The 5th Edge Debate: 22nd April 1998

Solar PV and the Built Environment: Environmental Expediency, UK Competitiveness and the Problems/Opportunities of the Deregulated Market

Jeremy Leggett, Chief Executive Solar Century

The EU committed in Kyoto to an 8% reduction in overall greenhouse-gas emissions (GHG) by 2010, and is considering a target of doubling renewable energy sources (RES) in the energy mix by 2010 as a partial means of achieving that. This is but a first step to an ultimate target of much deeper cuts in emissions, consistent with the agreed objective of the Convention on Climate Change, i.e. to stabilise atmospheric GHG concentrations at levels short by dangerous interference with the climate system. The UK government has committed independently to a 20% reduction in carbon dioxide emissions, and a 10% level of RES in the UK energy mix, both by 2010. The great majority of GHG are emitted from energy use, 40-45% of all UK energy consumption is in buildings. 4.4 million new UK households are needed in the next 20 years according to the DETR. On top of this, the UK electricity supply market is due to be deregulated in October. Hence, this CIBSE/RIBA debate on energy and the building regulations could not be more topical and timely.

The subject of my contribution is solar photovoltaic (PV) energy technology in buildings, and therefore covers only a part of the topic area. But it is, I submit, an important part. In early 1997, the incoming government set up an ad-hoc industrial advisory group, the Industry Solar Taskforce to advise the DTI and DETR on creating a solar PV market, and industry, in the UK. Obviously, such a market would be primarily building-integrated. BU Solar, the Corporation of London, Eastern Electricity, General Accident, Guardian Royal Exchange, Halcrow Gilbert Associates Ltd, Intersolar Group, NatWest, Foster and Partners, and The Solar Century agreed to serve on the taskforce. We submitted a Statement of Advice on 30 October 1997, ahead of the Kyoto Climate Summit. Today's paper is in two Statement (in italics). The second presents a business concept for a vehicle which would help enact some of the recommendations in the statement, and an appeal for active involvement by parties inn the building service engineering and architecture sectors.

