:11:22,720
as long as there's
capital in play.

255
00:11:22,720 --> 00:11:24,410
It requires capital
to be in play,

256
00:11:24,410 --> 00:11:26,290
meaning it requires
the Bank of Joe

257
00:11:26,290 --> 00:11:28,920
to be willing to lend
money to me, the installer.

258
00:11:28,920 --> 00:11:30,880
If the Bank of Joe
doesn't want to lend,

259
00:11:30,880 --> 00:11:33,080
then that isn't an option.

260
00:11:33,080 --> 00:11:36,060
And so you see many of these
very large deals being forged

261
00:11:36,060 --> 00:11:41,900
with the investment banks
between large installers-- say,

262
00:11:41,900 --> 00:11:46,410
SunPower, SunEdison, and so
forth-- in New York City.

263
00:11:46,410 --> 00:11:48,630
It's becoming an
increasingly popular form

264
00:11:48,630 --> 00:11:51,050
of financing solar panels.

265
00:11:51,050 --> 00:11:53,910
You may stand to make more
money as an individual

266
00:11:53,910 --> 00:11:56,660
by buying the panels up
front because then you reap

267
00:11:56,660 --> 00:11:58,890
the entire benefit
of your investment.

268
00:11:58,890 --> 00:12:00,659
You're not sharing
the investment benefit

269
00:12:00,659 --> 00:12:01,450
with the installer.

270
00:12:01,450 --> 00:12:03,170
You're not sharing
the investment benefit

271
00:12:03,170 --> 00:12:04,190
with the bank.

272
00:12:04,190 --> 00:12:07,260
But that requires,
again, access to capital.

273
00:12:07,260 --> 00:12:10,716
And not everybody has a spare
$14,000, $15,000 lying around

274
00:12:10,716 --> 00:12:12,020
to put solar on the roof.

275
00:12:12,020 --> 00:12:13,346
Question.

276
00:12:13,346 --> 00:12:16,244
AUDIENCE: What's the
incentive of the, I guess,

277
00:12:16,244 --> 00:12:18,176
whoever's installing
the panels on

278
00:12:18,176 --> 00:12:20,108
to buy the electricity from you.

279
00:12:20,108 --> 00:12:24,470
Why would you buy it
from you, [INAUDIBLE]?

280
00:12:24,470 --> 00:12:25,650
PROFESSOR: Yeah.

281
00:12:25,650 --> 00:12:30,250
So over the past 10 years--
say, from 2000 to 2009--

282
00:12:30,250 --> 00:12:34,150
in the state of Massachusetts,
the price of electricity

283
00:12:34,150 --> 00:12:36,250
increased by 15%.

284
00:12:36,250 --> 00:12:38,754
So if you compare what did
it take per kilowatt hour

285
00:12:38,754 --> 00:12:40,420
at the beginning and
the end-- normalize

286
00:12:40,420 --> 00:12:43,810
for inflation, 15% inflation--
in the price of electricity.

287
00:12:43,810 --> 00:12:46,480
And there are a variety
of reasons for that.

288
00:12:46,480 --> 00:12:48,770
We're at the end of a
natural gas pipeline,

289
00:12:48,770 --> 00:12:51,310
so even if the price of
natural gas goes down,

290
00:12:51,310 --> 00:12:53,490
it takes a lot to get it to us.

291
00:12:53,490 --> 00:12:55,140
Sometimes shipments
go in by boat.

292
00:12:55,140 --> 00:12:58,250
Other times, up the
actual pipeline itself.

293
00:12:58,250 --> 00:13:01,980
And then, other forms
of fossil fuel-- oil,

294
00:13:01,980 --> 00:13:04,050
especially-- has
experienced a rise

295
00:13:04,050 --> 00:13:05,860
in prices of the last few years.

296
00:13:05,860 --> 00:13:09,179
And so for a variety of
reasons, including those

297
00:13:09,179 --> 00:13:10,970
and including a difficulty
in transmission,

298
00:13:10,970 --> 00:13:14,870
and including limited new
power plants coming online,

299
00:13:14,870 --> 00:13:16,340
the price has gone up.

300
00:13:16,340 --> 00:13:20,890
And as a result, if
you project forward,

301
00:13:20,890 --> 00:13:25,360
you could say, OK, let's
hedge our bets here.

302
00:13:25,360 --> 00:13:28,710
We can estimate that the price
is going to go up another 15%

303
00:13:28,710 --> 00:13:31,080
between now and the next decade.

304
00:13:31,080 --> 00:13:32,620
So what I'm going
to do is to say,

305
00:13:32,620 --> 00:13:34,890
this is the price today,
this is the price tomorrow--

306
00:13:34,890 --> 00:13:36,380
in 10 years, right?

307
00:13:36,380 --> 00:13:39,730
I'm going to sell
you electricity here.

308
00:13:39,730 --> 00:13:41,710
And so it's almost
like the deal--

309
00:13:41,710 --> 00:13:46,420
I don't know if anybody signs
up for the natural gas lock-in

310
00:13:46,420 --> 00:13:48,300
price during winter with NStar.

311
00:13:48,300 --> 00:13:50,050
You probably see the
envelope in the mail,

312
00:13:50,050 --> 00:13:51,216
or maybe your landlord does.

313
00:13:51,216 --> 00:13:55,410
But NStar-- the utility
company around this area--

314
00:13:55,410 --> 00:13:57,960
will allow you to lock in
a price for natural gas

315
00:13:57,960 --> 00:14:00,440
per therm-- per unit
of natural gas--

316
00:14:00,440 --> 00:14:03,000
over the winter, that is
slightly above the market

317
00:14:03,000 --> 00:14:04,290
rate in the fall.

318
00:14:04,290 --> 00:14:06,030
With the understanding
that prices

319
00:14:06,030 --> 00:14:09,030
tend to spike during winter,
and you're able to hedge,

320
00:14:09,030 --> 00:14:12,770
you're able to reduce risk.

321
00:14:12,770 --> 00:14:15,560
And so really what it is is
a risk mitigation strategy.

322
00:14:15,560 --> 00:14:17,280
And it's good enough
for most people.

323
00:14:17,280 --> 00:14:19,560
I know two people
on our street alone

324
00:14:19,560 --> 00:14:21,260
have entered power
purchase agreements

325
00:14:21,260 --> 00:14:24,600
as means of financing
their solar installations.

326
00:14:24,600 --> 00:14:29,526
So let's discriminate once
again between the private sector

327
00:14:29,526 --> 00:14:31,400
that's trying to sell
you the panels-- I say,

328
00:14:31,400 --> 00:14:33,000
Omar, you have to buy my panels.

329
00:14:33,000 --> 00:14:34,530
Let me sweeten the deal here.

330
00:14:34,530 --> 00:14:36,150
You don't have to
pay a penny upfront.

331
00:14:36,150 --> 00:14:38,150
We'll introduce a power
purchase agreement.

332
00:14:38,150 --> 00:14:40,200
Versus what the state
is doing, right?

333
00:14:40,200 --> 00:14:43,200
Whether that's the national
government or the state level

334
00:14:43,200 --> 00:14:45,790
is doing to try to get the
installers and other industries

335
00:14:45,790 --> 00:14:48,340
growing within
their organization.

336
00:14:48,340 --> 00:14:51,300
And as well, several
of the EU states

337
00:14:51,300 --> 00:14:54,170
meeting their Kyoto
Protocol obligations

338
00:14:54,170 --> 00:14:58,410
to reduce carbon emissions
by a certain amount by 2020.

339
00:14:58,410 --> 00:15:01,700
So we're going to do a deep
dive into the German case,

340
00:15:01,700 --> 00:15:06,180
just because it is so
interesting and so exemplary,

341
00:15:06,180 --> 00:15:10,990
in terms of increasing the
amount of PV on the grid.

342
00:15:10,990 --> 00:15:13,460
And one thing to
note, just upfront,

343
00:15:13,460 --> 00:15:15,500
this is the insulation
map of Europe.

344
00:15:15,500 --> 00:15:17,720
Insulation being
the solar radiance,

345
00:15:17,720 --> 00:15:19,880
the total solar
resource available,

346
00:15:19,880 --> 00:15:22,641
shown in this barely
distinguishable little legend

347
00:15:22,641 --> 00:15:23,140
down here.

348
00:15:23,140 --> 00:15:25,380
Blue being low, red being high.

349
00:15:25,380 --> 00:15:28,390
And Germany is
right here, as they

350
00:15:28,390 --> 00:15:31,230
would say, from herzen Europas,
from the heart of Europe

351
00:15:31,230 --> 00:15:32,150
right there.

352
00:15:32,150 --> 00:15:33,140
Right in the middle.

353
00:15:33,140 --> 00:15:37,260
And this is the insulation
comparison, again,

354
00:15:37,260 --> 00:15:39,610
between Germany
the United States.

355
00:15:39,610 --> 00:15:41,920
Same scale over here.

356
00:15:41,920 --> 00:15:45,470
A lot less solar resource
in Germany, even than

357
00:15:45,470 --> 00:15:48,770
in the Northeastern part
of the United States.

