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Solar Revolution

Solar Revolution

The Economic Transformation of the Global

Energy Industry

Travis Bradford

The MIT Press Cambridge, Massachusetts London, England

© 2006 Travis Bradford

All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or informa- tion storage and retrieval) without permission in writing from the publisher.

MIT Press books may be purchased at special quantity discounts for business or sales promotional use. For information, please e-mail or write to Special Sales Department, The MIT Press, 55 Hayward Street, Cam- bridge, MA 02142.

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Printed on recycled paper and bound in the United States of America.

Library of Congress Cataloging-in-Publication Data to come

Bradford, Travis. Solar revolution : the economic transformation of the gloabal energy industry / Travis Bradford. p. cm. Includes bibliographical references and index. ISBN 0-262-02604-X—ISBN 978-0-262-02604-8 (hc : alk. paper)

1. Solar energy industries. 2. Solar energy—Economic aspects. 3. Solar energy—Social aspects. 4. Power resources. I. Title.

HD9681.A2B73 2006 333.792'3—dc 2006044432

Illustration and table credits can be found on page 223.

10 9 8 7 6 5 4 3 2 1

Contents

Preface: The Future of Energy ix

- I The Inevitability of Solar Energy Acknowledgments xv - 1 A New Path on the Horizon - II Past to the Present - 2 A Brief History of Energy - 3 An Unsustainable Status Quo - 4 The Field of Alternatives - 5 Solar Energy

• III Future Transformations - 6 Modern Electric Utility Economics - 7 The Emergence of Distributed Economics - 8 Solar Electricity in the Real World
• IV A Promising Destination - 9 Tools for Acceleration
• 10 Facing the Inevitable
• Appendix: Energy and Electricity Measurements
• Notes
• Suggested Readings
• Credits
• Index

Preface: The Future of Energy

This is a book about the future of energy. Even without a deep analysis of the energy industry, most people fundamentally understand that our current energy system is ultimately unsustainable and that renewable energy (including solar energy) will be an inevitable part of our common future. Global economic, environmental, and social pressures are driving our species and our economies to change how we harness vital energy, and these pressures will intensify as we approach the middle of the twenty-first century and expand to an estimated population of ten billion inhabitants on the planet. Many of the greatest hurdles we will face in the next fifty years will be a direct result of how we currently and eventually decide to procure the energy necessary to sustain our lives and our standard of living. Human-induced climate change, resource wars over energy supplies, and cycles of deforestation, famine, and poverty that result from our insatiable appetite for energy are not new problems. Humans have grappled with these problems for centuries. The difference today is that these problems have accelerated in scale and potential repercussions to global proportions. Inevitably, the threats that our relationship to energy creates will be mitigated when motivation and opportunity collide. This could happen when businesses and government compensate for the risks and costs of our current energy system with effective foresight and coordinated plan- ning or, alternatively, when we are forced to change in response to a 1970s-style energy crisis. Whatever the catalyst, the industrialized and developing nations of the world will eventually address these issues by using energy more efficiently and by developing and deploying local, sus- tainable, renewable energy sources.

Many such energy-generation solutions are being pursued, including nuclear power and renewable wind, biomass, and geothermal energies. Businesses and policy makers are currently pursuing choices based on their respective natural-resource endowments, technical expertise, and political will. For example, Iceland is tapping into its vast stores of geo- thermal and hydroelectric energy in an attempt to become the world’s first fossil fuel–free economy. The countries of northern and western Europe (including the United Kingdom, Denmark, and Germany) are taking advantage of their ample wind resources to lead the world in wind-power deployment. Land-rich but oil-poor Brazil is deploying bio- fuels to power its transportation infrastructure at a lower cost than tra- ditional gasoline or diesel fuel. Each of these developing energy sources has a role to play worldwide, and many will be components of the solu- tions that are ultimately employed. Various solar-energy-generation technologies—including direct electric- ity generation from photovoltaic (PV) cells—also continue to be researched and deployed. Although PV technology is conceptually simple—harnessing the sun’s energy on a solid-state device—generating electricity with PV cells is generally assumed to be both too expensive and too far behind in terms of market penetration to have a meaningful impact on the juggernaut of the world energy infrastructure. Partially because of solar energy’s false prom- ises in the 1970s, the technology is widely seen as a desirable but uncom- petitive energy source in all but niche markets and remote small-scale power applications. However, developments in the PV industry over the last ten years have quietly transformed solar energy into a cost-effective and viable energy solution today. In many markets such as Japan, Germany, and the American Southwest, PV electricity has already become the energy choice of hun- dreds of thousands of users. From this established base, the technology of PV is poised to transform the energy landscape within the next decade as relative prices of this technology versus existing sources make it increasingly competitive. PV technology’s relative cost-effectiveness when compared to traditional energy choices and even many of the “new renewables” such as geothermal, wind, biomass, or ocean power will ensure its continued market penetration. Although it will be many years before solar energy provides a substantial amount of the world’s energy generation, awareness of the inevitability of the solar solution will have