1. Solar PV and the built environment: a view from a cross-section of UK industry

1. The UN Intergovernmental Panel on Climate Change assessment demonstrates the need for action on the enhanced greenhouse threat. Among a wide range of sectors threatened, the insurance and banking sectors face serious problems, and because London is the world's financial centre, unmitigated enhancement of the greenhouse effect is a threat to the heart of the British economy.
2. The emerging concerns of financial institutions about global warming centre on, but are not confined to, the threat of potentially unmanageable property-casualty losses, as the IPCC's 1996 report sets out. Insurance companies in particular own huge building portfolios, and the wider financial sector holds enormous equity stakes in industry. Hence the climate change dynamics has potentially important - but as yet essentially unrealised - implications for building-sector practices, and for investment behavioural change in the energy sector.
3. We recognise the full family of renewable and efficient-energy technologies as being vital in the abatement of this risk, but one technology should be particularly important in the energy mix of a sustainable future: solar photovoltaic (PV). Solar PV could be the single most important long-term means of achieving the deep cuts government-gas emissions which are the ultimate agreed Objective of the Convention on Climate Change.
4. Governments wishing to lead in the global effort needed to stabilise atmospheric greenhouse-gas concentrations face the challenge of commercialising and rapidly expanding this vital technology. This they must do despite the fact that the current global PV market is too small to contribute significantly to the short-term emission reductions which are the current focus of the climate talks. Accepting this challenge offers the opportunity for moral leadership in the safeguarding of ecosystems and economies for generations to come, and the opportunity to become a beacon in the global struggle against the enhanced-greenhouse threat.
5. Currently the global PV market has an annual sales volume equivalent to less than a tenth the electricity generated in single average coal-fired power plant. But this will change. The objective of the Convention on Climate Change is to stabilise atmospheric GHG concentrations at levels short of danger to economies, agriculture and ecosystems. That must involve deep cuts in emissions, and hence - ultimately - drastic curtailment of fossil-free use. The current GHG targets (up to 8% cuts by 2010) are understood by governments at the climate negotiations to be merely a first step. A key delivery of sustainable energy for development in the developing world, where 2 billion people currently have no electricity, and where those who do have it will need more, no matter how they improve their efficiency of use. Developing-world governments will, as things stand, mostly try to use coal to deliver their future supplies. If they do, there is enough below ground in China alone to fuel ruinous global warming. The most realistic form of alternative supply, especially in rural settings away from current electricity grids, is solar PV. Hence, stating the Taskforce's case another way, we need to fashion huge global solar PV markets in order to win the endgame in the battle against global warming.
6. Apart from the strategically vital off-grid developing world market, two other potentially enormous PV markets wait to be opened up. The first, and the one of direct concern to CIBSE and RIBA, is in building-integrated settings, both domestic and commercial. With today's solar PV technology that will be available a few years from now) a modern home or commercial building can be a stand-alone power station, generating its own electricity from solar facades, solar roof arrays, roof tiles, curtain walls, decorative screens, even skylights. This applies even in cloudy northern latitudes. Such buildings, given enough panels, can in principle provide all their own electricity. One PV home in the UK, the Oxford Solar home, does exactly this. It is 5-bedroom family home with a 4 kW, 20 square metre array which can generate almost 3,000 kWh per year. To give a feel for the overall potential, according to a study by the European Photovoltaic Industry Association (EPIA), potentially suitable EU roofspace totals more than 3,500 spare km, and 450 GW of PV could in principle be emplaced on it. (The EU's total electricity demand is 550 GW today). The second market involves stand-along utility-scale solar PV power plants. There are few constraints on the ultimate size of the market for such "solar farms," especially on scrubland in the sunbelt.
7. Because solar PV is a rapidly-growing world market as things stand, because PV markets are vast once volume production makes the price of PV competitive with fossil fuels, and because several of our main competitor nations are taking aggressive steps to build their domestic PV markets as a route to export markets, this is also an issue of the competitiveness of the UK in Europe and the world. Falling prices, improving efficiencies, and consistent recent market growth mean that solar energy is likely to enjoy explosive growth sometime early in the next century. Relative to the technology-business revolutions of the past, we are well positioned not to repeat historic mistakes. We know of no barriers to the UK being at the forefront of this revolution. British companies could be among the profitable front-rank of the global solar industry. We can catch up with our competitor nations. But only if we act now.
   

The data shown on the right are real costs in SMUD's jurisdiction in California (up to 1997). The costs projected for 2000-2001 are real bid prices for contracts recently awarded by the utility. The figure shows that by 2001, SMUD plans to be selling solar electricity for the same price it today sells traditional (coal-and gas-fired) electricity. A government subsidy programme for PV in Japan has the aim of commercialising PV around the same time. When prices hit this level, the PV market will take off. This is not a question of if any longer, merely when.

The chart above shows the top ten producers ranked by volume of 1997 production. Most of these companies have big parents (P), mostly oil and electronics giants. Only one is independent (I). There are two noteworthy features. First, the players are fairly evenly distributed between the EU, US and Japan (though only one is British). Currently the US leads the global market, with a 44% share. Japan comes second with 24%, rising sharply. The EU is third with 24%, 21% of which is Germany. Second, most have been steadily increasing their production in the last decade, but now plan non-linear growth. The planned expansions cover the next few years, and only depict published information. Proprietary information known to The Solar Century shows that where this figure is incorrect, it understates rather than overstates the industry's overall planned expansion.

The figure below shows the second echelon of producers, ranked by volume of 1997 production. Here, we see key new entrants to the market. In Europe, Shell recently announced it would be building a 25 MN p.a. production plant in Germany, the world's largest. In the USA, EPV won the bid for SMUD's supply over the next few years, based on prices shown in a figure above.

(5) There is a key requirement to make PV cost effective: sufficient production. In the short-term, there is a need for the government, in conjunction with other parties, to stimulate a domestic PV market, and to play an active role in building export markets. Solar markets can increasingly become self-sustaining and customer-led. Immediate investment by the government at this time can pay rich dividends over the long terms, far outstripping initial investments.

