Archives 2007

Peak oil has been a discussion for several decades after the theory developed by Dr. M. King Hubbert was put forth to alert the world of the impending decline in oil production. Recent data from the Energy Information Administration (EIA) oil production from the twelve members of OPEC has declined from its peak in 2005, despite increased global drilling activity.

Figure 1 OPEC Oil Production

Higher oil prices is driven demand for energy exploration and drilling is up significantly in the U.S. and the world according to Baker Hughes Worldwide Rig Count. Oil price continue to remain above $90/barrel and despite the increased oil drilling activity, oil production remains relatively flat.

Figure 1 demonstrates the tenuous nature of OPEC oil production with oil production declining almost 4% from the peak average production of 31.2 million barrels per day. One must remember that oil production is variable with up and down trends over time. However, with oil over $900 a barrel we are not seeing significant production increase despite the rise in oil drilling. Figure 2 illustrates world-drilling rigs in comparison to oil prices on a global basis. The U.S. accounts for over half the world oil drilling rigs yet our production is less than 10% of total global production.

Figure 2 Rig Count and Oil Production

What does all this mean? For one peak oil may be a reality or sooner then we like. Secondly, with concern over climate change and global warming, there is no real spending on alternative energy to help mitigate a potential shortage in oil. More spending on solar and hydrogen fuel cells is required to ameliorate the eminent disruption in oil flow. Without an orchestrated government mandate to develop alternative energies all nations face a national security issue that has the potential to cripple economic activity.

A brief review of history and in particular the industrial Revolution, it’s quite apparent that economic growth is inextricably linked to energy. As energy is tied to our economy, our future is dependent upon equitable access to energy. This in turn sets the framework of our dependence on oil and hence, why our national security is tied to securing the flow of oil.

Eighteenth-Century England gave birth to the Industrial Revolution. Four critical components provided the framework enabling the Industrial Revolution: Labor, Technology, Risk Capital, and Energy

Improving efficiencies in agriculture lead to an increase in the food supply while minimizing the amount of labor required to cultivating crops. The improving agriculture efficiencies lead to population growth and an available labor force that began to migrate to the cities.

Advances in science and technology gave way to improvements in manufacturing, mining, and transportation. It was the harnessing of steam power such as Thomas Newcomen’s steam, powered pump in 1712 for coal mining and James Watt’s steam engine in 1765 that lead to railroads and machinery.

Risk capital was also an important element for the development of the Industrial Revolution. Risk capital and the entrepreneurial spirit that allowed capital to be applied innovation helped transition England into the largest economy in the world.

And Energy. Access to an available source of energy was instrumental fueling the Industrial Revolution. With wood being used for just about everything in the early 1700’s from housing, wagons, tools, and fuel, deforestation lead to energy scarcity. It was coal that enabled the growth of Industrial Revolution by providing an accessible energy source.

With rapid growth in automobile production in the U.S., oil became the predominant form of fuel. According to the Energy Information Administration, in 2004 the U.S. spent over $468 billion on oil. Given that we import nearly 60% of the oil we consume, most of our wealth travels abroad. More emphasis on alternative energies could help ameliorate our dependence on oil.

Figure 1 U.S. Energy Consumption by Fuel

While solar and wind energy have seen some very strong growth, alternative energy still account for less then 2% of our global energy production.

We need to realize that our dependence on oil could cripple our economy. Supply constraints or disruption to oil flow could derail economic activity. It should be an imperative for our national security to develop alternative energies.

Improving economics and high market valuations should help drive research for alternative energy. With the release of Q3/07 financials, it’s clear that the economics of solar photovoltaic (PV) suppliers is improving. Some of the leading pure play publicly traded PV stocks are demonstrating significant improvements in financial performance that should drive further investment into solar and green technology. The improving economics of solar should continue to drive further investment into alternative energy companies as venture capital firms and Wall Street find that alternative energy is a significant secular trend with sustainable economic foundation.

Most visible among the solar PV suppliers is First Solar (FSLR) with y/y revenue growth for Q3/07 increasing 290% and gross margins exceeding 50% and operating margins above 30%. FSLR’s management was clear in articulating that these strong Q3 numbers reflect ramping on of its German manufacturing facility and would not be sustainable. However, with gross margins exceeding 50% and operating margins above 30% Wall Street takes notice and rewards the firm with valuation multiple envious of leading technology companies such as Google (GOOG) and Cisco Systems (CSCO).

Figure 1 Revenues, Margins, and Capacity

The stronger financial performance of solar PV suppliers is significant because it improves the viability of the solar PV business model thereby attracting more investors and in turn drives funding for alternative energy start up companies. FSLR went public in November 2006 with a closing price of $24.74 on its first day. With a closing price one year later of $212.63, FSLR offers investors a yearly return of 759%. The attractive return generated by solar stocks tends to attract more investors and drives market valuations higher thus feeding the flow of additional venture capital funding.

In terms of market valuation FSLR trades at a significant premium to most companies in the S&P 500 as well as leading technology companies including GOOG and CSCO. . Most solar PV companies trade at higher market valuation multiples than CSCO and GOOG. Both FSLR and Sun Power (SPWR) trade at premium price-to-sales (P/S) and price/earnings-to-growth (PEG) multiples in comparison to some leading technology stocks. In terms of PEG ratios, FSLR and SPWR trade at 2.9x and 2.2x respectively while CSCO and GOOG trade at 1.3x and 1.2X, respectively. In comparison, the S&P 500 index trades at a PEG of 0.8x while the technology and energy segments trade at 0.6x and 2.2x, respectively. These high market valuations prove the venture capital community with high exit values on their current crop of alternative energy investments. Please see Figure 2.

