I. THE PROBLEM

Photovoltaic (PV) technology has enormous potential to mitigate pollution, reduce energy-related emissions of greenhouse gases, expand access to electricity for rural populations, and accelerate a world the transition to a clean, distributed energy system by filling niche markets. Unfortunately, notwithstanding two decades of steady technical progress and price reductions, markets for photovoltaics remain small and scattered.

In part, the predicament of photovoltaic power reflects astonishing declines in the price of fossil fuels. The past two decades brought increasing mechanization of the American coal industry, deregulation of the natural gas industry, and the inability of the Organization of Petroleum Exporting Countries to maintain its cartel intact after the mid-1980s. In fact, in March of 1998 the real price of oil neared its all-time low. Photovoltaic power, while ever cheaper, has been unable to catch the moving targets set by competing resources, which in any case began the price race from a point far out ahead. In addition, consumers wishing to install photovoltaic systems face substantial non-price barriers. These include lack of appropriate financing and electric companies' disinclination to buy back excess PV-generated electricity at retail rather than wholesale rates. Finally, of course, photovoltaic power will seem less attractive than its competitors as long as the price of conventional energy sources ignores the environmental and geopolitical cost of using energy.

Numerous past research projects explored barriers to the expansion of photovoltaic markets. However, accumulating concern over environmental problems (chiefly climate change and dirty air) and the political issues they engender begs the question: how can we best apply available resources to increase the size of markets for photovoltaics?

Question: how can we best apply available resources to increase the size of markets for photovoltaics?

II. THE TECHNOLOGICAL PROMISE

Observation of the photovoltaic effect dates back some 150 years. Since invention of the light-powered silicon cell at Bell Labs in 1954, steadily intensifying research, commercialization and manufacture has produced a global industrial capacity of 125.8 peak megawatts (MWp) shipped in 1997,¹ which sustains a business of over one billion dollars per year. According to the Electric Power Research Institute (EPRI) and the U.S. Department of Energy (DOE), increasing volumes of photovoltaic production have driven down prices at an 82% progress ratio, typical of manufactured goods, whose ratios generally fall between 70 and 90%.² The President's Council of Advisors on Science and Technology notes that the price of installed PV systems has fallen from $17 per peak Watt (Wp) in 1984, to $9 in 1992, to $6 in 1996.³ Given annual market growth of 20%, EPRI and the DOE predict that the cost of a typical residential system will fall from approximately $18,100 in 1997 to $4100 in 2030, as the price of the PV modules themselves falls from $3.75 to $0.63/Wp.⁴ The Office of Technology Assessment reported in 1995 before its demise that the cost of electricity from photovoltaic panels was predicted to drop to between ten and twenty cents per kilowatt-hour (kWh) by 2000, and decline rapidly thereafter, reaching a price of between eight and four cents/kWh by 2030.⁵ Since then, the experience of the Sacramento Municipal Utility District (SMUD) seems to have validated such optimism, and even cast it as conservative: SMUD reports that thirty-year levelized costs for PV electricity have fallen from 23 cents/kWh in 1993 to 16 cents/kWh today, and will reach 8-9 cents/kWh in 2002.⁶ In sum, photovoltaic technology has made impressive engineering and economic progress in recent years, and analysts expect this progress to continue.

However, the cost of energy from PV represents only a rough approximation of the technology's value. In fact, the special characteristics of PV make inappropriate a simple cost-of-energy basis with central-station generation. Because PV gains less from economies of scale than do fossil-fuel or nuclear plants, users can deploy it in quite small sizes. Perhaps more important, PV proves especially valuable where transmission grids operate at full capacity or lie far from where customers need power. For example, citing papers presented to the Institute of Electrical and Electronics Engineers, EPRI and the U.S. DOE note that in some parts of the U.S. it can cost up to 40 cents/kWh to supply electricity on summer afternoons, making distributed PV systems an attractive option.⁷ And, challenging assumptions that PV systems thrive only in isolated, near-desert conditions, the Union of Concern Scientists suggests that distributed photovoltaics could supply a substantial fraction of the Boston Edison Company's power needs, due in part to the urban utility's congested delivery system.⁸ In short, even at today's prices, PV can provide valuable service in several markets.

Nevertheless, the cost of energy from photovoltaics remains higher than most alternatives. To continue the progress made so far by solar engineers and entrepreneurs, it will be necessary to drive up production and expand markets still more through aggressive marketing and commercialization. Some analysts express the problem as a "Mountain of Death," which characterizes the high costs of producing first-of-a-kind products. Others refer to a "Valley of Death," in which companies selling new products suffer from negative cash flow as they ready their wares for a mass market.⁹ Increasing production to achieve economies of mass manufacture, which in turn may encourage purchasers to pursue economies of large-scale deployment, will comprise part of the solution. Equally important will be the construction of a market chain including the production of raw materials, the manufacture and distribution of PV modules, the manufacture and distribution of other system components, the provision of consumer financing, and the installation and maintenance of complete PV systems, in which each link has a financial incentive in expanding the photovoltaic market.