358
00:15:48,770 --> 00:15:52,011
Yet there was about half of
all solar panels installed here

359
00:15:52,011 --> 00:15:52,510
last year.

360
00:15:52,510 --> 00:15:53,630
Why?

361
00:15:53,630 --> 00:15:56,030
Well first off, it's
high electricity prices.

362
00:15:56,030 --> 00:15:57,710
Secondly, there is
a feed-in tariff

363
00:15:57,710 --> 00:16:00,010
that gives an
incentive for solar

364
00:16:00,010 --> 00:16:01,310
to be installed on a grid.

365
00:16:01,310 --> 00:16:04,110
So what I'm going to do is
go over several slides coming

366
00:16:04,110 --> 00:16:09,152
from the ministry in Germany,
describing the growth of solar

367
00:16:09,152 --> 00:16:11,110
and the growth of other
renewables on the grid,

368
00:16:11,110 --> 00:16:12,890
in response to this
feed-in tariff.

369
00:16:12,890 --> 00:16:15,770
So the renewable
energy resources,

370
00:16:15,770 --> 00:16:18,220
if you will, as a share
of the total energy

371
00:16:18,220 --> 00:16:23,110
supply in Germany--
the goal by 2020

372
00:16:23,110 --> 00:16:26,080
is this white bar right here.

373
00:16:26,080 --> 00:16:30,520
And if we look at the
share of renewable sources

374
00:16:30,520 --> 00:16:32,550
in total gross
electricity consumption,

375
00:16:32,550 --> 00:16:35,040
you can see that it's
getting there, right?

376
00:16:35,040 --> 00:16:38,140
17% versus a minimum of 35%.

377
00:16:38,140 --> 00:16:40,420
So working toward those
targets pretty well.

378
00:16:40,420 --> 00:16:47,160
And climbing from 2000 to 2010--
more than doubling, almost

379
00:16:47,160 --> 00:16:48,760
tripling.

380
00:16:48,760 --> 00:16:52,030
This is the electricity,
heat supply,

381
00:16:52,030 --> 00:16:53,227
and fuel supply breakdown.

382
00:16:53,227 --> 00:16:55,060
If we just look at the
electricity component

383
00:16:55,060 --> 00:17:00,460
right here, since that's where
PV falls and contributes,

384
00:17:00,460 --> 00:17:01,780
you can see it's growing.

385
00:17:04,750 --> 00:17:07,670
What you have to keep
in mind is this 17%

386
00:17:07,670 --> 00:17:10,290
of electricity
consumption coming

387
00:17:10,290 --> 00:17:15,000
from renewables-- this
17% is this amount here,

388
00:17:15,000 --> 00:17:16,109
the yellow bar.

389
00:17:16,109 --> 00:17:18,240
And we're looking at
something in the range

390
00:17:18,240 --> 00:17:24,220
of 103 terawatt hours over
the course of a year in 2010.

391
00:17:24,220 --> 00:17:26,950
And out of those
103 terawatt hours,

392
00:17:26,950 --> 00:17:31,730
breaking it out into PV,
biomass, hydro, and wind,

393
00:17:31,730 --> 00:17:33,860
you can see that PV has
accounted for a relatively

394
00:17:33,860 --> 00:17:37,400
small fraction of that total.

395
00:17:37,400 --> 00:17:40,260
The largest, by
far, has been wind.

396
00:17:40,260 --> 00:17:45,420
Wind has reached lower
prices of electricity

397
00:17:45,420 --> 00:17:48,400
faster than solar has.

398
00:17:48,400 --> 00:17:50,560
Differences between the
technology, so we say.

399
00:17:50,560 --> 00:17:52,980
And as a result, the
grid penetration of wind

400
00:17:52,980 --> 00:17:55,550
has preceded that of solar.

401
00:17:55,550 --> 00:17:57,206
But solar is
growing quite a bit.

402
00:17:57,206 --> 00:17:59,080
And this is averaged
over the entire country.

403
00:17:59,080 --> 00:18:01,246
And as I mentioned before,
there are certain regions

404
00:18:01,246 --> 00:18:04,840
within Germany, as you
might guess-- down here,

405
00:18:04,840 --> 00:18:08,300
for instance-- that have
experienced larger grid

406
00:18:08,300 --> 00:18:10,034
penetration of
solar than others.

407
00:18:10,034 --> 00:18:11,950
Just because they have
a larger solar resource

408
00:18:11,950 --> 00:18:12,700
available to them.

409
00:18:15,810 --> 00:18:18,180
So this is the little
fraction here-- growing--

410
00:18:18,180 --> 00:18:19,860
of solar electricity.

411
00:18:19,860 --> 00:18:23,490
These here are the
different legislations

412
00:18:23,490 --> 00:18:27,200
that are being passed,
regulating the feed-in tariff.

413
00:18:27,200 --> 00:18:31,837
Now, the feed-in tariff is
scheduled to reduce gradually

414
00:18:31,837 --> 00:18:32,420
for each year.

415
00:18:32,420 --> 00:18:34,430
Let me show you how that works.

416
00:18:34,430 --> 00:18:38,060
We'll go back to
this German energy

417
00:18:38,060 --> 00:18:43,980
blog by two of our energy
law experts in Germany.

418
00:18:43,980 --> 00:18:46,710
And this describes for you
the German feed-in tariffs

419
00:18:46,710 --> 00:18:48,470
as of 2010.

420
00:18:48,470 --> 00:18:52,510
The Renewable Energy Sources
act-- essentially, one of those

421
00:18:52,510 --> 00:18:54,440
legislations that have
passed-- and it just

422
00:18:54,440 --> 00:18:57,140
shows you what you
can expect over

423
00:18:57,140 --> 00:18:59,490
a variety of different sectors.

424
00:18:59,490 --> 00:19:01,770
Hydro, landfill, gas.

425
00:19:01,770 --> 00:19:04,200
And you can see, it's broken
into very specific details.

426
00:19:04,200 --> 00:19:07,180
Different sizes of
installations, different types

427
00:19:07,180 --> 00:19:08,470
of plants and so forth.

428
00:19:08,470 --> 00:19:14,870
This is bio, geothermal,
onshore wind, offshore wind,

429
00:19:14,870 --> 00:19:18,360
solar radiation,
roof-mounted facilities,

430
00:19:18,360 --> 00:19:21,130
electricity used within
the building facility,

431
00:19:21,130 --> 00:19:26,580
freestanding facilities,
and digression.

432
00:19:26,580 --> 00:19:32,000
Digression means, how much
does it go down per year?

433
00:19:32,000 --> 00:19:35,880
This is based on their best
estimate for the growth

434
00:19:35,880 --> 00:19:37,900
of grid penetration of PV.

435
00:19:37,900 --> 00:19:40,610
They're trying to guess
in the future, how much PV

436
00:19:40,610 --> 00:19:43,230
is going to come onto the
grid by a certain date?

437
00:19:43,230 --> 00:19:45,590
And hence, what the
price will be, as well.

438
00:19:45,590 --> 00:19:48,660
And thus, reduce their
feed-in tariff accordingly.

439
00:19:48,660 --> 00:19:51,060
And since it's impossible
to look into a crystal ball

440
00:19:51,060 --> 00:19:54,200
and nail it-- especially
since this is a nonlinear

441
00:19:54,200 --> 00:19:56,830
system-- the price depends
on the feed-in tariff,

442
00:19:56,830 --> 00:19:58,790
the feed-in tariff depends
on the price, right?

443
00:19:58,790 --> 00:20:01,250
So there's a little bit of
that interaction going on.

444
00:20:01,250 --> 00:20:03,330
They have to reassess,
from time to time, what

445
00:20:03,330 --> 00:20:05,060
the new rates are going to be.

446
00:20:05,060 --> 00:20:09,849
And that's why you have
these various-- well, aside

447
00:20:09,849 --> 00:20:12,140
from the initial-- you have
these various reevaluations

448
00:20:12,140 --> 00:20:14,950
from time to time, looking
at the feed-in tariff.

449
00:20:14,950 --> 00:20:17,560
Now, what has happened
more recently--

450
00:20:17,560 --> 00:20:19,940
there was a reevaluation
in January 2009.

451
00:20:19,940 --> 00:20:24,330
Another mid-2010 that
decreased it even further.

452
00:20:24,330 --> 00:20:27,035
So more recently--
this, unfortunately,

453
00:20:27,035 --> 00:20:28,850
only goes to 2010--
but more recently,

454
00:20:28,850 --> 00:20:31,970
there have been more
significant, stronger cuts

455
00:20:31,970 --> 00:20:37,104
to the feed-in tariff in Germany
in response to a few things.

456
00:20:37,104 --> 00:20:38,520
So let me go over
this real quick.

457
00:20:38,520 --> 00:20:39,990
I'll get back to
that in a second.

458
00:20:39,990 --> 00:20:44,610
First off, this is the payment
of fees in millions of s

459
00:20:44,610 --> 00:20:48,730
versus time that the rate
payers are paying in total.

