Certainty and Solar Power

In today’s New York Times, Thomas L. Friedman’s “Have a Nice Day” column highlights quite nicely the connection between uncertainty and the adoption of renewable technologies — in this case the adoption of solar energy technologies.

In particular, he argues that the solar panel industry is thriving in countries whose governments that have enacted policies aimed at overcoming the triple uncertainty threat:

  1. Regulatory uncertainty — “[A]ny business or homeowner can generate solar energy.”
  2. Connectivity uncertainty — “[I]f they decide to do so, the power utility has to connect them to the grid.”
  3. Price uncertainty — “[T]he utility has to buy the power for a predictable period at a price that is a no-brainer good deal for the family or business.”

Friedman reached these conclusions, in part, after touring the Applied Materials solar panel “war room” in Silicon Valley, from which it maintains “real-time global interaction with all 14 solar panel factories it’s built around the world in the last two years.”  According to Mike Splinter, CEO of Applied Materials, “We are seeing the industrialization of the solar business. In the last 12 months, it has brought us $1.3 billion in revenues. It is hard to build a billion-dollar business.”

And yet because U.S. policies have not adequately addressed regulatory, connectivity and price uncertainties, all 14 factories of these solar panel factories have been built outside the U.S.  As a result “[R]ight now, our federal and state subsidies for installing solar systems are largely paying for the cost of importing solar panels made in China, by Chinese workers, using hi-tech manufacturing equipment invented in America.”

Interestingly, Friedman points out that the debate over U.S. energy policies need not depend on competing beliefs about global warming.  “[S]o, you don’t believe global warming is real. I do, but let’s assume it’s not. Here is what is indisputable: The world is on track to add another 2.5 billion people by 2050, and many will be aspiring to live American-like, high-energy lifestyles. In such a world, renewable energy — where the variable cost of your fuel, sun or wind, is zero — will be in huge demand.”

His point is worth exploring.  To understand the magnitude involved in supplying electricity to 2.5 billion more people AND supplying them with more electricity per person, consider that in 2007 the world consumed 18,187 terawatt hours (TWh; 1 terawatt hour = 1 trillion watt hours) of electricity.  That represented consumption of approximately 2,752 kWh for each of the world’s 6.6 billion people.  However, consumption is far from evenly distributed.  For example, OECD countries consumed an average of 8,477 kWh per capita, while China only consumed 2,346 kWh.  Meanwhile in the U.S., average electricity consumption was 13,616 kWh per capita.

All of this means that electricity demand by 2030 is expected to increase nearly 50%.  Perhaps not surprisingly, some have described energy as “the biggest challenge of the twenty-first century.”  But those challenges also may make energy — already an estimated $6 trillion dollar industry worth about 1/10th of the world’s economic output — the “largest economic opportunity in the twenty-first century.”

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