It is this premium market valuation multiple that suggests the importance of alternative energy. Wall Street tends to be a leading indicator and keen in its ability to identify secular trends. Major trends command premium valuations and reward venture capital with attractive exist strategies. Wall Street rewards cash flow growth fueling further venture capital funding that in turn, fuels the flow of intellectual and financial capital. The value migration measured by price-to-sales multiples and illustrated by A. Slywotsky in his book Value Migration provide a framework to gauge the significance of trend towards alternative energies. Capital gravitates to the business model that creates economic value and is measured by a stock’s price-to-sale ratio. By that measure solar stocks is where the value is headed.

Figure 2 Price-to-Sales Ratio

The bottom line is that high market valuations attract research funding and brain power. Rising oil prices, rapid industry growth, and high public market valuations of solar PV companies, should act to attract further venture capital funding of alternative energy companies. Increased solar funding should translate into increased research and talent migration that could improve solar efficiency and reduce costs that in turn could bring solar to electric grid parity.

Rising oil prices have driven exploration and drilling activity, yet oil production remains anemic in comparison. Could the latest data suggest oil production is nearing a peak? With global demand expected to rise over 30% by 2030 according to a recent article in the Wall Street Journal, Handicapping the Environmental Gold Rush the latest oil production figures suggest we are indeed vulnerable to energy shocks.

High oil prices have driven demand for energy exploration and investment into oil and gas drilling rigs. In the U.S., rig count is up 181% with 1,749 rigs in operation in 2007 from 622 in 1999 according to Baker Hughes Worldwide Rig Count. Oil prices are up quite dramatically in the last few weeks with latest price above $94/barrel.

Figure 1 Worldwide Rig Count and Oil Prices

Figure 1 illustrates world-drilling rigs in comparison to oil prices. The U.S. accounts for over half the world oil drilling rigs yet our production is less than 10% of total global production. While oil prices are nearly as high as they were back in the 70’s (accounting for inflation) we are not witnessing the tremendous oil-drilling explosion as we did back then.

Part of the explanation could lie with oil production. If we look at recent data, oil production appears to be leveling off while demand is expected to increase significantly as developing countries increase their use of motor vehicles. Data from the U.S. Department of Energy (DOE) and Ward’s Communications, Ward’s World Motor Vehicle Data show that the number of motor vehicle on the road is up 48% from 1990 to 2005 with countries like China experiencing the most dramatic increase. Yet oil production over this same period is up only 27%.

Figure 2 US Rig Count and Oil Production

In the U.S., rig count is up 118% from 1999, yet petroleum production is actually down 7%. On a global basis, oil and petroleum product production increased 13% since 1999 while global rig count increased 112%. The U.S. and the rest of the world is experiencing diminishing returns on investments in oil production wile usage, led by motor vehicle consumption continues to escalate. In the U.S. more than 60% of oil consumption goes to vehicle use.

With all of the attention given to oil and hydrocarbon fuels, alternative energies are just a small fraction of our energy needs. We need to dramatically increase our research efforts into alternative energies such as solar, wind, and hydrogen fuel cells energies.

After reviewing some of the details of Honda’s experimental solar-power hydrogen refueling station in Torrance, CA and its fuel cell vehicle several questions concerning efficiency and practicality come to mind. It most be noted that solar and hydrogen don’t emit harmful byproducts such as carbon dioxide or carbon monoxide so both technologies are important to our energy security. First let’s look at the efficiency of hydrogen and second the efficiency of generating hydrogen from solar.

As we learned from science class, hydrogen is the most abundant element in the universe. Hydrogen has approximately 3 times the energy per unit mass as gasoline and requires about 4 times the storage volume for a given amount of energy according to a Hydrogen Energy report from Stanford University. In further review of additional information on hydrogen we are also making some adjustments to our fuel-ranking table.

We are revising Table 1 that was used in our post of October 3, 2007 for data on the energy density for hydrogen from 2.5 kilowatt-hours (KWH) per gallon to 10.1 KWH/gal and is reflected in the revised Table 1 below. The discrepancy lies in measuring the weight of hydrogen in liquid volume. We are calculating the energy density of hydrogen using the high heat values of hydrogen of 61,000 British Thermal Units (BTUs) and a weight 0.57 pounds per gallon from the Stanford Hydrogen Report.

As a reference: 1 KWH = 3,600 kilojoules = 3,412 BTUs

Revised Table 1 Specific Energy, Energy Density & CO2

Hydrogen offers tremendous energy potential, but as we see from Table 1, hydrogen has a low energy density meaning it requires a large storage container to make it practical for use in a motor vehicle. Several car manufacturers including GM and Toyota have developed hydrogen vehicles. Hydrogen can be used in internal combustion engines replacing gasoline or in fuel cells to generate electric to power the vehicle. However, there are some limitations to the current technology that may limit the economic viability hydrogen powered vehicles in the near term. But there are no detrimental emissions with hydrogen as apposed to hydrocarbon fuels thus providing tremendous benefits as vehicle efficiency improves.

Honda’s solar-powered hydrogen fueling station takes nearly a week in sun to produce enough hydrogen to power Honda’s FCX concept hydrogen fuel cell vehicle. Honda employs a Proton Exchange Membrane Fuel Cell (PEMFC) that converts hydrogen to electric that in turn, powers the vehicle. The Honda FCX fuel cell vehicle has two fuel tanks that can be filled with up to 156.6 liters of hydrogen or about 43 gallons that offers 430km (267 miles) driving range. The hydrogen fuel cell vehicle provides a reasonable driving range, but with a fuel efficiency of 6.5 miles per gallon (MPG), suggests more research is needed.