III. THE ENVIRONMENTAL PROMISE

Conventional energy sources levy serious and well known environmental costs. More to the point, they directly and—through ecosystem damage—indirectly threaten human health. As a clean generation technology, photovoltaics help solve energy-related environmental problems.

• Dirty air: The Environmental Protection Agency (EPA) claims substantial reductions in air pollution since 1970, a period in which gross domestic product, population and vehicle miles have burgeoned. Still, our progress toward clean air is partial. The EPA reports that 90 million citizens (down from 140 million in 1990) still breathe unacceptably dirty air. Thirty-three areas still exceed federal smog standards. Air-borne particulate matter, much of it emitted by powerplants, kills as many as 50,000 Americans per year.¹⁰ The EPA does not even regulate—yet—electric utilities' emissions of some air-borne toxins such as mercury, which many see as a growing problem.¹¹

• Ecosystem damage: Although the Clean Air Act has greatly reduced sulfur emissions from powerplants, the flow of nitrogen compounds remains grave, contributing especially to ground-level smog formation, incidence of acid rain in the Appalachian Mountains and other areas, and the disruption of marine and estuarine ecosystems. Mercury represents an additional threat to these ecosystems and to the food chain. In addition, coal mining often results in land subsidence, destroyed landscapes and polluted water; techniques such as mountaintop removal produce equivalent mountains of slag as well.

• Climate change: The phenomenon of global climate change must now be added to this litany of "conventional" effects. Scientists largely agree that, in the words of the Intergovernmental Panel on Climate Change, "the balance of evidence… suggests a discernible human influence on human climate" chiefly through the burning of fossil fuel and deforestation, although evidence is unclear on when, where and how much change to expect.¹²

Increased deployment photovoltaic technology as a substitute for fossil fuels will help alleviate and even reverse these problems.

IV. THE POLITICAL MOMENT

Several political factors make this an apt moment to promote renewable energy. As Dan Reicher, Assistant Secretary for Energy Efficiency and Renewable Energy at the Department of Energy suggests, the confluence of climate policy, restructuring of the electric sector and tighter clean air standards "bodes well" for renewables.¹³ However, the unique opportunity offered by these events may dissipate in years or even months.

• Climate Policy: The United States' initial negotiating position at the Third Conference of the Parties to the Framework Convention on Climate Change, held in Kyoto, Japan in December of 1997, suggested that developed nations cut greenhouse emissions to 1990 levels by about 2010. This substantial cut would still have been anemic compared to policies supported by the U.S. President and Vice Presidentat the Rio de Janeiro Earth Summit in 1992—and well below cuts proposed in Kyoto by the European Union, Japan and a coalition of small island states. In the end, prodded by Vice President Gore's last-minute exhortation to find a compromise, the U.S. agreed to cut emissions to 7% below 1990 levels by about 2010.

  The Administration must now convince skeptics in the Senate—responsible for ratifying international treaties—that the nation can achieve such cuts without slowing economic growth. At the same time, the Administration must re-establish its environmental credentials with voters and advocacy groups dismayed by its resistance to a more active climate policy. So far, the Administration has touted new, clean technologies as able to deliver economic growth and climate protection simultaneously. Notable among these endeavors, the Million Solar Roofs Initiative aims to "expand the domestic market for solar energy in the United States." By combining grants to "buy down" PV systems, low-cost financing for all solar energy systems, and large government purchases of solar technology, the program hopes to promote the installation of one million systems by 2010.¹⁴ U.S. is not an environmental ogre. However, such support could conceivably dwindle should the economy slow, or should an "anti-environmental" candidate of either party make a strong showing in the run-up to the 2000 presidential election.

• Restructuring: The American electric sector is abandoning regulated rates of return and centralized monopoly structure in favor of market-based principles and organization. These changes should bring cheaper power, as aggregated and individual consumers begin to negotiate for cheaper rates, and inefficient plants are forced off line. These one-off savings can be used to bring clean renewable power, which initially will cost more than conventional alternatives, into the energy system. For example, the city of Portland has re-negotiated rates on behalf of its citizens, and split the savings between lower rates and investment in a wind farm. Yet this opportunity, too, will be gone in a few years. As prices resume their inevitable ascent, people may be less open to investment in renewables.

• Clean Air: The Federal government has instituted new rules limiting concentrations of fine airborne particulate matter and ground-level ozone. The EPA will implement these regulations in coming years. Other rules may soon limit emissions of mercury, nitrogen oxides and, perhaps, carbon dioxide. Electricity generators, responsible for large proportions of these pollutants, currently ponder the least costly ways to comply with clean air policies, and to offset the risk of more rigorous standards in the future. Many may favor end-of-the-stack controls such as scrubbers, costly investments which are difficult to reverse. The current mixture of clean air policy and business decisions thus offers a unique moment of opportunity for renewables, particularly if policy makers will allow polluters to use deployment of renewables to comply with the increasingly stringent standards.

Together, these factors make this an ideal moment to promote the use of renewables through market expansion and apt policies.

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