460
00:20:48,730 --> 00:20:51,210
So that winds up being
something in the order of 135

461
00:20:51,210 --> 00:20:54,187
s per head in Germany.

462
00:20:54,187 --> 00:20:56,520
That's not spread equally
amongst everybody-- per year--

463
00:20:56,520 --> 00:20:58,353
that's not spread equally
amongst everybody.

464
00:20:58,353 --> 00:21:01,514
That's, as well, their
industry bears more,

465
00:21:01,514 --> 00:21:03,430
obviously than the
residential customer would.

466
00:21:03,430 --> 00:21:06,080
But it's a line item of
a few s on your utility

467
00:21:06,080 --> 00:21:08,670
bill per month as a customer.

468
00:21:08,670 --> 00:21:11,020
And that begins to add up.

469
00:21:11,020 --> 00:21:16,680
So Germany has begun putting on
the brakes on the incentives.

470
00:21:16,680 --> 00:21:20,140
And further, if they
look at how much they've

471
00:21:20,140 --> 00:21:22,340
installed versus other
countries-- again,

472
00:21:22,340 --> 00:21:24,860
this is the same chart
we showed last class--

473
00:21:24,860 --> 00:21:28,424
their portion of all new
installations is very large.

474
00:21:28,424 --> 00:21:30,840
And so they began looking
around to the rest of the world,

475
00:21:30,840 --> 00:21:33,370
saying, hey folks, we don't
have a lot of sun here.

476
00:21:33,370 --> 00:21:36,820
Why aren't you doing your part
to put solar on your grids?

477
00:21:36,820 --> 00:21:39,040
Compounded by the
fact that now they

478
00:21:39,040 --> 00:21:41,990
have a growing percentage
of manufacturing

479
00:21:41,990 --> 00:21:44,220
that's not in Germany.

480
00:21:44,220 --> 00:21:46,280
The percentage of German
manufacturing of the PV

481
00:21:46,280 --> 00:21:49,359
modules themselves has
stayed more or less flat.

482
00:21:49,359 --> 00:21:51,150
And so Germany's sitting
here thinking, OK,

483
00:21:51,150 --> 00:21:54,430
we're in a financial
crisis right now.

484
00:21:54,430 --> 00:21:56,240
Something has to give.

485
00:21:56,240 --> 00:21:59,270
Let's put a damper on this
feed-in tariff for a little bit

486
00:21:59,270 --> 00:22:03,410
until the situation
straightens itself out

487
00:22:03,410 --> 00:22:08,290
and until there's more growth
in other markets besides just

488
00:22:08,290 --> 00:22:09,270
Germany.

489
00:22:09,270 --> 00:22:12,420
Let's try to reduce
the incentive

490
00:22:12,420 --> 00:22:14,680
that we give to
put PV on our grid

491
00:22:14,680 --> 00:22:18,640
and maybe increase the share
of PV going onto US, China,

492
00:22:18,640 --> 00:22:21,100
and so forth-- other big
markets around the world.

493
00:22:21,100 --> 00:22:24,670
So that we're not bearing the
sole burden of trying to reduce

494
00:22:24,670 --> 00:22:26,260
the cost of PV to grid parity.

495
00:22:29,710 --> 00:22:32,590
As a result of this-- the
decline in the feed-in tariff

496
00:22:32,590 --> 00:22:35,150
in Germany-- and as a
result of a massive amount

497
00:22:35,150 --> 00:22:36,730
of new production
capacity coming

498
00:22:36,730 --> 00:22:38,380
online in China
and Taiwan, we're

499
00:22:38,380 --> 00:22:41,620
now in an oversupply condition.

500
00:22:41,620 --> 00:22:43,760
What means an
oversupply condition?

501
00:22:43,760 --> 00:22:47,650
What it means is that there are
more PV modules available today

502
00:22:47,650 --> 00:22:51,260
than there are customers to buy
them at the given prices that

503
00:22:51,260 --> 00:22:51,910
are available.

504
00:22:51,910 --> 00:22:54,730
And the price is dictated, in
part, by the feed-in tariff.

505
00:22:54,730 --> 00:22:56,740
And so what you've
seen is-- sorry,

506
00:22:56,740 --> 00:23:00,230
I'm just going to drive through
these slides right over here

507
00:23:00,230 --> 00:23:01,750
till I get to that one.

508
00:23:01,750 --> 00:23:04,970
So what you see is that chart
that Secretary Chu presented

509
00:23:04,970 --> 00:23:06,940
yesterday during his talk.

510
00:23:06,940 --> 00:23:09,620
This was in first
quarter of 2008.

511
00:23:09,620 --> 00:23:13,330
This was when the
market began softening.

512
00:23:13,330 --> 00:23:16,140
Right around here, the
German feed-in tariffs

513
00:23:16,140 --> 00:23:19,240
really started going
down tremendously.

514
00:23:19,240 --> 00:23:21,310
Chinese manufacturing and
Taiwanese manufacturing

515
00:23:21,310 --> 00:23:26,860
really started ramping up
around here, 2007, 2008.

516
00:23:26,860 --> 00:23:28,290
And so what happened?

517
00:23:28,290 --> 00:23:32,100
This here is price, not cost.

518
00:23:32,100 --> 00:23:33,920
Price.

519
00:23:33,920 --> 00:23:37,910
So this is being driven
by market dynamics,

520
00:23:37,910 --> 00:23:40,130
not solely by the
costs of manufacturing.

521
00:23:40,130 --> 00:23:41,930
So we have what people
are willing to pay

522
00:23:41,930 --> 00:23:42,930
for their hours of watt.

523
00:23:42,930 --> 00:23:44,210
So if the feed-in
tariff is going down

524
00:23:44,210 --> 00:23:46,530
in Germany, which is
acquiring 50% of the modules

525
00:23:46,530 --> 00:23:48,450
in the market, that
means that the price

526
00:23:48,450 --> 00:23:49,540
has to come down, as well.

527
00:23:49,540 --> 00:23:50,900
If you're going to be
able to sell your modules,

528
00:23:50,900 --> 00:23:52,240
you're going to have to
sell them at a lower price

529
00:23:52,240 --> 00:23:54,320
because the feed-in
tariff is now lower.

530
00:23:54,320 --> 00:23:57,050
At the same time, you have
now more supply on the market

531
00:23:57,050 --> 00:23:58,620
and you have companies
competing against each other

532
00:23:58,620 --> 00:24:00,200
to get their modules
on the market.

533
00:24:00,200 --> 00:24:02,450
And so prices are going to
come down by that, as well.

534
00:24:02,450 --> 00:24:04,949
So what this chart is telling
you-- let's look at the blues,

535
00:24:04,949 --> 00:24:05,520
for instance.

536
00:24:05,520 --> 00:24:06,600
Let's start here.

537
00:24:06,600 --> 00:24:08,790
These are estimates
made in 2008.

538
00:24:08,790 --> 00:24:12,150
And this blue line
extending forward

539
00:24:12,150 --> 00:24:15,540
is the estimated price-- not
cost-- the estimated price

540
00:24:15,540 --> 00:24:19,840
of what a PV module would
sell for, projected forward

541
00:24:19,840 --> 00:24:22,100
to the end of 2010.

542
00:24:22,100 --> 00:24:25,860
Then, we enter
2009-- the reds here.

543
00:24:25,860 --> 00:24:29,980
And the real prices continue
to drop precipitously.

544
00:24:29,980 --> 00:24:33,280
Again, here we have
the analysts' estimates

545
00:24:33,280 --> 00:24:35,260
for what the price
is going to be,

546
00:24:35,260 --> 00:24:38,410
moving forward to end of 2011.

547
00:24:38,410 --> 00:24:41,700
And you can see that the
analysts' estimates are always

548
00:24:41,700 --> 00:24:45,460
above the actual prices
over the last three years.

549
00:24:45,460 --> 00:24:47,780
Which means that
the actual prices

550
00:24:47,780 --> 00:24:50,220
have fallen faster
than anybody--

551
00:24:50,220 --> 00:24:52,850
or the analysts-- expected to.

552
00:24:52,850 --> 00:24:54,810
Maybe there were
some smart people

553
00:24:54,810 --> 00:24:57,869
in the actual industry who
saw this coming in quite

554
00:24:57,869 --> 00:24:58,410
the same way.

555
00:24:58,410 --> 00:25:00,800
But what this
means is the prices

556
00:25:00,800 --> 00:25:05,300
have come down a lot faster
than what people expected.

557
00:25:05,300 --> 00:25:07,850
I don't think people expected
that Germany would cut

558
00:25:07,850 --> 00:25:11,330
the feed-in tariff rate
quite as large as it did

559
00:25:11,330 --> 00:25:14,530
in '09 and in '10.

560
00:25:14,530 --> 00:25:17,060
And some people, who haven't
been paying attention

561
00:25:17,060 --> 00:25:19,940
to the market, might not
have expected as much supply

562
00:25:19,940 --> 00:25:23,731
to be available from
China as there is today.

