What is Solar Power?

Solar power is electricity produced directly from sunlight. Solar thermal power refers to a process where the sun’s energy heats a working fluid that eventually is used to do work in an engine or a turbine. Solar photovoltaic power (PV) takes advantage of the photovoltaic effect so that when sunlight hits a PV panel, it releases electrons from special layers of silicon and pushes them across an electric field. These electrons then travel through an external circuit to return to their initial state, and in the process create electric current.

• Solar photovoltaic energy is a robust technology. The photovoltaic effect was first discovered in 1839, and electricity first produced by a PV cell in 1880. Subsequent research and development, much of it driven by the space program, has now produced solar PV cells that have an operating life of 25+ years with very high reliability throughout the period. There are no moving parts in a solar PV system, so operating costs are very low and a solar PV system has minimal operating risks over long periods of time.

• The solar PV industry has seen very high growth rates in recent years and the large companies that develop and build solar PV cells have expanded production in response to the increase in demand, but not quickly enough. The manufacturing of solar PV is presently constrained by the global supply of high-quality silicon wafers, although global PV manufacturing capacity and the corresponding required supply of silicon is set to double or triple in the next three years following.

• The installed price per kW of solar PV remains high compared to other energy technologies because of the demand/supply imbalance currently present in the market, as well as the guaranteed pricing and investment tax credits available for installation in various countries. Expansion of solar PV manufacturing capacity will drive continued reductions in capital costs and will enhance cost competitiveness in the electricity marketplace.

• Solar PV produces no emissions and is completely renewable – attributes that are increasingly valued by consumers and utilities that are required to comply with state-mandated renewable portfolio standards for the purchase or supply of renewable energy.

2) Solar PV production is aligned with periods of peak demand – hot summer days when air conditioning is required and energy prices are historically at their premium and energy systems are strained to deliver power from traditional large power stations. Supplying electricity directly to the source of load has a high value premium. Price volatility risk – large commercial consumers and residential customers are finding that locking in a fixed price for some of their electricity through the purchase of solar PV electricity is a good hedge against the volatility of utility prices, which are driven by underlying commodity prices of energy resources such as coal and natural gas.

3) In the US, Federal and state government support through many mechanisms has helped drive the market for additional solar PV power. State renewable portfolio standards create added cashflows for solar power generation projects by creating a discrete value for the attributes that can be sold to parties requiring the purchase of ‘green’ electricity. Many states and utilities have rebates and credits for the installation of solar PV systems, which helps to significantly lower the capital costs, and the 2005 Energy Bill increased the Federal investment tax credit for solar PV from 15% to 30% and extended the MACRS depreciation (accelerated schedule) which provides faster cost recovery and lower taxes in the early years of projects, ultimately increasing the return on the investment.

All of these factors combine to create a present scenario where investment in solar PV, either by individuals or partnerships of investors, can prove to be a very profitable investment in many parts of the country. As such, many large financial institutions are starting to enter the market to make investments in solar power developers and projects. In addition, the present profitability of solar PV projects in the US and abroad, notably in Japan, Germany and Korea, has completely absorbed all available solar PV capacity that will be produced until 2007. Global production of 800 MW in 2004 is set to triple over the same period.

IEA. Photovoltaic Power Systems Programme