BMW’s Hydrogen 7 can travel 125 miles on hydrogen and 300 on gasoline before refueling. In tests the BMW 745h liquid-hydrogen test vehicle has 75 kg tank has a Hydrogen Fuel Efficiency of 10 km/liter or about 25.2 MPG and cruising speed of 110 MPH. Not too bad for an internal combustion engine that is able to run on gasoline or hydrogen.

Figure 1 Specific Energy

Given the changes to hydrogen’s energy density we are also adjusting hydrogen density (Figure 2) to reflect liquid hydrogen and high-energy value as noted by Hydrogen Properties College of the Desert.

Revised Figure 2 Energy Density: KWH per Gallon

We still have more questions given hydrogen’s very high specific energy, (3 times that of gasoline) and low energy density (4 times the volume of gasoline). Hydrogen is more efficient then petroleum fuel, yet when used as a fuel cell in a vehicle Honda’s MPG of 6.5 MPG is quite low. The fuel efficiency of BMW’s Hydrogen 7 of 25.2 MPG is only at parity with gasoline.

The efficiency of using solar energy to generate hydrogen may not be the most efficient method. One report from Walt Pyle, Jim Healy, and Reynaldo Cortez Solar Hydrogen Production by Electrolysis indicated that a 1-kilowatt solar photovoltaic device could generate 1 cubic meter of hydrogen in 5.9 hours. Essentially, 5.9 KWHs from a 1KW solar cell produces 1 cubic meter of hydrogen. We know that a pound of hydrogen in liquid state equals approximately 61,000 BTUs (51,500 BTUs at low heat value) or 17.9 KWH.

Research at Caltech, suggests that photoelectrochemistry The Lewis Group may offer a more efficient means of generating hydrogen. We will continue to explore solar efficiency and hydrogen fuel cells to evaluate the economics of alternative energy.

The bottom line is that our dependence on foreign oil is the biggest threat to national security and without cultivation of alternative energies we continue to endure an untenable situation. Further research into solar and hydrogen fuel cells could significantly ameliorate our dependence on oil.

Despite efforts that have enabled the U.S. to limit its demand for oil, world oil demand is up significantly. Advances in technology such as solar energy and vehicle fuel cell could help the world reduce its dependence on oil.

Figure 1 Oil and Gold Prices

The U.S. Department of Energy (DOE) and the U.S. Environmental Protection Agency (EPA) today released the Fuel Economy Guide for 2008 model year vehicles Fuel Economy Leaders: 2008 Model Year Coming in first place is the Toyota Prius (hybrid-electric) with city/highway miles per gallon (MPG) of 48/45. With higher fuel costs more people are factoring in fuel efficiency into their purchase decision. However, it is the purchase of pickup trucks and SUV that account for most of the vehicle purchases in the U.S. and these vehicles are dramatically less fuel-efficient than hybrids and small four-cylinder automobiles.

Despite the trend towards larger vehicles, the U.S is not experiencing a rapid rise in oil demand. Yet oil prices continue to climb. While geopolitical risk may account for the bulk of the recent price increase, latest information from the U.S. Energy Information Administration (EIA) Total Petroleum Consumption shows increasing oil demand from China.

Figure 2 Oil Demand: U.S. and China

Figure 2 illustrates that while oil demand in the U.S. has grown only modestly since 2000, the growth in China’s oil demand is rising rapidly. The recent data from the EIA shows oil demand through Q2/07. The demand for oil in the U.S. is up 5% from 2000 while in China oil demand is up 59% over the same period.

Improving vehicle fuel efficiency may abate rapidly rising oil demand in the U.S., but more emphasis on diesel and hybrids could take us a lot further. For example, Toyota has been slow to introduce its diesel line of pickup trucks in the U.S. while it offers a broad line of more fuel-efficient vehicle outside the U.S. Toyota offers several cars and trucks in Europe with impressively high fuel efficiencies that are not available in the U.S. Infact, the Toyota Hilux two-wheel drive pickup truck offers a four-cylinder diesel engine with an MPG of 44.8 on the highway and 29.1 in the city.

We are also seeing progress on fuel cell vehicles that could ultimately ameliorate are demand for oil, if not eliminate it entirely, all with no carbon dioxide or other emissions. We see most major automakers developing hydrogen powered fuel cell vehicles. Honda for one has the right concept in employing solar energy to make hydrogen.

Honda’s experimental hydrogen refueling station in Torrance, CA increases the solar incre3ases the efficiency of hydrogen fuel by using solar energy to produce hydrogen. The hydrogen is then used to power Honda’s Honda’s FCX concept hydrogen fuel cell vehicle with the only emission being pure water vapor. These fuel cell vehicles may not be ready for prime time, they provide a clear reality to what is achievable.

The bottom line is that supply and demand dictate price and the availability of cheap oil is on the decline. Further research into solar and hydrogen fuel cells could significantly change our dependence on oil.

With the Solar Decathlon is taking place in Washington DC today promoting commercially available solar energy technology and oil prices pushing to an all time high of $84/barrel, where are we in terms of cost parity with hydrocarbon fuels. Advances in solar energy technology, lower production costs, and rapidly rising oil costs could bring solar energy into parity with hydrocarbon fuels within five years.