563
00:25:23,731 --> 00:25:25,980
Those people should have
been paying better attention.

564
00:25:25,980 --> 00:25:30,930
But that combination of factors
resulted in a much faster price

565
00:25:30,930 --> 00:25:33,380
decline than what
people saw coming.

566
00:25:33,380 --> 00:25:35,210
And as a result,
companies that were

567
00:25:35,210 --> 00:25:40,290
formed in, say, 2007, 2008, and
got venture capital-- and saw

568
00:25:40,290 --> 00:25:42,430
one of these lines right
here and said, oh, we're

569
00:25:42,430 --> 00:25:44,990
going to be able to
intersect them in 2010--

570
00:25:44,990 --> 00:25:47,837
are now looking at these
sorts of prices here.

571
00:25:47,837 --> 00:25:50,295
And saying, oh, gee, we're not
to be able to intersect them

572
00:25:50,295 --> 00:25:52,920
in 2010, it's going
to be more like 2015

573
00:25:52,920 --> 00:25:55,390
before we get our
production costs low enough

574
00:25:55,390 --> 00:25:58,470
to compete at those prices.

575
00:25:58,470 --> 00:26:01,020
And so the venture catalysts
are now sitting back thinking,

576
00:26:01,020 --> 00:26:02,490
so let me get this straight.

577
00:26:02,490 --> 00:26:04,840
You came to us three
years ago and told us

578
00:26:04,840 --> 00:26:07,776
that you'd be cost
competitive by 2010.

579
00:26:07,776 --> 00:26:09,150
But now the story
is you're going

580
00:26:09,150 --> 00:26:11,690
to be cost competitive by 2015.

581
00:26:11,690 --> 00:26:14,100
This kind of smells fishy.

582
00:26:14,100 --> 00:26:16,480
I don't know if I want to
lend you an additional round

583
00:26:16,480 --> 00:26:18,438
here, especially if I
have to wait another five

584
00:26:18,438 --> 00:26:19,790
years before you're profitable.

585
00:26:19,790 --> 00:26:23,600
Let me just cut my losses
and pick up shop and leave.

586
00:26:23,600 --> 00:26:25,110
And your company will go under.

587
00:26:25,110 --> 00:26:26,710
So that's happened a few times.

588
00:26:26,710 --> 00:26:30,070
That's happened in a high
profile way, which we all

589
00:26:30,070 --> 00:26:31,550
know about-- Solyndra.

590
00:26:31,550 --> 00:26:35,120
It's also happened to a few
other companies-- SpectraWatt.

591
00:26:37,630 --> 00:26:39,650
Even earlier ones
at the beginning

592
00:26:39,650 --> 00:26:42,020
of the financial crisis--
OPTI-Solar and others.

593
00:26:42,020 --> 00:26:44,785
So the companies that are
surviving right now-- there

594
00:26:44,785 --> 00:26:48,680
are still more than 100 startup
companies in the United States.

595
00:26:48,680 --> 00:26:50,980
Dozens and dozens of
startup companies in solar.

596
00:26:50,980 --> 00:26:53,080
Those smart ones
that are surviving

597
00:26:53,080 --> 00:26:57,840
are usually in
pre-production stage.

598
00:26:57,840 --> 00:27:01,230
They don't have big
manufacturing lines, hundreds,

599
00:27:01,230 --> 00:27:05,960
thousands of people to pay,
supply chains to pay for,

600
00:27:05,960 --> 00:27:08,370
and customers evaporating,
so they're not

601
00:27:08,370 --> 00:27:09,731
caught in that situation.

602
00:27:09,731 --> 00:27:10,480
That was Solyndra.

603
00:27:10,480 --> 00:27:11,950
They had a big production line.

604
00:27:11,950 --> 00:27:14,520
They had 1,100 people
employed in that line.

605
00:27:14,520 --> 00:27:16,950
And they had customers lined up.

606
00:27:16,950 --> 00:27:19,730
They had suppliers shipping
in materials that they

607
00:27:19,730 --> 00:27:21,580
were converting into product.

608
00:27:21,580 --> 00:27:23,760
And some of the
customers disappearing

609
00:27:23,760 --> 00:27:26,310
were not willing to pay
as high prices anymore.

610
00:27:26,310 --> 00:27:29,040
And that leads to a very
difficult situation.

611
00:27:29,040 --> 00:27:31,220
You don't have a
cash cushion, you

612
00:27:31,220 --> 00:27:32,720
don't have any
reserves in the bank,

613
00:27:32,720 --> 00:27:34,770
you have to sell your product.

614
00:27:34,770 --> 00:27:37,460
And you're not able to
compete at these prices.

615
00:27:37,460 --> 00:27:40,930
It's a recipe for disaster
if you're a mid-size company.

616
00:27:40,930 --> 00:27:44,280
So small companies can survive
in what I call spore mode.

617
00:27:44,280 --> 00:27:45,240
They're like a spore.

618
00:27:45,240 --> 00:27:47,646
They don't have that big
manufacturing line to pay for.

619
00:27:47,646 --> 00:27:49,020
They can survive
off grants, they

620
00:27:49,020 --> 00:27:50,570
can survive off venture capital.

621
00:27:50,570 --> 00:27:52,710
And their cash burn
rate is very low,

622
00:27:52,710 --> 00:27:54,380
they're developing technologies.

623
00:27:54,380 --> 00:27:56,761
The big companies have
cash cushions already,

624
00:27:56,761 --> 00:27:57,760
they have cash reserves.

625
00:27:57,760 --> 00:28:00,220
They might even be able to
access low interest rate

626
00:28:00,220 --> 00:28:03,440
loans from banks
that borrow money

627
00:28:03,440 --> 00:28:06,380
at ridiculously low rates
from the treasury right now.

628
00:28:06,380 --> 00:28:07,960
They may even have
financial branches

629
00:28:07,960 --> 00:28:10,430
within their own
company, like GE Finance,

630
00:28:10,430 --> 00:28:13,360
that can do that sort of thing.

631
00:28:13,360 --> 00:28:15,550
So big companies are,
so far, surviving,

632
00:28:15,550 --> 00:28:17,640
the really tiny companies
are, so far, surviving,

633
00:28:17,640 --> 00:28:19,350
but the market dynamic
is really hitting

634
00:28:19,350 --> 00:28:22,610
those mid-size companies that
already have a manufacturing

635
00:28:22,610 --> 00:28:23,260
line.

636
00:28:23,260 --> 00:28:26,370
And so you hear about layoffs,
you hear about job losses.

637
00:28:26,370 --> 00:28:28,650
These are often the
mid-size companies

638
00:28:28,650 --> 00:28:31,570
just trying to go
back to spore mode

639
00:28:31,570 --> 00:28:35,210
so they can survive this
difficult period until prices

640
00:28:35,210 --> 00:28:36,360
equilibrate.

641
00:28:36,360 --> 00:28:41,320
And when we look at
price is equilibrating--

642
00:28:41,320 --> 00:28:42,690
let's look at the price now.

643
00:28:42,690 --> 00:28:45,500
We're headed towards Q4 2011.

644
00:28:45,500 --> 00:28:48,300
Let's put a data point
right here for Q4 2011.

645
00:28:48,300 --> 00:28:49,900
Let's do it right now.

646
00:28:49,900 --> 00:28:54,080
So I'll go back here
and-- sorry about that.

647
00:28:54,080 --> 00:28:56,580
That was me
registering a website.

648
00:28:56,580 --> 00:29:00,040
That's for the project
that Doug was working on.

649
00:29:00,040 --> 00:29:02,920
We'll go to PVinsights.

650
00:29:02,920 --> 00:29:06,180
And we're going to add the
latest data point here.

651
00:29:06,180 --> 00:29:08,180
So solar wafer-- this is
silicon, this is wafer,

652
00:29:08,180 --> 00:29:10,690
this is cell, and
this is module.

653
00:29:10,690 --> 00:29:11,710
All right.

654
00:29:11,710 --> 00:29:14,050
This is our low,
this is our high.

655
00:29:14,050 --> 00:29:16,850
These are all prices in
dollars per watt peak.

656
00:29:16,850 --> 00:29:18,100
Prices.

657
00:29:18,100 --> 00:29:21,160
Our low and our high
and our average for-- I

658
00:29:21,160 --> 00:29:24,510
guess, last update
was yesterday.

659
00:29:24,510 --> 00:29:28,320
The low-- I can tell you this
particular low number right

660
00:29:28,320 --> 00:29:32,335
here came from a tier three
manufacturer in China.

661
00:29:32,335 --> 00:29:33,960
What is tier one,
tier two, tier three?

662
00:29:33,960 --> 00:29:36,250
So tier one are brand names.

663
00:29:36,250 --> 00:29:39,090
Yingli-- they advertised
during the World Cup.

664
00:29:39,090 --> 00:29:42,480
Suntech, mentioned in Secretary
Chu's presentation yesterday.

665
00:29:42,480 --> 00:29:44,790
Trina Solar, LDK, and so forth.

