First Solar VP: Renewables industrial policy needed

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The prospects for solar energy are bright, but an industrial policy that attracts investment for renewables and fair global energy subsidies are needed, a leading industry figure says.

Christopher Burghardt is the Brussels-based vice president of government affairs for First Solar, an Arizona company that has a manufacturing plant in Germany. He spoke to EurActiv's energy and environment correspondent, Arthur Neslen.

The solar energy sector is facing a retraction, but do you think that long-term prospects will be better once investments in technologies, like long distance transmission lines, come online?

Generally, yes. You have to be careful when you get what you’ve been wishing for – in our case pleading for. First Solar has been saying for years that costs need to come down. We came in 35% below the market when we first started, and from a production cost perspective we’re considerably cheaper than even the Chinese now. But we’re in a situation where supply has outgrown demand, and solar panel prices are set in an over-capacity market.  That's actually very good for policy makers and for competitive firms in the industry. The question now is keeping that competition stable and fair and ensuring that that these short-term ripple effects have long-term benefits for the whole industry.

How many firms do you think could go bust?

Your guess is as good as mine. There are so many companies out there that make solar panels that it's not a question of two or three or 10. It’s a question of how is this going to happen. In the future, it will be more important to be cost competitive, because if you're selling at or below your production cost, you can't operate a business. Having access to financing is going to be absolutely critical - you need to be a bankable company. It will also be critical to develop demand in a sustainable manner, within a competitive landscape, and regulatory perspective. We’re going to have to work with policy makers in the next 10-20 years to level that playing field.

Which specific subsidies would you like to see levelled?

There are a tonne of different subsidies that are going into fossil fuels today. Look at the electricity market. There are subsidies going to the coal industry for extraction. You’ve got a few new coal plants being built in Europe, and subsidies that go to companies that are running coal-fired power plants. Nuclear insurance guarantees are also very hard to quantify commercially.

Although if you take those away, there is no nuclear industry…

If there isn’t, that means that nuclear is only a viable energy source if there is government intervention. We’ve never had a deregulated electricity market. So I’m talking about the kind of advances that companies have been getting in the last 40 or 50 years, to develop and build nuclear power plants, coal-fired power stations, coal mines, uranium extraction and gas pipelines. I mean, look at the EU Energy Infrastructure package. Two-thirds of it is about gas pipelines, and I don’t want to be negative about it because I think that overall it’s a good package, but there's a lot of emphasis on bringing gas to Europe. Those infrastructure developments have not happened without state intervention so that gas might come very cheaply from the gas tap, but the process of bringing it there has been heavily subsidised.

Maybe it is really about levelling some subsidies and ending others to create a true level playing field. Maybe it is about how we create a competitive playing field with certain parameters that we want the future energy market to have. We want to have a low carbon-based energy market. We want to have manageable and stable energy prices. Renewables are actually very good at stabilising electricity prices because you know at least on the solar side, when we’re going to produce.

In terms of the current over-supply problem, how severe do you think the coming retrenchment will be – and how will the market look afterwards? Could cost-cutting feed into other environmental or safety problems?

It’s an interesting question. Generally it will lead to a much more mature industry instead of the Wild West growth which we've had in the last few years, because when you have an explosive market somewhere, everybody rushes in and so it’s a gold rush. On the feed-in tariff side, I do think that support systems are stabilising and governments are looking at new mechanisms. There are, for example, a lot of tenders coming up for large-scale projects.

How do we work around our consumption? Optimising roof-system metering according to how much electricity you use is an example. We see that as very favourable because your benchmark is not household or business electricity prices. You need to produce below that because of the investment cost and risk tolerance. This is close to happening in places like Italy and Spain already. I think these new, more mature systems, are long-term sustainable, and that’s very good for us. The industry has suffered whenever governments have taken erratic decisions.

Around environmental sustainability, there was big pollution from a silicon production solar spill in Jinko, in China, but we use a different technology. What's extremely important is that people comply with environmental legislation when they're building a manufacturing plant, and that the products are safe and environmentally beneficial. We have an added responsibility in the renewables industry, and we spend a lot of time comparing technologies from an environmental perspective. Some of our competitors have used legislation like RoHS [restriction of hazardous substances] to try to paint black some technologies like thin-film PV that are actually much more environmentally sustainable from a life-cycle perspective.