The cost of solar energy remains prohibitively high at about $0.45 per kilowatt-hour (KWH) for an installed system. (a kilowatt-hour equals a 100-watt light in operations for 10 hours and equals 3,412.14 British Thermal Units – BTU) As a reminder, there is significant variance in cost per KWH ($0.23-to-$0.68) because a solar energy system is dependent upon daily available sunlight, which varies from about two hours a day in Alaska to almost six hours in Arizona. Solar energy costs are based on data from solar photovoltaic (PV) supplies SunPower (SPWR) and Sharp Solar.

In comparison to hydrocarbon fuels, one gallon of gasoline has an energy value equal to approximately 125,000 BTUs and cost around $3.00/gallon. The energy value of a gallon of gasoline equates to 36.6 KWH, therefore its price is about $0.08 per KWH. So there is significant disparity between gasoline at $0.08/KWH and solar energy at $0.45.

Fortunately, there are a number of initiatives seeking to improve the economics of solar energy. When we measure the cost of solar energy in dollars per watt we find a complete solar energy systems cost around $8.90/watt. (If we amortize the $8.90/watt over a twenty year expected life of a solar energy system, it amounts to $0.45/KWH) To improve the economic value of solar energy we can lower production costs and/or improve solar efficiency in terms of raising the KWH of electric produced per solar panel.

From the Lewis Group. at Caltech, we learned about several technological approaches to improving solar energy efficiency. Among some of the leading solar technologies are multi-junction semiconductor cells and solar concentrators. In a multi-junction cell, individual cells are made of layers, where each layer captures part of the sunlight passing through the cell. One of the key limits to solar efficiency are the semiconductor band gaps where excess solar energy is lost to heat instead of being converted to electric. Solar concentrators amplify available sunlight and increase the watts per square meter per solar panel.

Last year the Department of Energy reported that solar energy achieved a new record in efficiency performance. The news release, New World Record Achieved in Solar Cell Technology. suggesting that solar concentrators and multi-junction PV cells could surpass the Shockley-Queisser single-junction solar efficiency limit of approximately 31% for single layer solar cell. The multi-junction, concentrator solar cell produced by Boeing-Spectrolab (a Boeing company BA) achieved a world-record conversion efficiency of 40.7% in lab experiments while commercial products operate at 26.5%-to-28.3% efficiency range.

The DOE believes breakthroughs in solar efficiency such as these may lead to systems with an installation cost of only $3 per watt, which translates into a cost of $0.15/KWH. In addition, solar PV cell suppliers are diligently working to reduce production costs. SunPower is targeting a 23% solar efficiency as a goal to reduce its solar energy system cost by 50% by 2012. Semiconductor solar cells benefit from economies of scale, which could reduce cost by 20% for each doubling of production. These solar initiatives should act to reduce solar energy costs.

Meanwhile, as energy costs rise with oil at $84/barrel, the cost of gasoline is expected to increase. If gasoline at the local filling station rises to $6.00/gallon, its cost in KWH jumps to $0.16/KWH. At that price gasoline would be above those achievable through solar energy advancements of $0.15/KWH.

Figure 1 Photovoltaic Device: Efficiency/Cost

With pricing on PV cells falling below $3.00/watt (or $0.15/ kilowatt-hour), solar energy will be close to parity with conventional hydrocarbons. If the cost of gasoline rises to $6.00 a gallon, it would cost $0.16/KWH while current cost of electric is about $0.11/KWH because of the low cost of coal. The bottom line is innovative research initiatives have the potential to deliver disruptive technologies that significantly changes the economics of delivering an energy solutions to all nations.

Further review:
Please see research at California Institute of Technology’s division of Chemical and Chemical Engineering at The Lewis Group.
Imperial College, Jenny Nelson’s Third generation Solar Cells.
DOE’s National Renewable Energy Lab (NREL) Third Generation Solar Photon Conversion (Exceeding the 32% Shockley(Exceeding the 32% Shockley—Queisser Limit)
Solar Energy Market Data Solarbuzz

My September electric bill arrived the other day and I was interested in comparing my energy savings after swapping 60 and 100-watt light bulbs for Compact Fluorescent Light bulbs (CFL), as recommended by the U.S. Department of Energy (DOE). Our progress in migrating to solar and wind energy is moving slower than expected. The CFL bulbs were a cheap investment so last year 12 standard light bulbs (two 100-watt and ten 60-watt) for ten 60-watt and two 100-watt CFL bulbs.

The results are impressive with improving energy reductions and money savings. Energy usage as measured by kilowatt-hours (KWH) is down an average of 30% from last and attributable to CFL, outdoor solar lighting as well as electric conservation efforts. However, the savings attributable to the CFL bulbs, of nearly $8 per month equate to an impressive return on investment of over 190% in one year.

While our initial calculations suggested energy savings (for lighting) called for reductions of over 70% when switching to CFL bulbs, the electric bill reduction was not that dramatic because large appliance usage account for a larger portion of electric power bill. However, when measuring the return on investment for a fast, cheap, and easy step to lower your electric bill, the CFL produces real savings,

The CFL bulbs cost around $4.00 for either a 100-watt or 60-watt equivalent light bulb. GE’s compact fluorescent lights were installed in August 2006 at a total cost of $48.00 (12 times $4.00 a light). According to GE the 60-watt CFL used 15-watts of power and the 100-watt CFL used approximately 26-to-29 watts of power. So theoretically, energy use, assuming lights were in operation for 4 hours per day, would save about 71 KWH a month. Our electric rates are currently at $0.108 per KWH which is at par with the U.S. average rate of Electricity Prices for Households $0.104 per KWH in 2006. Therefore, the CFL bulbs are saving about $7.71 per month from our electric bill amounting to $92.50 in savings over a year. That yields an investment return of 193% on a $48 investment in CFL bulbs.