666
00:29:44,790 --> 00:29:48,870
These are tier one
manufacturers, the big dogs.

667
00:29:48,870 --> 00:29:51,340
Tier three are companies
you've never heard of

668
00:29:51,340 --> 00:29:53,160
but are employing
thousands of people

669
00:29:53,160 --> 00:29:56,220
and manufacturing modules in
the hundreds of megawatts range.

670
00:29:56,220 --> 00:29:59,650
Perhaps even reaching
a gigawatt scale.

671
00:29:59,650 --> 00:30:02,450
And because banks have
never heard of them

672
00:30:02,450 --> 00:30:04,660
either-- maybe that's
an overstatement,

673
00:30:04,660 --> 00:30:06,454
but I'm making a point here.

674
00:30:06,454 --> 00:30:07,870
They're not as
well known, they're

675
00:30:07,870 --> 00:30:11,707
not as reliable from
the bank's perspective.

676
00:30:11,707 --> 00:30:13,290
Maybe they haven't
been around as long

677
00:30:13,290 --> 00:30:14,831
and it's questionable
whether they're

678
00:30:14,831 --> 00:30:16,930
going to survive this
difficult economic climate.

679
00:30:16,930 --> 00:30:18,930
They have difficulty
to sell their product.

680
00:30:18,930 --> 00:30:21,470
The installers don't want
to take their product.

681
00:30:21,470 --> 00:30:24,670
And so they have to
undercut the competition.

682
00:30:24,670 --> 00:30:26,360
They have to leave
money on the table.

683
00:30:26,360 --> 00:30:32,590
And selling at prices
at $0.75 per watt.

684
00:30:32,590 --> 00:30:34,760
Now, what Doug's
calculations are indicating--

685
00:30:34,760 --> 00:30:36,375
as you saw from the
very beginning--

686
00:30:36,375 --> 00:30:39,940
the cost of manufacturing
in the US is around $1.30.

687
00:30:39,940 --> 00:30:43,727
The cost of manufacturing
in China is around $1.00.

688
00:30:43,727 --> 00:30:45,560
And then you have to
ship it over to the US.

689
00:30:45,560 --> 00:30:47,940
So if somebody is
willing to sell

690
00:30:47,940 --> 00:30:51,510
you a module at 0.75
dollars per watt,

691
00:30:51,510 --> 00:30:55,084
that means that the
price is below the cost.

692
00:30:55,084 --> 00:30:57,250
That means that that company
is desperate to get rid

693
00:30:57,250 --> 00:30:58,040
of inventory.

694
00:30:58,040 --> 00:31:01,534
They must have modules stacking
up in their shipment yard.

695
00:31:01,534 --> 00:31:02,700
They're unable to move them.

696
00:31:02,700 --> 00:31:05,420
And so the chief financial
officer walks over and says,

697
00:31:05,420 --> 00:31:06,890
we got to get rid of this stuff.

698
00:31:06,890 --> 00:31:08,410
It's costing us money.

699
00:31:08,410 --> 00:31:11,250
It costs us money to keep
this product on the books.

700
00:31:11,250 --> 00:31:14,530
Sell it for whatever you have
to sell it for to get rid of it.

701
00:31:14,530 --> 00:31:17,560
And as a consequence, they
sell below cost, put it out

702
00:31:17,560 --> 00:31:20,050
into the market.

703
00:31:20,050 --> 00:31:22,270
And then you have
SolarWorld, or a US company,

704
00:31:22,270 --> 00:31:24,400
coming to the Department
of Commerce saying,

705
00:31:24,400 --> 00:31:26,160
they're dumping product.

706
00:31:26,160 --> 00:31:27,520
It's an unfair competition.

707
00:31:27,520 --> 00:31:29,270
According to the World
Trade Organization,

708
00:31:29,270 --> 00:31:32,230
you can't sell at a
price below your cost

709
00:31:32,230 --> 00:31:36,480
in order to squeeze out
and gain market share.

710
00:31:36,480 --> 00:31:39,500
So it's a complex
situation right now.

711
00:31:39,500 --> 00:31:43,000
I've described for you, in
as much detail as I can,

712
00:31:43,000 --> 00:31:46,170
my impression of what's
happening in the world today.

713
00:31:46,170 --> 00:31:51,280
This low price right here, of
0.75 from a Chinese tier three

714
00:31:51,280 --> 00:31:52,270
manufacturer.

715
00:31:52,270 --> 00:31:54,700
And the high price here
coming from, most likely,

716
00:31:54,700 --> 00:31:58,150
a German supplier
or US supplier.

717
00:31:58,150 --> 00:32:01,460
Selling what is known to
be a very high quality,

718
00:32:01,460 --> 00:32:05,220
reputable, product, has been
selling for the last 10 years.

719
00:32:05,220 --> 00:32:08,790
Very reliable, very few
incidences of consumers

720
00:32:08,790 --> 00:32:10,190
returning the product.

721
00:32:10,190 --> 00:32:11,960
And banks like that product.

722
00:32:11,960 --> 00:32:15,230
So they're able to extract
a premium for their product.

723
00:32:15,230 --> 00:32:18,530
They're able to sell and move
those modules at a higher price

724
00:32:18,530 --> 00:32:20,390
because they're more bankable.

725
00:32:20,390 --> 00:32:24,660
This average right here is more
representative of what Chinese

726
00:32:24,660 --> 00:32:27,590
tier one manufacturers are
currently selling for, and what

727
00:32:27,590 --> 00:32:33,180
many of the US and European
average module makers are

728
00:32:33,180 --> 00:32:38,490
having to compete against with
costs on the order of $1.30.

729
00:32:38,490 --> 00:32:41,400
That's the
constriction right now.

730
00:32:41,400 --> 00:32:45,290
So if we add that one data point
onto this chart right here,

731
00:32:45,290 --> 00:32:49,740
where we have Q4 2011-- we're
solidly in Q4 right now--

732
00:32:49,740 --> 00:32:52,930
and we're at 0.98 with an error
bar somewhere around here.

733
00:32:52,930 --> 00:32:54,240
So we're at 0.98.

734
00:32:54,240 --> 00:32:56,210
You see the prices
are still coming down.

735
00:32:56,210 --> 00:32:59,460
And will likely come down
for maybe another quarter

736
00:32:59,460 --> 00:33:01,210
before they start to stabilize.

737
00:33:01,210 --> 00:33:05,090
And as companies fail--
as more companies leave

738
00:33:05,090 --> 00:33:08,406
the market-- you'll have
consolidation of market share,

739
00:33:08,406 --> 00:33:10,030
you'll have the few
remaining companies

740
00:33:10,030 --> 00:33:12,410
that had the large cash cushion,
that had the lowest cost

741
00:33:12,410 --> 00:33:13,930
structure, survive.

742
00:33:13,930 --> 00:33:16,570
And increase their market
share and reduce the number

743
00:33:16,570 --> 00:33:18,407
of players out on the market.

744
00:33:18,407 --> 00:33:20,490
And probably, prices will
come back up afterwards.

745
00:33:20,490 --> 00:33:22,550
Because you can't
continue selling

746
00:33:22,550 --> 00:33:26,790
below cost for very long before
everybody goes out of business.

747
00:33:26,790 --> 00:33:28,798
I saw a hand going
up over there.

748
00:33:28,798 --> 00:33:32,009
AUDIENCE: I guess, those
prices-- a transaction happened

749
00:33:32,009 --> 00:33:34,232
at that price, or that
was just the asked price

750
00:33:34,232 --> 00:33:37,690
of the the manufacturer?

751
00:33:37,690 --> 00:33:39,780
PROFESSOR: So these
right here-- I

752
00:33:39,780 --> 00:33:45,210
know that the 0.75,
that was an offer price.

753
00:33:45,210 --> 00:33:45,880
AUDIENCE: Oh.

754
00:33:45,880 --> 00:33:46,546
PROFESSOR: Yeah.

755
00:33:46,546 --> 00:33:55,210
So it was 0.85 during Solar
Power International in Texas

756
00:33:55,210 --> 00:33:57,310
about a month ago.

757
00:33:57,310 --> 00:33:58,970
And it made a big
splash and everybody

758
00:33:58,970 --> 00:34:01,410
was really awed by it.

759
00:34:01,410 --> 00:34:03,016
The 0.75 is news to me.

760
00:34:03,016 --> 00:34:04,890
It probably came up over
the last week or so.

761
00:34:04,890 --> 00:34:08,389
And in response, most likely,
to that company selling

762
00:34:08,389 --> 00:34:11,129
at 0.85-- unable to move
their product-- going

763
00:34:11,129 --> 00:34:13,170
even lower in a desperate
attempt just to get rid

764
00:34:13,170 --> 00:34:14,319
of their inventory.

765
00:34:14,319 --> 00:34:16,155
AUDIENCE: But these
are offered prices?

766
00:34:16,155 --> 00:34:19,370
The transaction hasn't happened
at that price as of yet?

767
00:34:19,370 --> 00:34:21,170
PROFESSOR: So these
prices, most likely,

768
00:34:21,170 --> 00:34:24,550
are coming from a
few different routes.

