photovoltaic

Ahh, how the petty world of politics doth make fools of us all.  It is not enough that Elon Musk is trying to start a new car company in a market segment ruled by massive multinationals.  He is ratcheting up the risk level by taking on a  great deal of technology risk as well.  And in the process, he is doing tremendous legwork for future producers to get an electric drive train working well, and also to create an electric vehicle that onlookers envy rather than mock. 

Trouble with the batteries?  No problem.  Just build a massive, multi-billion dollar factory (though maybe they can still change the name from "Giga Factory" to something a bit catchier...) to make lithium batteries at a scale that can bring costs down both through high volume production and through incremental learning and technical improvement.  And if you happen to have large volume production of these batteries while also being Chairman of a large solar panel leasing firm (Musk started Solar City), why not use some of those batteries to help the PV sites store power?  It's at least a twofer:  the storage helps better match onsite production with onsite consumption, and can also enable PV producers to sell stored power back to the grid during periods of higher value.  The expensive panels are being leased anyway; adding a few battery packs won't make it markedly more complex.  And if you upend the utility industry by boosting the ability of self-generated power to substitute for grid-supplied juice, all the better.

Let's give the guy credit.  Elon Musk is taking on the economies of scale for both electric vehicle and battery production -- high risk endeavors that, against huge odds, he may actually succeed at.  And Solar City isn't exactly low risk either. 

So Governor Christie ought to be out there thanking the guy for the work he's doing, knowing that the road to success remains long and hard, but nonetheless admiring Musk's role as an outsider taking on the power structure to build a better society.  That is, after all, what Christie himself did back in 2009.

If you add enough fixed costs, maybe even Elon will drown

Alas, Christie took the vested path instead.

His appointees issued a regulatory ruling to block direct Tesla sales in NJ without at least letting the issue be argued in court.  The effect is to lump on another layer of large fixed costs to roll out the vehicle -- adding the sales network to the already high risk areas of vehicle and battery manufacture. 

Selling too few cars to support a dealer network like GM can? Too bad:  Governor Chris says you need an independent network anyway.  Who cares if your product directly competes with the vehicles they are making most of their money on and might generate a conflict of interest.  Selling an idea as well as a car, and need a specially trained staff?  No problem: the existing dealers can do it.  People will flock to them to chat and learn:  after all, bartering for a vehicle is one of most people's favorite activities and car salepeople among their favorite teachers.  High level of training needed to explain the new technology and the complex financing approach?  Again, somebody in that independent dealer network could learn to be that trusted communicator.  They may have to:  the independent dealer networks receive regulatory protection from direct sales of automobiles in at least 48 states and dealerships with protected franchises that date back 99 years in some cases.   (Dan Crane did a nice write-up on the history of these market protections last year.)

Does it all tie back to the bridge?

Let's give Christie a break.  Maybe the decision to restrict direct sales in NJ really isn't about politics.  Maybe Chris Christie is just worried about the well-being of New Jersey residents, and felt that the charging station issue --  you know, range anxiety -- required him to act.  Christie knows that sometimes drivers in his state get tied up in massive traffic jams on the George Washington Bridge near Fort Lee.  Who knows when this will happen again? Or where?  It's not as though the GW Bridge is the only possible site: other places yet-to-be named could also experience one of Chris' trade mark "FLASH JAMS". 

So he is worried.  He is worried that people driving Tesla's on that bridge (or location to-be-named later) could suddenly find themselves not moving for hours.  And they would run out of power.  And be stranded, maybe forever (who knows -- Governors need to think about worst case scenarios).  To ensure this doesn't happen, maybe Christie is looking out for the little guy here to make sure Granny isn't left toothless on the bridge, and with no food or water or place to plug in. 

Well, this could be what is happening, couldn't it?  Quick:  somebody check the e-mails.  They keep finding new information.  Has anybody searched "Tesla" yet?

Gecko power

Hey, if it does turn out to be just routine political pandering, what is Tesla to do?  After all, vehicle sales aren't the only industry to be hamstrung by old regulations that protect incumbents against new ways to provide the same good or service cheaper, faster, or better.  Taxi-cabs are another great example.  They are often licensed at the town, city, or county level, rather than the State.  Those licenses (medallions) can be worth hundreds of thousands of dollars each (and more than $1 million in NYC) -- a good proxy for the value of the operating monopoly.  And as a result we have the rather bizarre outcome in which many suburban cabs drop customers off at the airports and leave empty while city cabs leave the airports full and come back from surrounding towns empty.  Both practices burn a ton of extra gas (and a ton of driver time).  Yet at the same time, we see growing regulations forcing cab companies to buy energy-efficient and more expensive "clean" cab fleets to reduce their climate and air pollution impact.

Market changes that affect entrenched industries or marketing arrangements often trigger fierce political battles.  Following the NJ ruling, Tesla's initial strategy is one of bypass, directing customers to check out showrooms in NY and PA.  But longer-term, Tesla should be looking for allies to help overturn restrictions on direct sales of automobiles.  The ideal candidate would be somebody in a related industry that has also faced challenges in being able to direct sell; who has enough clout and power to just perhaps get the rules rewritten; and who might see profits rise if the luxury Tesla vehicle starts to sell in larger numbers.  Any suggestions?