Figure 1 CFL Energy Savings

Now of course, power usage varies by household, including the diligent habits of our children, so savings will vary. The bottom line is little steps sometimes produce big results – CFL bulbs do help reduce your electric bill with a small investment and also help the environment as each 1.3 KWH reduction in power use reduces carbon dioxide (CO2) emissions by 1 pound. Coal generates about half the electric power in the U.S. and produces roughly ¾ of a pound of CO2 for every KWH of electric. That means for every 1.3 KWH of electricity used (a 100-watt light used for 13.3 hours) produces one pound of CO2. CFL help reduce CO2 emissions by approximately 1.4 pounds per bulb based on light usage of just 1-hour/day a month.

The U.S. Department of Energy (DOE) is quite correct in suggesting that if every household in the U.S. substituted a 100-watt standard light bulb for a Compact Fluorescent Light bulb (CFL), it would eliminate an amount of carbon dioxide (CO2) equivalent to one million automobiles. However, it is the bigger picture that matters, – motor vehicles contribute the most to CO2 emissions. We must not forget that by focusing on CO2 emissions, they are admitting that CO2 is a real issue that potentially leads to global warming and climate change.

Let’s look at some facts about our carbon footprint. A 100-watt light in operation for 13.3 hours produces approximately one pound of CO2 when the electricity is generated by coal. Coal has significantly higher carbon emissions per kilowatt-hour (KWH) than oil or gas. Please see Carbon content of fossil fuels . Coal generates about half the electric power in the U.S. and produces roughly ¾ of a pound of CO2 for every KWH of electric. That means for every 1.3 KWH of electricity used (a 100-watt light used for 13.3 hours) we produce 1 pound of CO2. And remember it’s the oxygen in the air that contributes nearly 73% to the weight of CO2. This is why more CO2 is created than the actual weight of the fuel.

Using the same fuel emissions data, a motor vehicle with an average fuel efficiency of 22 miles per gallon (MPG), produces approximately 90 pounds of CO2 for every 100 miles driven. A gallon of gasoline produces nearly 20 pounds of CO2. That equates to one pound of CO2 for every mile driven by an SUV with a fuel efficiency of 19 MPG. (19.9 pounds/gallon times 1 mile divided by 19 MPG)

While it makes sense to address the issue of CO2 emissions, particularly as coal accounts for half of electric power generation and has higher CO2 emissions per KWH than oil, the real issue is an energy plan that givers us energy independence. Energy independence should equate to national security.

With the rapid growth in vehicle use around the world, it would be nice to know what are the most efficiency, economic, and least carbon emitting fuels. The number of motor vehicles on the road is increasing rapidly. The number of cars and trucks in China is up over 3,600 percent in the last thirty years. Data from the U.S. Department of Energy (DOE) and Ward’s Communications, Ward’s World Motor Vehicle Data provide an interesting view of the growth in motor vehicle use.

Figure 1 China Truck and Car Registration

While the U.S. still accounts for the largest motor vehicle market, the rest of the world is quickly accelerating towards more vehicles on the road. Figure 2 shows the number of vehicle registrations over the last thirty years for China, the U.S. and the rest of the world (ROW). Vehicle registration growth in the U.S. has been growing at a 2% per year rate from 1975 to 2005. The largest growth in vehicle registration is in China and India where growth in the last ten years is up 195% and 99%, respectively.

Figure 2 World Vehicle Registration

With an explosion in motor vehicle use, what fuel should we be using to better performance and reduce emissions? Let’s go back to two basic concepts of energy: Specific Energy and Energy Density. For a quick review, (Molecular Weight Calculator) the specific energy of a fuel relates the inherent energy of the fuel relative to its weight. Specific energy is often measured in kilo-joules per gram (kj/g). One kilo-joule equals one kilowatt-second meaning one kilowatt-hour (KWH) equals to 3,600 kilo-joules. Also one British Thermal Unit (BTU) equals 1,055.05585 joules. A reference to the specific energy and energy values of most fuels can be found at Hydrogen Properties

Figure 3 Specific Energy

By specific energy hydrogen is the clear leader. However, vehicles must inherently carry their fuel supply, so to determine which fuel is best for motor vehicles, energy density of the fuel is the next measurement. While vehicle fuel efficiency is dependent upon a number of factors such as engine type and performance, make and model of vehicle, road conditions and fuel, we are focusing on fuel energy.

Figure 4 Energy Density: KWH per Gallon

Figure 4 illustrates how fuels compare with respect to energy density, that is, energy relative the container size. We again are using KWH to measure energy value. Hydrogen, because it is so light, requires 15.9 times the container volume to provide the same energy as diesel. Biodiesel provides more power per gallon than Ethanol, which requires 1.6x, the container size for the same amount of energy as diesel. Biodiesel and diesel are relatively similar with respect to energy density. While both Ethanol and Biodiesel are both form of renewable energy, Biodiesel offers more bang per gallon. Before we are able invest more into hydrogen and solar energy to bring alternative energy into parity with conventional hydrocarbon fuels, diesel and biodiesel offer better energy efficiency among hydrocarbon fuels.

Table 1 Specific Energy, Energy Density & CO2

As a final assessment of hydrocarbon fuels, let’s compare carbon dioxide (CO2) emissions among our list of fuels. CO2 emission is a function of carbon concentration and combustion process of the fuel. Fuel energy research at the Department of Environmental Protection (EPA) and DOE indicate 99% to nearly 100% combustion of with fuels used in vehicles. That means almost all of the atoms in the fuel are converted to either heat or byproducts such as CO2.