A fully installed solar PV system consists of the modules, plus an inverter to convert DC to AC, balance-of-systems equipment (mounting framing, wiring etc), and of course the installation and connection cost. The Oxford solar house cost over £6 per peak Watt (Wp) to equip with PV a few years ago. This is very uncompetitive, translating to some 33 p/kWh (pence per kilowatt hour) against a UK utility price today averaging 6.5 p/kWh. The Greenpeace Germany "Cyrus" system, offered to German consumers in 1997 by the environment group as part of a consumer push to cut costs, posed only slightly less extreme a capital-expenditure hurdle. (Nonetheless, the Cyrus system is being purchased by over a thousand Germans, even without a mortgage facility, after only a short publicity campaign).

Beyond these figures, significant economies of scale are available. Studies by BP Solar for the European Commission show that it is feasible today to build a 500 MW p.a. crystalline silicon plant, costing $560 million, that would manufacture PV at a module price of <$1 (£0.60) Wp, and a 100 MW p.a. thin film plant, costing less than $100 million, that would manufacture PV at a module price of $1 1 Up (£0.68Wp).

1. Promoting a domestic solar PV market is also about employment, because the solar industry, relative to others in the energy sector, is labour intensive. By allowing our competitors to corner an excessive share of the global market, we would effectively be ceding domestic jobs to them. Furthermore such jobs tend to be cleaner and safer than many in the traditional energy sector.
2. Two 1996 studies make the point. The US DoE showed that PV could create or support as many as 3.800 well-paying jobs for every $100 million worth of sales. The European PV Industry Association calculated that 1.3 million would be employed worldwide by 2010 if the market can grow by 35% (8 GW annual sales by 2010).
3. There is a widespread lack of appreciation of the opportunities and benefits of solar energy industry and government share a common responsibility to educate and build awareness, in order to help stimulate demand and investment.
4. Solar PV technology viewed globally no longer needs demonstration projects, offering as it does a range of products ripe for commercialisation. But in the UK, with its paucity of solar PV integrated in buildings, there is a particular need for quality showcase projects. Some companies in our Taskforce are among those in industry beginning too engage in showcase solar projects, and there is ample scope for Government - with its large building stock - to do likewise
5. There are currently only five grid-connected PV homes in the UK, and four commercial PV properties: two office buildings, and a factory roof. This compares to many thousands in Japan and Germany. In the Netherlands, a single housing development under construction involves 500 solar PV homes. In the USA, the government plans to leads its Million Roofs programme with a sustained programme of PV procurement for federal buildings.
6. A potentially valuable role exists for local government in building, a domestic solar PV market, both in municipal procurement and the encouragement of procurement by households and businesses. National Government should act in concert with local government and provide resources to facilitate municipal involvement in the effort to build a domestic PV market.
7. The International Council for Local Environmental Initiatives (ICLEI), an international organisation comprising over 200 cities and other municipalities around the world including many in Europe, has recently begun working in a partnership with The Solar Century Buyer Club scheme, the operation of which is summarised in the figure below.
8. The organisation (including local or national government), business, or individual who wishes to label a solar PV procurement part of the Solar Century Buyers Club, signs a simple declaration to that effect, saving that are doing their procurement project in part because of the environmental imperative to use PV more. Armed with this declaration, the Solar Century claims a tiny pre-arranged margin (essentially a finder's fee) from the solar manufacturer who supplies the PV. This goes into a non-profit fund to deliver solar PV (via revolving loans and grants) to the poor.
9. In the global effort to abate greenhouse risk, governments and much of industry have long recognised the need for targets and timetables of various kinds. The European Union has set a target for 15% of the EU's energy supply to be renewable by 2010. As a contribution to the latter, the European Commission has proposed a "500,000 Roofs Programme," which has a target of putting solar PV on half a million European roofs by 2010. We recommend that the government support this programme, and at minimum set a target within the programme equal to a per-capita share. This would entail 70,000 UK solar roofs by 2010. In fact, we believe the EU programme is insufficiently ambitious, and the UK should lead pressure to extend the scope of this programme to match the US target of a million roofs by 2010.
10. 70,000 roofs from an EU-wide total of 500,000 @ 1kW systems over the next 12 years would mean 5,833 homes per year if we start in 1999. The total capital cost at currently achievable prices would be around £25.6 million per year. To take just one current example against which to compare from the deregulating global electricity markets of our competitors, last week in the State of Connecticut the Senate voted into law more than £60 million per year for renewable-and-efficient energy, to be raised by charging a levy of 0.35 cents per kWh on utility bills.
11. No or low-cost options are available to the Government for proactive action to stimulate the growth of solar energy. The government should effect statutory change or market instruments requiring a minimum level of solar PV integration in suitable new build, ease planning regulations for retrofitting solar PV, and speed up the planning process for projects incorporating solar PV (and other renewable and energy efficient features). In addition the electricity supply industry should be encouraged to remove technical and non-technical barriers to the connection of solar PV generators and a significant proportion of the Non-Fossil Fuel levy should be allocated to a new mechanism for financing PV projects. A combination of capital grant of £5/Wp with a rate enhancement to 10p/kWh would provide the necessary stimulus to the PV market without attracting the criticism of excessive rates.
    