769
00:34:24,550 --> 00:34:29,350
So you, as an individual,
can send an email or fax

770
00:34:29,350 --> 00:34:32,850
over a request for
a quote from any one

771
00:34:32,850 --> 00:34:35,590
of 100 module manufacturers
around the world.

772
00:34:35,590 --> 00:34:39,250
And you will get a quote
back or an offer sheet back.

773
00:34:39,250 --> 00:34:42,199
And most likely, what
PVinsights is doing

774
00:34:42,199 --> 00:34:45,520
is some combination of
that-- a guerrilla tactic,

775
00:34:45,520 --> 00:34:47,020
let's gather information.

776
00:34:47,020 --> 00:34:50,469
And as well, information gleaned
from their installer base.

777
00:34:50,469 --> 00:34:52,678
So they have contacts to
various installer companies.

778
00:34:52,678 --> 00:34:54,552
They keep the finger on
the pulse over there,

779
00:34:54,552 --> 00:34:57,274
talking to their friends saying,
how much are they offering you

780
00:34:57,274 --> 00:34:57,940
the modulus for?

781
00:34:57,940 --> 00:34:59,764
AUDIENCE: It's not
like the stock market,

782
00:34:59,764 --> 00:35:02,550
where the price sold
at is subjective?

783
00:35:02,550 --> 00:35:03,220
PROFESSOR: Yeah.

784
00:35:03,220 --> 00:35:05,303
The sell and the buy price
are a little different.

785
00:35:05,303 --> 00:35:07,000
No-- or currency
exchange markets.

786
00:35:07,000 --> 00:35:07,900
No.

787
00:35:07,900 --> 00:35:10,860
These are individual
companies trying

788
00:35:10,860 --> 00:35:13,160
to assess what the
market is willing to pay

789
00:35:13,160 --> 00:35:14,560
for their product.

790
00:35:14,560 --> 00:35:16,000
In the case on
the low end, these

791
00:35:16,000 --> 00:35:20,200
are desperate producers
trying to move product.

792
00:35:20,200 --> 00:35:24,270
And on the high end,
these are companies

793
00:35:24,270 --> 00:35:26,970
with high cost structures,
typically, in the west--

794
00:35:26,970 --> 00:35:30,350
typically US and Germany--
that have a reputation.

795
00:35:30,350 --> 00:35:32,580
And they are
clinging for as long

796
00:35:32,580 --> 00:35:35,030
as they can on to
the high prices.

797
00:35:35,030 --> 00:35:38,530
For as long as they can do it,
before the market finally says,

798
00:35:38,530 --> 00:35:39,620
you know what?

799
00:35:39,620 --> 00:35:40,861
I'm sorry.

800
00:35:40,861 --> 00:35:41,860
We've been good friends.

801
00:35:41,860 --> 00:35:43,880
We've worked together
for the last 10 years.

802
00:35:43,880 --> 00:35:46,620
But honestly, I'm not
going to buy it $1.45.

803
00:35:46,620 --> 00:35:51,340
Not when Suntech is offering
me a module at $1.05 and it's

804
00:35:51,340 --> 00:35:52,430
comparable in quality.

805
00:35:52,430 --> 00:35:54,560
They've proven themselves.

806
00:35:54,560 --> 00:36:00,080
The days when all Chinese
modules were inferior are over.

807
00:36:00,080 --> 00:36:02,510
Now we have several tier
one Chinese manufacturers

808
00:36:02,510 --> 00:36:04,780
that have proven their modules
out in the open market.

809
00:36:04,780 --> 00:36:08,070
There hasn't been a
large number of recalls.

810
00:36:08,070 --> 00:36:10,080
So I'm willing to take
the risk with them.

811
00:36:10,080 --> 00:36:15,460
And at that point, you'll start
to see the higher priced US

812
00:36:15,460 --> 00:36:20,300
and European products
begin to soften.

813
00:36:20,300 --> 00:36:21,259
Yeah.

814
00:36:21,259 --> 00:36:22,800
AUDIENCE: If the
oversupply condition

815
00:36:22,800 --> 00:36:24,522
doesn't get resolved
in enough time,

816
00:36:24,522 --> 00:36:26,230
does it have the
potential to, basically,

817
00:36:26,230 --> 00:36:28,190
stall the entire industry?

818
00:36:28,190 --> 00:36:31,150
And if so, how long
would that take?

819
00:36:31,150 --> 00:36:34,732
PROFESSOR: Well, keep in mind
that this is just the module.

820
00:36:34,732 --> 00:36:37,190
There's a whole other dynamic
happening on the installation

821
00:36:37,190 --> 00:36:37,690
side.

822
00:36:37,690 --> 00:36:40,148
And the reason I'm not getting
into that in too much detail

823
00:36:40,148 --> 00:36:42,680
is because it varies so much
from country to country.

824
00:36:42,680 --> 00:36:44,096
Although I will
say a few comments

825
00:36:44,096 --> 00:36:46,210
before the end of class.

826
00:36:46,210 --> 00:36:48,770
If the oversupply
condition continues

827
00:36:48,770 --> 00:36:51,010
and if the feed-in
tariffs continue

828
00:36:51,010 --> 00:36:55,080
to be low, what you'll see
is a continued softening

829
00:36:55,080 --> 00:36:58,710
of the module price
into the point

830
00:36:58,710 --> 00:37:01,220
where almost all
manufacturers are selling

831
00:37:01,220 --> 00:37:03,579
below manufacturing costs.

832
00:37:03,579 --> 00:37:06,120
They're all desperately trying
to reduce manufacturing costs,

833
00:37:06,120 --> 00:37:07,160
reduce overhead.

834
00:37:07,160 --> 00:37:09,790
It's forcing them to innovate--
at least in manufacturing

835
00:37:09,790 --> 00:37:10,960
innovation-- faster.

836
00:37:10,960 --> 00:37:12,630
Not on product
innovation, not on,

837
00:37:12,630 --> 00:37:14,254
how do we design this
cell differently?

838
00:37:14,254 --> 00:37:15,900
But more on the
process innovation

839
00:37:15,900 --> 00:37:19,520
on the line of saying, gee,
how do we mix the silver

840
00:37:19,520 --> 00:37:21,960
with the cheaper metal
like aluminum in a ratio

841
00:37:21,960 --> 00:37:25,130
so that we eek out half
a cent per watt peak?

842
00:37:25,130 --> 00:37:28,310
Because any small fraction
counts at this point.

843
00:37:28,310 --> 00:37:29,380
We're desperate.

844
00:37:29,380 --> 00:37:34,500
And you can think of
this oversupply condition

845
00:37:34,500 --> 00:37:37,570
as a bunch of horses
running nose to nose.

846
00:37:37,570 --> 00:37:41,220
And which ones will
begin falling out?

847
00:37:41,220 --> 00:37:43,500
In the beginning, you could
point to easy candidates.

848
00:37:43,500 --> 00:37:46,620
Those that have already
begun to go by the wayside.

849
00:37:46,620 --> 00:37:50,390
But now, companies are burning
through the cash cushion,

850
00:37:50,390 --> 00:37:52,270
reporting negative profits.

851
00:37:52,270 --> 00:37:55,390
You see right and left, even the
Chinese tier one manufacturers

852
00:37:55,390 --> 00:37:59,580
are reporting negative
earnings this last quarter.

853
00:37:59,580 --> 00:38:03,480
So that's a reflection not only
of the oversupply condition,

854
00:38:03,480 --> 00:38:05,880
but also the fact that
they're continuing to expand,

855
00:38:05,880 --> 00:38:08,150
despite the
oversupply condition.

856
00:38:08,150 --> 00:38:12,335
The idea being, well, we can
withstand one, two, three, four

857
00:38:12,335 --> 00:38:15,910
quarters of losses as long as
we consolidate market share.

858
00:38:15,910 --> 00:38:18,370
Once we emerge from this
oversupply condition,

859
00:38:18,370 --> 00:38:20,350
we'll be able to increase
prices a bit more.

860
00:38:20,350 --> 00:38:23,290
And then return to a
more sustainable market.

861
00:38:23,290 --> 00:38:26,600
But we'll be the big dogs and
everyone else will be out.

862
00:38:26,600 --> 00:38:28,910
So I think all companies
right now are trying

863
00:38:28,910 --> 00:38:31,780
to play that game of survive.

864
00:38:31,780 --> 00:38:34,740
Survive this oversupply
condition, make it through.

865
00:38:34,740 --> 00:38:37,050
Some are able to continue
growing and other ones are

866
00:38:37,050 --> 00:38:38,119
just stagnant.

867
00:38:38,119 --> 00:38:40,410
So the stagnant ones are
going to become niche players.

868
00:38:40,410 --> 00:38:42,480
They won't be the major
players in the market.

869
00:38:42,480 --> 00:38:46,993
The ones who continue growing
will be 80%, 90% of the market.