Figure 5 illustrates how much CO2 is produced per gallon of fuel. Remember the molecular weight of CO2 is about 44 with oxygen contributor nearly 73% of the weight and is taken from our atmosphere during combustion. This is why more CO2 is created than the actual weight of the fuel. A second factor needs to be considered when evaluating CO2 emission and that is how much CO2 is produced per energy value. In comparing CO2 emissions per KWH of energy, Ethanol produces about 7% less CO2 than diesel or Biodiesel and 5% less than gasoline. Neither of these estimates considers the emissions from the processing to produce Ethanol or Bioiesel.

Figure 5 CO2 per Gallon

The bottom line is Ethanol and Biodiesel provide marginal relief to our energy crisis with biodiesel offering better efficiency and Ethanol marginally less CO2 missions. The only real solution to our imminent energy crisis is alternative energies such as solar, hydrogen fuel cells, and wind.

From our post last week we visited some research at California Institute of Technology’s division of Chemical and Chemical Engineering The Lewis Group and its focus on energy conversion and trade-offs between costs and efficiencies for photovoltaic (PV) devices.

We are providing a brief and very oversimplified analysis of the physics behind solar energy, and to that end, an overview of semiconductor band gaps and new technological approaches to optimize solar energy conversion efficiency. Our prior discussions on energy conversion process, dealt with of the properties of various materials used in silicon and thin-film solar cells. (see Research at Caltech may provide clues to improving solar cell efficiency Energy bands and band gaps provide a way of understanding some of the limitation of solar energy efficiency.

Semiconductor Band Gaps
In semiconductors, the band gap refers to the separation between the valence band, where the electrons are shared among the atoms in the material, and the conduction band where electrons can travel. When the material absorbs light, the electrons, when excited to the band gap threshold level, are able to jump to the conduction band and in the process, create electrons and positively charged holes, that in turn generate electric current.

The energy bands refer to the large number of tightly spaced energy levels associated with crystalline materials. Because electrons behave in wave like movements, their movement interferes with neighboring atoms. The physical properties of semiconductor material are much then those of metals. The minimum energy required to free an electron in metal, ( photo-electric effect) is significantly less than that of semiconductors. For metals the energy bands are more or less continuous, the valence band and the conductive band overlap.

In semiconductor materials such as crystalline, energy bands are grouped into bands, hence energy bands. In crystalline material, the energy bands are split between an upper band called the conductive band and a lower band called the valance band. The energy band gaps in photovoltaic semiconductors are different depending upon materials used. The separations of energy bands in crystalline materials results in gaps between the energy bands and are referred to as the energy band gaps. There are discrete and direct band gap materials. Direct band gap refers to having the conductive band minimum energy value and the maximum valance band energy at the same value such as metals. Please see Bart Van Zeghbroeck’s Principles of Semiconductor Devices chapter 2 for a review of energy bands and semiconductor band gaps.

Figure 1 Semiconductor Band Gaps

With a host of physics equations, models, functions, and laws, one can calculate the energy band gaps for semiconductor materials. In addition, one can alter the band gap of the material through, heat, pressure, or introducing impurities into the material (doping the material) to change its physical properties. In general, the more direct the band gap, the more efficient the band gap material. However, research is working processes to improve efficiencies through doping the material and introducing new materials. The processes seek to narrow the band gap of the semiconductor and thereby improve their efficiencies.

One must remember the cost efficiency tradeoff in evaluating which semiconductor material is best in achieving efficiency and cost parameters. Again, the Shockley-Queisser limit of approximately 30%-to-32% for single junction solar cell and a thermodynamic limit of about 83% are also constraint to improving solar energy efficiency. Please see “Detailed Balance Limit of Efficiency of p-n Junction Solar Cells” (W Shockley and HJ Queisser, Journal of Applied Physics, 1961). Semiconductor materials have limited efficiency because excess photon energy generates heat and not electric current.

Research studies on improving solar energy efficiency are embracing numerous fronts including concentrators and multi-junction semiconductors to impact ionization and spectral conversion. For a quick review, please Imperial College, Jenny Nelson’s Third generation Solar Cells. Multi-junction semiconductors employ two or triple junction semiconductor material to capture excess photon energy. A good overview on solar energy is presented by the DOE’s National Renewable Energy Lab (NREL) Third Generation Solar Photon Conversion (Exceeding the 32% Shockley(Exceeding the 32% Shockley—Queisser Limit)

Figure 2 Approaches to PV Cell Efficiency

There should be considerable excitement given the potential that greater efficiency should be able to drive solar energy costs lower. With PV cells below $3.00/watt (or $0.15/ kilowatt-hour), solar energy with be close to parity with conventional electric rates which are about $0.11/KWH. The bottom line is innovative research has the potential to offer the disruptive technology that significantly changes the economics of delivering an energy solutions to all nations.

Oil prices remain at historically high levels and threaten our economy with higher home heating and transportation costs. With a lot of rhetoric over Peak Oil as well as claims that Tar Sands offer a viable substitute for oil, let’s examine a couple of facts to determine the feasibility and sustainability of supplementing our current demand for oil with tar sands.

According to Bureau of Land Management’s on line resource for Oil Shale and Tar Sands, tar sands are a mixture of clay, sand, water, and bitumen, which is liquid hydrocarbon oil like substance. Tar sands consist of about 10%-to-15% liquid hydrocarbon and an 80%-to-85% mixture of mineral water, clay, and sand, and 4%-to-6% water. It takes about two tons of tar sands, which are extracted, mainly through strip mining, and processed to produce one barrel of oil.