This is where the building regulations, which will be the subject of much of the CI BSE/RIBA debate, come in. PV needs to be written into these regulations in various ways, as part of the "one stop shop" regulations advocated by CIBSE. Many of the comments in the paper by David Lush covering energy efficiency also apply to PV. In particular: "Government should be encouraged to approach insurance companies and building societies to adopt policies of insisting on the following before granting mortgage and insurance:

• a suitable SAP (Standard Assessment Procedure) or alternative approved energy rating label;
• the use of 'competent persons' for the installation, servicing and maintenance of equipment and building alterations;
• the availability of a 'log book' which describes the systems installed in the building, their performance rating and their maintenance record.

David Lush writes "the review of Part L (of the Buildings Regulations - pending) should consider the need to further upgrade insulation standards for environmental reasons." PV – plus indeed passive solar and solar hot water - should be added to this list.

Regarding the Taskforce's capital grant recommendation, if the government elected to take on a UK per-capita share of the EU Strategy and Action Plan on Renewable Sources of Energy (70,000 roofs from a Union-wide total of 500,000 over the next 12 years) and if they offered a £5 per Watt capital grant for the 5,833 homes/kW that this would entail each year, the total needed would be only £29 million per year. The total over 12 years would be £350 million, a fraction of subsidies given to coal, oil and gas. Alternatively, the government could offer the capital grants only until a solar PV manufacturing plant or plants were built in the UK big enough to achieve economies of scale, or at a reduced rate after such a plant or plants were built.

1. There is ample scope for synergistic action by government, industry, and consumer organisations. Proactive action by the Government to stimulate a domestic solar PV market can leverage industry response. For example, the Government can reasonably expect:
2. the banking sector to make available solar mortgage packages, i.e. preferential terms and conditions long-term financing, as soon as evidence emerges of growing demand;
3. the insurance sector to introduce integrated home and building insurance packages, at preferential rates to reflect the risk profile of solar-electric premises and the different lifestyles of solar electric users;
4. the PV manufacturing sector to scale up production, and invest its own resources in plant expansions. In this regard, there is a limited window of opportunity as companies consider priorities for capital expenditure in the post-Kyoto environment.

In Japan, the MITI programme of support for PV has had a clear and dramatic effect in this regard. Japanese solar PV producers have scaled up manufacturing plans in anticipation of both a domestic market, and major new export opportunities. Similarly, Japanese banks have combined with solar manufacturers to offer solar mortgage packages to consumers in the domestic market.