Could cost-cutting in the solar industry prevent some of the investments that are needed?

The companies that are going to go into that phase of maturity are solid and have their manufacturing processes under control. Companies that don't have that won't be scalable into a mature industry. It's an over-capacity market. Financing is only going into new capacity that's really seen as long-term sustainable. We're still expanding. There's going to be some contraction and consolidation but I think that will benefit the environment as a lot of the quick shops that have contributed to flooding the market with panels will not make it through that wave. It will be like any other industry.

How long until the new technologies come online?

It's going to be a long-term process of the next 10 to 20 years but the innovation curve is going to be very steep at the beginning. Technology that works in a lab doesn’t necessarily work in the market. But innovation potential is always underestimated.

The real challenge for us is a system design one, and that means you're disrupting fundamentally the functioning of the whole electricity market. In the past you could dispatch electricity whenever it was needed, some assets more flexibly than others. A nuclear power station takes days to ramp up and ramp down, the same with a coal-fired power plant. A lot of innovation will be needed to change that market design to one in which renewables like wind and solar produce when natural elements allow them to.

How important are the attempts to develop hybrid-gas-solar electricity plants?

It's a niche market. But it's a pretty large niche market. It is mainly going to be important in developing countries. So many people in India live on diesel generation today, which is the most polluting form of electricity, because there is no grid and it is the only thing they can afford. You've also got a number of mining companies in remote locations that need power from diesel generators. These things function at rates where solar is highly competitive today. It's just a matter of creating the technology and getting it there.

We're looking at exactly how large that market is. To me it is a critical market for solar. From a climate change perspective, it is a very obvious market to serve. You want to have seamless power that transitions automatically. Some technical development still needs to go into that.

It also looks like gas will pick up some of the slack as nuclear comes offline in Germany.

I think that renewables and gas are a pretty good combination for a future electricity system in Europe. The question is how much will be biogas and how much natural gas? Either way it’s going to be good for the environment. You can’t use solar alone, for example, to serve peak demand.

What lessons can be learned from the fallout from the Solyndra bankruptcy in the US?

I will just say that the projects we’ve got loan guarantees for are solid. They’ve been vetted by banks and insurance companies. The loan guarantees have been an absolutely critical enabler but there is no question of the US government taking risks, because they are secure. The amount of jobs and additional tax revenues that they’re creating are a pretty good return.

I think that in Europe, a big part of the [renewables] directive looking at post-2020 in June next year will hopefully focus on how we provide financing, and potentially guarantees, for renewable investments because all your capital costs are upfront. Financing accounts for about 40% of your cost reduction potential on a renewable power plant. If money is available through the EIB [European Investment Bank] and so on, it will always be needed. How do we enable large-scale projects in places like Greece and Portugal where the EIB doesn’t want to lend at the moment because of risk profile, but everyone agrees that they’re necessary?

And the lessons learned?

(Laughs) We need to work better with journalists to make sure that the coverage of these things is proportionate to the fallout.

Do you agree with the argument that we are approaching a ‘VHS-Betamax moment’ in the competition between CSP and PV?

Yes but I think the analogy is not great because Betamax was actually better than VHS and they’re both dead now, although in 20 years who knows what we’re going to be producing electricity with? CSP [concentrated solar power] has been around for about 30 years and we’re seeing a lot of projects being switched around in the US and re-permitted to PV [photovoltaics]. Commercially, PV has won the race.

The problem is that the World Bank’s clean technology fund is only available to CSP in North Africa – and elsewhere – and there’s a big push by some European governments to try and support their industries there (in North Africa). Governments in those countries are to some extent being pushed into adopting a technology that clearly hasn’t worked successfully in the developed world.

We should just be technology neutral and let PV and CSP compete with each other, offering them the same advantages in financing, and letting the local governments choose which technology they want. That’s important. We shouldn’t pick winners when it comes to technologies. We should largely let the market drive them. Of course you’ll have to support solar until it becomes commercially viable but we’re close. It’s not a question of 10 years anymore, just four or five years in most places, assuming of course we get the market design right and establish a level playing field.

With China now making 54% of the world’s solar panels – and becoming the world’s largest wind energy provider last year – is the green energy race over? Has China won?