x Preface

such inevitability desirable enough that efforts should be made to accelerate it? To answer these questions, this book examines the entire energy cycle that dictates our relationship through energy to other people and to the planet rather than just the energy infrastructure that utility providers and fossil-fuel suppliers typically describe. Only by placing global energy use in this greater context can we properly evaluate the decisions that we as individuals and as a society will ultimately make. In determining which energy options will prevail, a reasonable analysis must look beyond pre- conceptions about which one “should” succeed or which one would be “the best” solution for society. Such analysis relies too much on wishful thinking amid disparate and conflicting political and economic agendas. Instead, responsible analysis should determine how, in the course of day- to-day life and trillions of individual uncoordinated decisions, energy solutions will unfold naturally. Forecasts of this nature are always risky. However, constructing mod- els of the future is critical for sound decision making on important top- ics, and various forecasting approaches can be applied. Some people build mathematical models, some use broad philosophy, and still others take a business approach. The forecasts herein use a combination of eco- nomic and business modeling because, in the end, the relevant question is how the global energy industry and its economic agents will behave. In business, when managers are attempting to forecast market conditions over long periods of time, specific forecasts are not always possible or even useful. Understanding and predicting key market drivers and the ways that they will change over time are how the underlying tectonic, and eventually determinative, forces are detected. Correctly assessing these key drivers and using them to economic advantage is what sepa- rates highly successful businesspeople from the pack. When the key driv- ers in the global energy industry are identified, they expose the fallacy of the conventional logic that states that solar power is destined to be a marginal player in our energy future. The inevitability of solar power itself is a powerful concept, and a clear vision of the inevitable will help guide decision making today and in the years ahead. Although the size of the existing energy infrastructure and the long life of the assets employed may mean that it will be many years before the world is dominated by clean, virtually unlimited solar

xii Preface

energy, the increasing momentum in that direction will transform the world and our expectations long before. In the end, perhaps that is the only change that is needed. It may be sufficient for now to realize that alternative paths do exist, that the goals of promoting business and the environment need not be mutually exclusive, and that progress toward a practical, sustainable relationship with our planet is not only achievable but inevitable.

Preface xiii

Acknowledgments

This book is yet another testament to the fact that sole authorship is a team effort that is made possible by the devoted attention given to it by many people. Foremost, the members of and advisers to the Prometheus Institute deserve praise for meeting the timetables and enduring the chaos of the process; these include Greeley O’Connor, Hilary Flynn, Varda Lief, Lisa George, Pratibha Shrivastava, Suparna Kadam, Larry Gilman, and Hari Arisetty. I am particularly indebted to my agent, Sorche Fairbank, as well as Clay Morgan of MIT Press, for their vision and support of the ideas in this book. Thanks to my friends and members of my family who have allowed me countless hours of talking through the ideas of this book. Allison Cripps, Olaf Gudmundsson, Sam White, and so many more have gener- ously given me the time and space to work. Also, thanks to those who took the time to review versions of the manuscript—Andrew Jackson, Alex Lewin, Gagan Singh, Per Olsson, and especially Anu, for her under- standing and patience throughout the process as well. I want to thank all of those people who have given help, support, and encouragement during the writing of this book, many of whom have reviewed drafts and provided valuable insights on the history and forces shaping the evolving solar-energy industry—specifically, John Holdren, Tom Starrs, Craig Stevens, Paul Maycock, Scott Sklar, Michael Rogol, Steven Strong, Bob Shaw, Ken Lockin, Denis Hayes, Clark Abt, Hermann Scheer, John Perlin, Josh Green, and Janet Sawin. A very special thank-you goes to Jigar Shaw, who has continued to be all of the above—a source of informa- tion and insight, a reviewer, and a provider of constant encouragement. Finally, I want to thank the people who inspired me to write the book in the first place: Marina Cohen, who unwittingly provided the spark;

the authors of the hundreds of books and articles that allowed me to gain a deeper understanding of the problems we face and their potential solu- tions; the generations of inventors, entrepreneurs, and advocates—so many without credit—who came before us and paved the way for the transition that the world is about to experience; and finally those who read this book and become inspired to contribute to its realization. Though a team effort by many, the book’s errors and oversights re- main mine alone.

xvi Acknowledgments

A New Path on the Horizon

Energy is hot again. Not since the oil-price shocks of the 1970s has there been such a buzz about energy or its impact on the world economy. Newspapers and news programs increasingly focus on the issues sur- rounding the world’s energy needs and the consequences of current global production and consumption patterns. Yet this crescendo of media stories and reports issued by the United Nations, nongovernmental organizations (NGOs), and policy think tanks has not been able to convince people and businesses that viable alternative solutions or pathways yet exist. A growing number of environmentalists, scientists, economists, policy experts, and citizens understand that current energy dynamics dictate that the world will soon run short of relatively cheap, easily accessible oil—to be followed quickly by natural gas and coal—and that energy alternatives must be developed quickly. Because it is impossible to predict all of the variables that will drive these future changes, the consequences of delay- ing development of energy alternatives can be discussed only in terms of a range of possible scenarios. According to the best scenario, industrial economies will see sagging economic output and productivity and mas- sive wealth transfers to the oil-rich countries of the Middle East by the mid-twenty-first century. The worst scenario includes global ecological melt-down and human suffering on an unimaginable scale. However, deploying sufficient energy alternatives to help us to avoid economic and environmental crisis is a massive and daunting task that is made more difficult by inertia. Today more than 6 billion people make daily decisions about what to eat, what to wear, or what to drive. When they decide between the immediacy of a household budget and an uncer- tain energy and ecological future, most people frankly do not understand and cannot afford to care about the long-term impacts of their decisions.