When Solar 'Crossover' Hits, the World Will Quake
Crossover will transform energy economics. It puts a thumb down on energy prices. When costs for exploiting a fuel source go above the crossover price, that fuel source becomes uneconomic, as solar cell production scales to meet it.
Crossover happens in different places, in different ways, partly because the economics of solar and fossil fuel energy are different:
- With solar, you buy and install a panel. That's your capital investment. That panel produces energy over some useful life. Once you have accounted for your capital costs, any additional energy becomes free if you maintain the panel and it keeps working.
- With fossil fuels, you first buy and install systems for burning fuel, then buy fuel. The first cost is capitalized (and relatively minor), the second is expensed (and subject to change).
When critics charge that solar is "uneconomic," what they mean is that the capital cost of the panel, spread over its useful life, won't produce as much energy as fossil fuels would at current prices. But critics can't assure current prices. Fuel prices fluctuate.
Solar panels installed last year continue to produce this year. The amortized cost of that power may fall below current fuel prices, or may sit above them. Subsidies are used to lower the effective cost of solar capital, but once that panel is installed it's going to produce whether or not the subsidy remains in place.
Right now, it is assumed that the cost of panels, amortized over their life, will produce electricity at a net cost higher than juice bought from the grid. That's a big assumption, but it's what the market thinks. In other words, solar can't exist without subsidies.
This subsidy battle has moved to states and localities. States and localities with subsidy programs are good markets for solar panel makers. Until crossover, it's this "buy side" of the market that has the profit -- demand has to be pulled when your costs exceed the competition's. The hope of bulls in companies like First Solar(FSLR) is that subsidies can assure sales until crossover is achieved.