That’s a good question. I think it’s a marathon, not a race and we’re somewhere in the middle of it. There’s been a start-up race about technological development, cost reductions, and it continues to be about that, but also about large-scale deployment to get that learning into the market. The Chinese have clearly developed a strong industry with government backing - up to $30 billion’s worth.

China can secure market share by having superior financing abilities and by being a low-cost manufacturing location. I don’t think they’ve won that race. The Chinese will need to focus on meeting worldwide environmental standards for their products. The question is whether the Chinese government will continue to pump gazillions into the industry over the long term, and create a competitive advantage for itself. Is that something that world governments would see as fair competition in the long term? Chinese industry has gotten a huge advantage through that available financing.

Has it been unfair?

It certainly came at extremely preferential rates and in extreme quantities. So typically we would call that a huge competitive advantage.

Is it effective?

You just mentioned a number – 54% market share. It sounds like they’ve done a good job but at what profitability though? Are they making money?

So does the EU need to up its subsidies if it wants to stay in the green energy race?

I don’t think a subsidies race would do anyone any favours. The answer is certainly not for European or American industry to try to match Chinese subsidies. Europe and the US need to create an industrial policy that helps companies attract investment and get to the next competitive stage, and ensure that everyone lives up to the same rules. It’s more about trying to level the competitive playing field than increasing subsidies.

Where should that levelling take place?

It’s a good question. Europe should certainly be very vigilant and look at what China does and make sure that it is compliant with the WTO and other international rules. Europe needs to up its game to continue to develop a competitive renewables industry. We need to look at an industrial policy for renewables, and solar in particular.

We’re a big manufacturer in Europe so we have a big interest in this place remaining attractive for manufacturing. Our technologies are produced here at levels that are more competitive than the Chinese. Draw your own conclusions about what that means for innovation and R&D policy. China has a five-year plan for its solar industry to deliver about 20GW of manufacturing capability, so they are clearly looking at this as a long-term game. We need to do the same.

Do you mean setting up a new industrial framework, with developmental plans?

I think the targets are fundamental because if you stop a system change halfway, you destroy visibility for investors. Targets tell you what the milestones are in the system change to 2050. So 2020 targets have been critical and binding targets for 2030 will be equally critical because that creates investment visibility and security, and that creates a market. To ensure that it is competitive, we need an industrial policy that helps companies drive R&D, investment and competitiveness. We need to enable and guarantee financing, through a European energy fund, as we’ve done before in this electricity market for infrastructure, and generation assets.

What would you like to have seen in the EU’s energy infrastructure proposals?

It’s a very good and necessary proposal. We need infrastructure investment and overall it sets a good tone. There’s just a lot of emphasis on oil and gas infrastructure needs, and the weighting of what’s needed in the electricity system is relatively low. A lot of it seems to be around gas. Is that deplorable? I don’t know. We need to make sure that our grids are upgraded so we can run flexible, smart infrastructure in the electricity system that we’re transitioning to. We will also need new corridors. Offshore wind is one that we’ll need.

To be competitive, you need a pan-European industry. We can no longer live with national markets. They will not give us the scale, as an electricity industry to drive that system change. We can optimise where we build, either because there’s a void of infrastructure close to consumption centres or because there are natural resources that are superior in some places. Harmonisation of the European energy market does not mean that solar will only get built in the south, but we need that energy market.

Are you hopeful that the creation of European coordinators [in the infrastructure package] could help the approval and implementation of renewable projects?

Yes, the two positive things [in the infrastructure proposals] are speeding up permitting and ensuring that there’s a single coordinator because we see permitting and administrative barriers as huge hurdles, even for distributed generation. To have the administration simplified is a huge benefit.

But solar energy is only mentioned once in the whole document.

Solar will not be the biggest driver of transmission needs, which also shows its cost-effectiveness. We benefit from transmission lines so we are an additional reason why you might need them, especially north-south lines. I heavily doubt that any transmission line will be built specifically for solar, but there are some places where it would help. For example, we would like to have more transmission lines between Spain and the rest of Europe because the Spanish market is currently constrained. 

Do you have any plans for new investment in Greece after the announcement of Project Helios?

Helios will drive investment in solar if it takes off and we would like to be part of that. Do we want to invest in Greece today because Helios is coming around the corner? We’re looking at Greece. The problem is that Greece has a real constraint on financing so my appeal to European governments is to provide financing guarantees to project investors, because that’s what we need most.

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