According to Alberta Energy, sand oil production was at 966,000 barrels per day (bbl/d) in 2005 and is expected to reach 3 million bbl/d by 2020 and possibly even 5 million bbl/d by 2030. Alberta’s sand oil reserves at 1,704 million barrels, but proven and extractable using current technology, the estimate is 175 billion barrels which is second to Saudi Arabia’s 260 billion according to CBS 60 Minutes

However, with productions level of Alberta’s sand oil at 3 or even 5 million barrels per day, it represents just 4%-to-6% of the world’s oil needs. The U.S. consumed an average of approximately 20.5 million bbl/d in 2006 as indicated by the Energy Information Administration.

If it takes two tons of tar sand to produce one barrel of oil, the ability to increase production to 3 million barrels per day would amount to mining of 2.1 billion tons of tar sand. Total coal mining in the U.S. for 2006 was 1.1 billion tons according to EIA Coal Data At 5 million barrels per day, equivalent to about 6% of the world oil production in 2006, would amount to 3.6 billion tons of tar sand. That would be significantly larger than the 1.3 billion tons total world production of Iron ore in 2005 Info Comm. That appears to be a lot of mining for a 6% increase of oil on the world market. The added tar sand oil would make a significant contribution to U.S. oil needs.

According to the Canadian Association of Petroleum Producers capital investment in Alberta’s oil sands amounted to $10.4 billion in 2005. That’s not a bad investment considering that even with production levels of 1 million barrels a day, revenue potential could be $29 billion a year with oil over $80 per barrel.

Figure 1 U.S. Oil Supply and Demand

Given the that tar sands only provide a fraction of our energy requirements and is burdened by carbon emission even during extraction, a commitment to solar energy fuel cells may offer a better return on investment. The bottom line is oil derived from tar sand is only a supplement to our energy demands, it’s non-renewable, adds to carbon emissions, requires extensive processing, and must be mined.

With rising energy prices and growing concern over global warming, will advances in solar and alternative energies enable the development of affordable and efficient energy solutions. Caltech research on the energy conversion process may offer some insight.

Energy conversion, ways of converting sunlight to electric and chemical energy, offers promising advancements to make solar and hydrogen energies more practical and affordable. On the forefront of energy conversion research, the framework of developing disruptive energy technologies, is The Lewis Group, that is part of the California Institute of Technology’s division of Chemical and Chemical Engineering. The Lewis Group is working in several research areas some geared towards to better understanding of energy capture, conversion of light into electrical and chemical energy, and energy storage. These research projects include photo-electrochemical, which focuses on the chemistry of semiconductors and materials, surface modification of semiconductors to improve electrical properties, and nanocrystalline titanium dioxide that could potentially lead to significantly lower cost for converting sunlight to electrical energy. The Lewis Group research projects are much more than improving photovoltaic devices; they are also exploring ways to convert sunlight into stored fuel energy.

While we are providing a brief and very oversimplified view of the solar energy research, it is important to understand the dynamics of energy conversion because the conversion process impacts the efficiency and the production cost of photovoltaic (PV) devices and fuels cells. The Lewis Group has an interesting PowerPoint presentation available for download providing an overview of energy from consequences of CO2 emissions to the latest in new technologies to improve alternative energies. Of particular interest are the historical efficiency trends for various materials used in crystalline and thin-film solar cells, energy conversion strategies of turning light to fuel and electric, and the cost/efficiency tradeoff in photovoltaic devices.

Cost/Efficiency Tradeoff
Photovoltaic devices are limited in their practical efficiencies governed by the thermodynamic limits and production costs that involve tradeoffs in materials, production processes, and PV device packaging. The Lewis Group provides a thorough illustration of the efficiency trends for various PV devices materials such as crystalline silicon used in semiconductors as well as the new approaches to thin film PV including amorphous silicon, cadmium telluride (CdTe), copper indium deselenide (CIS) and copper indium gallium deselenide materials (CIGS). These thin film material could offer substantial PV devices price reductions as a result of higher efficiency or lower production costs.

Figure 1 Cost/Efficiency Tradeoff

There is a tradeoff between improving the efficiency of a PV device, that is the amount of electric energy per solar panel, and the cost to produce the PV device. The average efficiency for a PV device is between 15%-to-16% and the average cost between $100-to-$350 a square meter. The cost per square meter and PV efficiency measured in watts per square meter can equate to a cost per watt, which ranges from $1.25/watt to $2.00/watt. SunPower (SPWR), offers the leading PV single junction device efficiency of 22% employing crystalline silicon and is expected to reach 500 megawatts (MW) production capacity by late 2009 from 330 MW in 2007. First Solar (FSLR) is ramping its thin film cadmium telluride (CdTe) solar technology by leveraging its low cost advantage with high volume production with its 75 MW in operations Ohio and 100 MW coming online in Germany. Startup Nanosolar is focusing on thin film solar PVs with a blend of copper indium gallium deselenide (CIGS) materials along with a manufacturing process much like printing, by placing the material blend upon metal foil. Evergreen Solar (ESLR) employs an integrated manufacturing process from wafers to cells and panels based on its proprietary String Ribbon Wafer technology with production levels at 118 MW in 2007.