1. It is particularly vital that investment in solar PV be stimulated. The larger the investments, the larger the manufacturing plants that can be built, the quicker the price of PV falls, and the quicker the technology becomes commercial. Experience suggests that a latent willingness to invest in this technology exist in the financial service sector. This can be stimulated by appropriate Government action, in particular tax and investment incentives of the kind on offer for renewable energy in other countries.
2. The Solar Century specialises in bringing the financial-services industry and the solar-energy industry together in synergistic alliances. Indeed, the company was formed out of a gathering of 80 executives from 50 financial institutions, solar companies, and solar consumer entities in 1996 (the Oxford Solar Investment Summit). In its first year, the Solar Century has brokered or advised on four key investments between European financiers concerned about global warming, and solar companies in both manufacturing and distribution. Though none of these have been large ($7.25 million in total), they symbolise the potential inherent in the converging interests of the two sectors.
3. In order that PV can compete for a significant share of the global electricity market, the Government will need to maintain a sustained level of support. The climate-change imperative for accelerating the solar market is compelling, but quite apart from this, the need to generate a UK export market is pressing. If the need for short-to medium-term investment can be met, the Government will be able to play a pivotal role in a new industry, and new jobs.
4. A business model aimed at profitable and synergistic mass-marketing of PV in deregulated electricity-supply markets.

In a deregulating, globalising age where new players are invading the insurance market, there is every business reason for the insurer to consider entering non-traditional markets in turn. One of the most consistently profitable markets, globally, is the electricity market, and in many countries today the electric power market is in the process of being deregulated. The opportunities opening up for innovative new players - whatever their provenance - are substantial, and this in turn introduces big opportunities for the embryonic PV industry . . . and for building services companies and architects who want to utilise PV.

The new business model proposed here involves a forward looking insurer, in strategic alliance with appropriate partners, offering to consumers an integrated package of insurance electricity, and person or investment plan. The core of the idea is simple aside from the convenience advantages to the consumer of an all-in-one package, the more electricity he/she saves, the more money goes into an investment fund: a retirement "nestegg" or pension top-up. This model, which can be called "electrofinance", is designed to appeal viscerally to two key consumer insecurities: first, and critically, concern about the global environment. The UK, where the electricity market becomes fully deregulated in October 1998, would be ideal for testing this new business model in practice.

The consumer pays a flat rate for property insurance, electricity, solar mortgage and pension/investment plan. The consumer is granted a solar mortgage as part of the electro-finance package, so enabling him/her to spread the up-front capital cost of solar PV supply and solar water heating. A solar array or facade is either retrofitted on his/her property, or is integrated in the case of newbuild. With this solar supply in place, the electricity bill is reduced still further - and for a solar system large enough, can even easily be reduced to zero. The customer can further choose whether he/she wants to non-PV part of the electricity supply from a conventional source, or "green power" – electricity supplied from a renewable source somewhere on the grid. The model promotes not just PV but energy efficiency, because the more electricity the consumer saves, the more money is paid into his/her investment fund. The insurance component of the package can also be reduced in such a model, since an energy-efficient solar electric home or premises is a safer environment in a number of ways than a traditional one using fossil fuels and electricity with standard inefficiency.

The overall package may well need to be somewhat costlier than the non-solar electro-finance model, because of the high expense of solar given today's low volume of PV production globally. However, considerable market research, and a growing casebook of practice, show that many people are willing to pay a small premium price for the advantages of their own solar electricity supply – especially if they can spread the capital cost over a period of years. For example, the Californian utility SMUD offers to put PV on the roofs of "solar pioneers" in its jurisdiction at the cost of an extra 10% on the utility bill. The customer receives no benefit other than the perceived privilege of seeing (not owning) the technology on their property. The programme is a huge success, with applicants exceeding installations more than tenfold. The same has been found in Japan, where a partial government subsidy programme for rooftop solar has been hugely oversubscribed, forcing the government to choose recipients by lottery. The thousands of people who benefited from this scheme in 1997, despite the subsidy, are still paying twice the utility rate for their electricity.

In conclusion, may appeal to CIBSE and RIBA members is twofold. First, I hope that together we can use the revision of the Building Regulations as a vehicle for encouraging the government to think about solar technologies at the same time as energy efficiency. Second, I would welcome hearing from any building services company or architect who - having read this, and listened to the debate - thinks they can help with The Solar Century's effort to pull the solar PV market through consumer-alliance and pooled procurement. This might come via suggestions for, or active cases of, recruitment to the Solar Century Buyers Club. Or via ideas and involvement in our ongoing - but early stage - efforts to bring the electrofinance concept to market. Or both.