Is Solar Power at a Crossroads?

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At the IHS CERAWeek energy conference in Houston last week, BP CEO Robert Dudley made it clear that his company was exiting the solar business. BP has invested billions of dollars over several decades into solar research but has indicated that it hasn’t yielded much of a return.

Dudley did however mention that this didn’t discount solar energy in the future, “Not that solar energy isn’t a viable energy source, but we worked at it for 35 years, and we really never made money.” The company has said that it will continue investing in wind and biofuels, which have grown drastically in the US over the last few years.

Figure 1: Renewable Energy Supply breakdowns by type. (Source: EIA)

Among other renewable energy sources, solar is ranked fairly low in terms of capacity. However, EIA forecasts indicate a continued growth in solar power supply.

Figure 2: Solar Electricity Generation Forecast (TWh/d) in the US. (Source: EIA STEO Report, graph generated in ZEMA)

Even with BP’s exit from the market, solar power generation is likely to continue increasing. Part of BP’s less-than-expected return on solar has been due to rapidly declining prices in solar panel development. Chinese players have poured cheaper panels into the market, dashing any chance for BP to profit from its years of research and development in the industry.

Shell, another large energy player who exited the renewables market, has predicted in its recent New Lens Scenarios report that solar power will make up close to 40% of electricity generation by 2060. This contrast between its exit of the renewables market in 2009, and predictions about renewables growth, shows how uncertain the market still is.

Other companies like Chevron and Statoil also have relatively small positions in solar, which indicates that it may be tougher for established players in the oil and gas industry to enter the market. However, if current trends continue, we may start to see these large firms enter solar with larger investments. While solar panel production may be less viable, the declining price of panels does present more opportunities in solar power generation.

An interesting point is that some large companies have just started entering the solar market. Google has invested over $600 million into solar projects over the past three years. Warren Buffet’s MidAmerican Energy Holdings acquired almost $4 billion worth of solar projects in 2011, likely sweetened by solar tax credits in California and Arizona.

With companies moving in seemingly opposite directions in regard to renewables, it’s difficult to predict which firms will drop or expand their solar initiatives. Even after being dealt a strong blow last week, the solar market is still one to keep an eye on in the future.

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