Giving up on "zombie" solar manufacturing plants in China might not be the best solution in terms of dealing with climate change and energy poverty.  A Bloomberg review of overcapacity in the Chinese solar sector (Feifei Shen, "Chinese Zombies Emerging After Years of Solar Subsidies") contained some fairly staggering numbers.  Foremost was that if the existing solar plants in China operated at full capacity, they would produce 49 gigawatts of panels per year.  In contrast, and according to data assembled by the World Nuclear Association, new nuclear power grid connections over the past fifteen years was only 42 gigawatts. 

Okay, okay:  don't start sending the protest e-mails just yet.  The two capacity figures are not totally comparable.  Nuclear is dispatchable, and has a capacity factor of around 85-90% depending on its location (and once the plant finally comes online, which is often years later than planned).  Solar is intermittent and its capacity factor, according to the US Energy Information Administration, is a much lower 25%. 

But even if we adjust the installation numbers by capacity factors, Chinese PV production capacity in terms of expected associated power generation remains an impressive 12.3 GW per year, about equal to nuclear capacity grid additions (at a 90% capacity factor) worldwide since 2007 (see table to the right). 

Uses of Zombies

Bloomberg focuses mostly on the overly-generous credit subsidies and other support extended by the Chinese government to overbuild this solar capacity; and how much of it is likely to be shuttered.  But China subsidizes all forms of energy (see Earth Track's review of data on Chinese subsidies to fossil fuels prepared for the Global Subsidies Initiative, for example). 

Further, zombie assets periodically exist in many sectors of the economy when capital expansion overshoots:  chemicals, real estate, primary metals and paper to name a few.  When the zombies arise, there are some common patterns that often accompany them:  returns to investors drop sharply for awhile, and past investments into capital may never (or not for many years) be recovered as prices across the industry fall to variable costs.  But despite the pain, more often than not the excess built capacity eventually wiggles its way into supply chains.

Trying to keep Chinese PV production operating over the long-term could well be a good thing -- though a reduction in the number of firms to have fewer producers each controlling larger production capacity is probably inevitable.  Specifically, elevated installations of PV capacity can help address some fairly intractable global problems.  Reducing greenhouse gas emissions in the face of a surge in fracking and a (politically- rather than economically-based) race to drill the Arctic is one important issue, particularly given that there is no indication governments will price fossil fuel externalities into energy markets any time soon.  Pricing in carbon, for example, would give a boost to the economics of all low- and no-carbon energy resources.

Improving access to high quality power for the world's poor is another.  In its 2012 World Energy Outlook1 , the International Energy Agency estimated that 1.3 billion people worldwide had no access to electricity, of whom 85% were located in rural areas.  Rural locations generally have much higher costs of power transmission and distribution per kWh delivered.  This makes grid extensions expensive on a per-customer served basis, though makes off-grid renewables such as PV more attractive.  In addition, IEA's data indicated that the group without access to electricity includes two-thirds or more of the population in developing Africa.

The positive news?  China is Africa's largest trading partner.  And Africa has very favorable conditions for PV power generation (see graphic below from this report):

Modifying "roads for resources" 

For the past decade or more, China has been among the largest investors in Africa, building vast swathes of infrastructure.  Chinese firms have also been a major buyer of Africa's metals, minerals, and fuels, part of a trade strategy to secure access to a huge domestic demand for raw materials.  In our data review of fossil fuel subsidies in China three years ago, it was clear that foreign aid and infrastructure projects were linked to access to foreign oil, though figuring out the financial flows was not possible. 

A simple tweak of China's roads for resources strategy could shift at least a chunk of the focus on big infrastructure deals to trading PV installations for raw materials instead.  These installations could go to populations most in need of access to safer, cleaner energy sources.  Further, the shift might help address some of the pushback that Chinese oil companies are now facing from multiple African nations on the terms of their oil deals and whether or not the trade provides sufficient benefits to the local population. There may be domestic jobs benefits as well.  A shift from roads to PV export and installation would be expected to create more jobs right in China, rather than having to export road crews abroad. 

Power intermittency less of a problem where current power systems unreliable or non-existent

Although solar power is intermittent, its value in less-developed countries remains strong.  First, it can be operated independently of state-owned power suppliers -- often a plus in countries where governance may not work very well, utilities are unresponsive to consumer needs, and grid networks aren't well maintained.  Second, it can provide power in remote locations where there is no grid connection at all, or only a connection of poor quality.  Third, even among wealthier customers unreliable power supplies have triggered widespread use of loud and heavily polluting diesel generators.  Where those locations are remote, the delivered price of fuel can be high.  Broader deployment of PV into these regions allows the demand on the generators to drop, reducing both pollution and fuel costs.  While generators may still be required for times when the PV generation is insufficient (e.g., nighttime), a reduction in the hours per day on which fossil generators were needed would still be beneficial.

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