870
00:38:46,993 --> 00:38:49,891
AUDIENCE: Has there been talk
of increasing feed-in tariffs

871
00:38:49,891 --> 00:38:53,760
to try to keep the
American companies alive?

872
00:38:53,760 --> 00:38:57,222
PROFESSOR: So US doesn't
do many feed-in tariffs.

873
00:38:57,222 --> 00:38:58,930
This goes back to the
US case right here.

874
00:38:58,930 --> 00:39:03,310
So due to lack of leadership
at the national level,

875
00:39:03,310 --> 00:39:07,696
there are a variety of state
level incentives put forth.

876
00:39:07,696 --> 00:39:09,570
So these are the policies--
we kind of talked

877
00:39:09,570 --> 00:39:12,070
about this last class, but to
dive into a bit more detail.

878
00:39:12,070 --> 00:39:14,900
The rebate programs for
the renewables-- these

879
00:39:14,900 --> 00:39:16,960
are state programs
plus the utility

880
00:39:16,960 --> 00:39:19,170
and/or nonprofit programs.

881
00:39:19,170 --> 00:39:21,360
Utility, local, and/or
nonprofit programs only

882
00:39:21,360 --> 00:39:22,940
and state programs only.

883
00:39:22,940 --> 00:39:25,450
So you see, for example, in
the state of Massachusetts,

884
00:39:25,450 --> 00:39:29,370
we have what used to be the
Massachusetts Technology

885
00:39:29,370 --> 00:39:30,560
Collaborative.

886
00:39:30,560 --> 00:39:33,790
There was a bit of a power
struggle within Mass State

887
00:39:33,790 --> 00:39:36,646
and it got incorporated into a
more centralized organization

888
00:39:36,646 --> 00:39:37,145
downtown.

889
00:39:40,100 --> 00:39:42,610
So that used to be in a
nonprofit organization, which

890
00:39:42,610 --> 00:39:45,390
is now more affiliated
with the state.

891
00:39:45,390 --> 00:39:48,930
The state also has a rebate.

892
00:39:48,930 --> 00:39:51,760
We have a very different set of
ways of doing things than, say,

893
00:39:51,760 --> 00:39:56,304
California, which has a
clean energy commission that

894
00:39:56,304 --> 00:39:57,970
rates each module and
gives you a rebate

895
00:39:57,970 --> 00:40:00,140
depending on what they rate
the module as performing

896
00:40:00,140 --> 00:40:01,060
in California.

897
00:40:01,060 --> 00:40:03,190
So every state has its
own way of doing things

898
00:40:03,190 --> 00:40:05,870
and it becomes very
complicated very quickly.

899
00:40:05,870 --> 00:40:11,150
To enact a national incentive,
beyond the tax rebate

900
00:40:11,150 --> 00:40:15,110
that is already offered
today, is challenging,

901
00:40:15,110 --> 00:40:16,720
in this political
climate especially.

902
00:40:16,720 --> 00:40:18,540
Because anything
that you would do

903
00:40:18,540 --> 00:40:23,780
to raise the cost of something,
which most likely would come

904
00:40:23,780 --> 00:40:26,410
from some federal
program-- right now,

905
00:40:26,410 --> 00:40:28,030
the Republican
Party is demanding

906
00:40:28,030 --> 00:40:30,469
that there be an offset, a
reduction of spending elsewhere

907
00:40:30,469 --> 00:40:31,385
within the government.

908
00:40:34,040 --> 00:40:37,672
Many of the places that are easy
to cut have already been cut.

909
00:40:37,672 --> 00:40:39,130
And so you've gone
through the fat.

910
00:40:39,130 --> 00:40:41,171
You're now hitting muscle,
and pretty soon you're

911
00:40:41,171 --> 00:40:42,680
going to be hitting bone.

912
00:40:42,680 --> 00:40:45,120
So it's difficult
to enact something

913
00:40:45,120 --> 00:40:47,450
that the government
would pay for.

914
00:40:47,450 --> 00:40:49,350
It is even more difficult
to enact something

915
00:40:49,350 --> 00:40:51,016
that the utilities
and rate payers would

916
00:40:51,016 --> 00:40:53,480
pay for at a national
level because, oftentimes,

917
00:40:53,480 --> 00:40:55,610
those powers are
delegated to the states.

918
00:40:55,610 --> 00:40:58,810
And you would enter a
federal versus state

919
00:40:58,810 --> 00:41:01,630
fight over that, which would
go to the courts, most likely,

920
00:41:01,630 --> 00:41:03,770
and be held up there
for several years.

921
00:41:03,770 --> 00:41:08,030
There are about 18,000 different
independent jurisdictions

922
00:41:08,030 --> 00:41:10,290
within the United
States governing

923
00:41:10,290 --> 00:41:12,600
how solar is added to the grid.

924
00:41:12,600 --> 00:41:14,100
And so what the
Department of Energy

925
00:41:14,100 --> 00:41:16,450
has done, which I think
is the wisest thing

926
00:41:16,450 --> 00:41:20,220
to do-- given this situation
that we have-- is to say, OK,

927
00:41:20,220 --> 00:41:22,060
we're not going to
force anybody to change,

928
00:41:22,060 --> 00:41:24,977
but we're going to give an
incentive for people to change.

929
00:41:24,977 --> 00:41:27,060
And like they had in the
Department of Education--

930
00:41:27,060 --> 00:41:29,100
the race to the top,
where states competed

931
00:41:29,100 --> 00:41:31,770
against each other to implement
best practices in education--

932
00:41:31,770 --> 00:41:34,230
they're having a similar
program on the installation

933
00:41:34,230 --> 00:41:38,340
side of solar, trying to get
various states to adopt a best

934
00:41:38,340 --> 00:41:39,160
practices.

935
00:41:39,160 --> 00:41:41,360
To streamline the
permitting process

936
00:41:41,360 --> 00:41:43,580
to get solar onto the grid
in the most efficient way

937
00:41:43,580 --> 00:41:45,910
possible, and hopefully
reduce the installation costs

938
00:41:45,910 --> 00:41:48,449
associated with that.

939
00:41:48,449 --> 00:41:49,990
So let's turn our
attention, quickly,

940
00:41:49,990 --> 00:41:52,420
to installations, since
I want to give some time

941
00:41:52,420 --> 00:41:54,980
to have people ask questions
about their class projects.

942
00:41:54,980 --> 00:41:56,730
Since time is
running very short,

943
00:41:56,730 --> 00:42:01,190
if you're hitting up
against a roadblock,

944
00:42:01,190 --> 00:42:03,500
I want to make sure
that we resolve that.

945
00:42:03,500 --> 00:42:05,860
I'll say a couple of words
about the installation.

946
00:42:05,860 --> 00:42:07,690
So a funny thing happened
on Tuesday night.

947
00:42:07,690 --> 00:42:10,080
I met with a colleague
from Wisconsin.

948
00:42:10,080 --> 00:42:13,635
And he said, well, I
met the editor of-- I

949
00:42:13,635 --> 00:42:16,540
think it was an editor from
one of the big journals.

950
00:42:16,540 --> 00:42:18,030
We'll protect the innocent.

951
00:42:18,030 --> 00:42:21,700
And this was a very
high-impact scientific journal.

952
00:42:21,700 --> 00:42:25,560
And he said, well, the
majority of the cost right

953
00:42:25,560 --> 00:42:30,690
now is in the installation side,
not in the module, in solar.

954
00:42:30,690 --> 00:42:33,990
So I'm not going to be
interested in any papers

955
00:42:33,990 --> 00:42:37,270
to my journal that describe
new concepts for PV modules.

956
00:42:37,270 --> 00:42:39,140
I'm interested in
the installation side

957
00:42:39,140 --> 00:42:41,894
because that's where the
majority of the cost is.

958
00:42:41,894 --> 00:42:43,310
And I went, oh my
goodness, here's

959
00:42:43,310 --> 00:42:44,790
another one who
can't distinguish

960
00:42:44,790 --> 00:42:47,280
between cost and price.

961
00:42:47,280 --> 00:42:53,420
So the installation cost right
now-- let's focus on cost first

962
00:42:53,420 --> 00:42:54,610
and then we'll get to price.

963
00:42:54,610 --> 00:42:56,830
So the installation cost
in the United States

964
00:42:56,830 --> 00:42:58,520
is partially
reflective of the fact

965
00:42:58,520 --> 00:43:01,340
that we have those 18,000
different ways of doing it

966
00:43:01,340 --> 00:43:04,810
here, versus in Germany, there
is one way to do it nationally.

967
00:43:04,810 --> 00:43:06,660
The federal government
said, we are

968
00:43:06,660 --> 00:43:11,070
going to demand that
everybody in Germany

969
00:43:11,070 --> 00:43:13,010
install in this protocol.

970
00:43:13,010 --> 00:43:14,810
And the paperwork
is very, very brief.

971
00:43:14,810 --> 00:43:17,420
It's a couple of pages
to get it installed.

972
00:43:17,420 --> 00:43:18,870
And the inspection is one.

973
00:43:18,870 --> 00:43:22,020
And so Germany has a much
more efficient system.

