Electricity Generated From Solar Now Costs $4 Per Watt: Grid Parity For Certain US Residential And Emerging Markets As Tipping Point Has Been Breached: Exclusive Interview With Sector Expert
March 8, 2011 - The Wall Street Transcript has just published Alternative Energy Report offering a timely review of the Energy sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
Ahmar Zaman is a Principal and Senior Research Analyst at Piper Jaffray & Co., where he covers clean tech companies. His coverage universe spans solar, LED and battery/storage companies. Prior to joining Piper Jaffray in 2010, he was a Senior Research Analyst at UBS Securities LLC on the alternative energy team.
Mr. Zaman holds a bachelor's degree in finance from Arizona State University, and an MBA with an emphasis in entrepreneurship from Babson College.
TWST: You believe solar will reach grid parity in most markets by 2015. What are the factors you believe contribute to that?
Mr. Zaman: We think that the march to grid parity has already begun, and we think that some of the earliest markets will begin to reach grid parity at the retail level starting as early as next year. Markets like Italy, Hawaii are among them, where the price of electricity is fairly high at the retail level, and there is a lot of sunlight, so the solar radiance is high as well. So the price of solar panels specifically and solar system has declined over the last few years.
In 2007 the solar system at the residential level was around $8 to $10 a watt. Now in 2011, solar systems at the residential level can be installed for $4 to $5 a watt because the price of solar came down significantly. So in the markets where there is a high price of electricity and high solar radiance, those markets are already approaching grid parity. In Southern California, for peak energy demand, peak electricity prices, solar is already at grid parity. We think the markets with grid parity will begin this year or next year and by 2015, we see an inflection point in terms of global grid parity. So we think by 2015, with the price of electricity continuing to grow, solar prices continuing to decline - we estimate it will decline at a 16% CAGR over the next five years - that most markets in the world will be at grid parity unsubsidized.
TWST: A lot of investors are concerned about subsidy cuts as well as oversupply in the solar sector. But you don't see those as significant long-term risks. Why is that?
Mr. Zaman: We think that there is concern about subsidy cuts and oversupply as sort of an annual ritual in the investment for investors and Street analysts that focus on the sector. So we've decided to take a step back and look at the long term, over the next couple of years, long-term view and even with the next 10 years, what happens to solar.
So our view is that over the next 10 years, solar will continue to grow at a 32% CAGR versus over the prior 10 years, where solar grew at a 50% CAGR. So we think that if you just take a step back and look at what's happening in terms of the industry with the price of solar coming down much closer to grid parity today than it was four or five years ago, that every year solar gets more and more competitive in more and more markets.
So the institutional focus on just a handful of markets and really just a couple of markets, Germany and/or Italy, we think is - it's really missing the forests from the trees. Our view is that over the next few years, again as the price of solar continues to decline, subsidies will be phased out and solar will begin to be able to stand on its own feet, being at grid parity and most markets unsubsidized.
We think that the growth in cellular will be driven by organic demand in terms of the need to offset rising electricity prices, as well as consensus on a world around climate change and RPS, national and also state level RPS standards. There is also a large need for rural electrification in emerging markets like India, Latin America, where all these governments, sort of similar to the cell phone market, where a lot of the emerging markets are some of the earliest adopters of cell phone technology. And cell phone proliferation was the highest in emerging markets than in developed markets, because there wasn't the legacy landlines and it was expensive to drive landlines in emerging markets to rural areas.
We think a similar analogy plays out in the solar space, in the rural electrification where it's expensive to drive transmission lines out to rural areas in emerging markets like India and in Latin America. So we believe governments will look at new technology like solar, which can be placed in distributive way, very close to the end-point use of the solar electricity. So with the combined storage, we believe there is a huge demand for rural electrification over the next few years. Let's just take a step back and look at solar over the next five years. I think it's going to be a really exciting time as the industry transitions from subsidy-driven industry to more of a grid-parity-driven industry, where we believe demand and growth can be fairly impressive.
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