974
00:43:22,020 --> 00:43:25,560
And they've installed roughly
six to seven times more solar

975
00:43:25,560 --> 00:43:26,514
than we have.

976
00:43:26,514 --> 00:43:28,430
And if we remember
experience learning curves,

977
00:43:28,430 --> 00:43:32,920
when you have the reduction
of cost the more you do it,

978
00:43:32,920 --> 00:43:34,420
that means you have
three doublings.

979
00:43:34,420 --> 00:43:36,510
Germany has three
doublings over us.

980
00:43:36,510 --> 00:43:40,730
And even if you assume a
very leisurely 20% reduction

981
00:43:40,730 --> 00:43:43,290
for each doubling, that means
Germany is about the half

982
00:43:43,290 --> 00:43:45,660
of the cost as we are,
because they've done more.

983
00:43:45,660 --> 00:43:48,620
They know how to do it more
efficiently than we do.

984
00:43:48,620 --> 00:43:49,120
OK.

985
00:43:49,120 --> 00:43:50,690
So that's on the cost side.

986
00:43:50,690 --> 00:43:54,620
On the price side, if
you look around the US,

987
00:43:54,620 --> 00:43:56,950
you have some states
like New Jersey,

988
00:43:56,950 --> 00:44:00,210
which had an amazing
incentive program for a while.

989
00:44:00,210 --> 00:44:02,885
And California's as
well, quite generous.

990
00:44:02,885 --> 00:44:04,260
So there are
certain states where

991
00:44:04,260 --> 00:44:05,760
it's almost like a gold mine.

992
00:44:05,760 --> 00:44:08,010
And so there's no
incentive for the installer

993
00:44:08,010 --> 00:44:09,530
to reduce their price.

994
00:44:09,530 --> 00:44:12,150
Their costs can be going
down, but their price

995
00:44:12,150 --> 00:44:13,720
can be maintained high.

996
00:44:13,720 --> 00:44:16,280
And usually-- this
isn't always the case,

997
00:44:16,280 --> 00:44:19,870
but in most industries--
when prices are high,

998
00:44:19,870 --> 00:44:21,620
the industry becomes lazy.

999
00:44:21,620 --> 00:44:24,605
Now this isn't always the
case, but is often the case.

1000
00:44:24,605 --> 00:44:27,140
It is not atypical that
when the prices are high,

1001
00:44:27,140 --> 00:44:31,090
the industry says, oh, prices
are high, that's pretty good.

1002
00:44:31,090 --> 00:44:32,340
I'm enjoying myself right now.

1003
00:44:32,340 --> 00:44:34,490
I'm not going to be
focused on cost reduction.

1004
00:44:34,490 --> 00:44:38,280
It seems that, at least, the
lower level managers suddenly

1005
00:44:38,280 --> 00:44:42,320
become fixated on cost
reduction when it's too late.

1006
00:44:42,320 --> 00:44:44,380
When margins have
already begun shrinking,

1007
00:44:44,380 --> 00:44:47,300
when prices are collapsing,
and when it's do or die

1008
00:44:47,300 --> 00:44:48,150
for the company.

1009
00:44:48,150 --> 00:44:51,517
Then, all of sudden,
cost becomes imperative.

1010
00:44:51,517 --> 00:44:52,850
So there are very few companies.

1011
00:44:52,850 --> 00:44:54,850
The ones that usually
become leaders

1012
00:44:54,850 --> 00:44:57,580
are the ones who
recognize, gee, prices

1013
00:44:57,580 --> 00:44:58,850
can't remain high forever.

1014
00:44:58,850 --> 00:45:01,270
We have to reduce our costs now.

1015
00:45:01,270 --> 00:45:03,210
And hey, it'll be
even to our benefit,

1016
00:45:03,210 --> 00:45:04,710
because our margins
will be greater.

1017
00:45:04,710 --> 00:45:06,585
We'll be able to take
advantage of this right

1018
00:45:06,585 --> 00:45:09,430
now and build up some cash,
so that when the prices do

1019
00:45:09,430 --> 00:45:11,390
collapse, we have some buffer.

1020
00:45:11,390 --> 00:45:14,100
And we can survive the
oversupply condition.

1021
00:45:14,100 --> 00:45:17,880
So installers, right
now, I have to say

1022
00:45:17,880 --> 00:45:22,210
I'm disappointed in our
installers in the United States

1023
00:45:22,210 --> 00:45:24,550
for not doing more
amongst themselves

1024
00:45:24,550 --> 00:45:26,600
to reduce the
amount of paperwork.

1025
00:45:26,600 --> 00:45:30,510
For not taking a leadership
role in reducing the paperwork

1026
00:45:30,510 --> 00:45:31,260
burden.

1027
00:45:31,260 --> 00:45:34,060
And the true cost of installing
PV on the balances system,

1028
00:45:34,060 --> 00:45:35,500
[INAUDIBLE] installation side.

1029
00:45:35,500 --> 00:45:38,480
I think that's a very
resolvable problem.

1030
00:45:38,480 --> 00:45:41,530
You look to Germany and you have
residential systems going in

1031
00:45:41,530 --> 00:45:45,490
for below three euros
per watt peak price

1032
00:45:45,490 --> 00:45:49,140
taking advantage of the low
module prices right now.

1033
00:45:49,140 --> 00:45:52,080
And the fact that the
installation costs in Germany

1034
00:45:52,080 --> 00:45:53,291
are low, as well.

1035
00:45:53,291 --> 00:45:55,040
Because they've learned
how to do it well,

1036
00:45:55,040 --> 00:45:56,748
they've learned how
to do it efficiently.

1037
00:45:56,748 --> 00:45:58,510
And they've reduced
their cost structure.

1038
00:45:58,510 --> 00:46:01,290
So I personally-- I think
there is innovation to be

1039
00:46:01,290 --> 00:46:03,040
done on the installation side.

1040
00:46:03,040 --> 00:46:05,700
I think there's a lot that can
be done with pre-fabrication.

1041
00:46:05,700 --> 00:46:07,310
Maybe moving a
robot out there that

1042
00:46:07,310 --> 00:46:09,697
can assemble things in a big
rack and then a crane that

1043
00:46:09,697 --> 00:46:10,530
puts it on the roof.

1044
00:46:10,530 --> 00:46:13,020
As opposed to having 10
people going out to a house

1045
00:46:13,020 --> 00:46:15,350
and spending a couple days
putting panels on the roof.

1046
00:46:15,350 --> 00:46:16,190
It's not that bad.

1047
00:46:16,190 --> 00:46:17,990
Maybe it's more like a day.

1048
00:46:17,990 --> 00:46:20,860
But it's still a very
labor-intensive industry

1049
00:46:20,860 --> 00:46:22,380
right now in the US.

1050
00:46:22,380 --> 00:46:24,320
So more innovation can be done.

1051
00:46:24,320 --> 00:46:28,810
But the lion's share of
the installation price

1052
00:46:28,810 --> 00:46:31,760
right now is driven
by what I would

1053
00:46:31,760 --> 00:46:34,769
call inefficiencies in the
way installation is done

1054
00:46:34,769 --> 00:46:37,310
and inefficiencies in the way
the permitting process is done,

1055
00:46:37,310 --> 00:46:39,270
the paperwork is done.

1056
00:46:39,270 --> 00:46:43,855
So that's my soapbox
speech on installation.

1057
00:46:43,855 --> 00:46:45,730
By all means, there is
innovation to be done.

1058
00:46:45,730 --> 00:46:48,040
So don't give up on
that side either.

1059
00:46:48,040 --> 00:46:49,450
It's important.

1060
00:46:49,450 --> 00:46:51,180
It's where the
rubber hits the road.

1061
00:46:51,180 --> 00:46:56,684
But I think you can't just look
at the price of modules today

1062
00:46:56,684 --> 00:46:59,100
and the price of installing
the system today in the United

1063
00:46:59,100 --> 00:47:02,040
States-- and realize that
80% of the price right

1064
00:47:02,040 --> 00:47:04,047
now is wrapped up in
the installation--

1065
00:47:04,047 --> 00:47:06,130
and say, oh, well, there
isn't any more innovation

1066
00:47:06,130 --> 00:47:08,030
to be done on the module side.

1067
00:47:08,030 --> 00:47:09,700
You have to look at cost.

1068
00:47:09,700 --> 00:47:12,780
And you have to recognize
that the module cost is

1069
00:47:12,780 --> 00:47:14,952
driven by the efficiency
of the module.

1070
00:47:14,952 --> 00:47:16,410
And the installation
cost, as well,

1071
00:47:16,410 --> 00:47:18,450
will be driven by the
efficiency the module.

1072
00:47:18,450 --> 00:47:20,840
And so the module being
the engine of the system

1073
00:47:20,840 --> 00:47:23,492
is still very, very,
very important.

1074
00:47:23,492 --> 00:47:25,950
And so the work that folks are
doing-- on new PV materials,

1075
00:47:25,950 --> 00:47:29,630
especially-- is important.