There is presently a practical limit to solar efficiencies of approximately 30% and a thermodynamic limit of about 83%. The Shockley-Queisser limit at 30% for single junction solar cell efficiency is a function photon absorption in a material. “Detailed Balance Limit of Efficiency of p-n Junction Solar Cells” (W Shockley and HJ Queisser, Journal of Applied Physics, 1961) found that photons delivering excitation energy above a threshold (the band gap) for charge carrier electrons is lost to heating, meaning excess photon energy generates heat and not electric current. Photons with energy levels below the band gap pass through the material and photons above the threshold are absorbed. The absorbed photons transfer their energy to excite the electrons in the material and create pairs of negative electrons and positive charges that, because of their repulsion, travel to opposite ends thereby generating electric current.

According to the Lewis Group, other factors that limit PV cell efficiency include reflective loss of approximately10% for a material like silicon and a fill factor constraint that peaks at 83%. The fill factor restraint is attributable to the current-voltage characteristics of a PV cell that deals with matching the photocurrent density and voltage.

NREL (DOE lab) and Spectrolab (a Boeing company BA) using a multijunction semiconductor approach along with solar concentrators have achieved solar cell efficiencies of 40.7% in lab experiments while commercial products operate at 26.5%-to-28.3% efficiency range. Solar cell suppliers could reduce costs through production improvements or improve PV efficiencies without adding to costs. PV cell suppliers should benefit from economies of scale to reduce production costs while advances in technology improve PV efficiencies.

Research conducted by the Lewis Group at Caltech indicates that materials selected for PV devices have unique properties in their ability to absorb sunlight and generate electricity. In their analysis of semiconductor materials, the Lewis Group research found two parameters, determined by the physical properties of the material, that influence the PV’s efficiency. One is the thickness of the material, measured in microns, required to absorb enough sunlight to bring particular atoms in the material to an excited state, thereby freeing the electron to generate an electric current. The second parameter in the PV material is length of time the excited electrons last before recombining to generate heat instead of electric. Some materials such as silicon require material thickness of 100 microns while gallium arsenide (GaAs) only 1-to-3 microns.

Energy Conversion
Conversion of energy into electric or fuel is advancing through research in photoelectrochemical materials for solid and liquid fuels. Improvements in efficiencies for PV devices and fuel cells offer tremendous potential for transportation and home electric use.

Figure 2 Efficiency of Photovoltaic Devices

From figure 2, it seams quite apparent that PV efficiency has improved substantially since the 1950’s. Please see the Department of Energy (DOE) Basic Research Needs for Solar Energy Utilization for detailed analysis of solar energy. Further progress in PV and fuel cell technologies is predicated upon successful funding of further research. The bottom line is that only through innovative research will a truly disruptive technology be developed that has the ability of changing the economics to deliver an energy solutions to all nations.

With oil prices over $80 per barrel, the National Energy Assistance Directors’ Association in its press release today Record Home Heating Prices for Heating is expecting the average home heating cost for the ’08-’08 season to rise 9.9%. For homeowners using oil heat, heating costs are expected to increase 28% and for homes using propane, a 30% increase is expected.

With rising energy costs driven by costly oil extraction, the potential impact from carbon emissions with our continuing use of oil on climate change and rising sea levels, as well as the potential for fuel supply disruptions, could exacerbate our tenuous relationship with energy.

Eventually, as price rise dramatically, alternative energy becomes more compelling. The problem is our economy is so inextricably link to oil, that our energy security is based on securing foreign oil.

Figure 1 Oil Prices and Home Heating Costs

Without support and research on alternative energies such as solar and fuel cell technologies, we are hostage to oil. The U.S. economy is facing one of the most crises since the Oil Embargo of the 1973. Inflation driven by escalating oil prices is impacting the cost of home heating, transportation, production, materials, and food, particularly as corn is diverted to ethanol production. The housing market is in turmoil with falling home values, rising foreclosures, and a credit crisis that is making it more difficult to secure a mortgage may lead to slower consumer spending. With rising inflation and slower growth we may find ourselves in an economic world described as stagflation that was coined in the ’70’s to describe the bleak environment when gas stations rationed fuel, unemployment grew and the Federal Reserve raised rates dramatically to quell inflation.If we could limit our dependence on foreign oil through investment into solar energy and fuel cell technologies, we would not be impacted by the exogenous events in oil producing nations.

We believe there are a number of catalyst that could serve to dramatically lower the cost of alternative energies. It takes initiatives from all of us to change the balance. After all, oil is becoming more costly to extract, new oil discoveries are in difficult and challenging environments, and oil will eventually run out – it is finite. If we wait to long, our ability to make a difference may not be available.

Without greater investment into solar and hydrogen energies, we are held hostage to rising oil prices. Alternative energies such as solar and hydrogen fuel cells offer tremendous potential to provide energy independence and energy security. The dependence of the U.S. upon imported foreign oil raises inflation, weakens our currency, exacerbates the trade deficit, and forces consumers to pay higher prices for home heating and transportation. With oil exceeding $80 a barrel in late September 2007, the only beneficiaries are countries exporting oil and oil conglomerates. I guess when countries such as Dubai, after accumulating a large trade surplus based on inflated oil prices, decides to diversify away from oil and buy a non-voting stake in the NASDAQ market, it’s a wake-up call.

To better understand the potential of alternative energy, we should try to understand two basic concepts of energy: Specific Energy and Energy Density. Without digressing into chemistry 101, (Molecular Weight Calculator) the specific energy of a fuel relates the inherent energy of the fuel relative to its weight. Typically, specific energy is measured in kilo-joules (kj) per gram. A joule is a measure of kinetic energy – one joule is the amount of energy needed to move two kilograms at a velocity of one meter per second. Or a kilo-joule equals one kilowatt-second meaning one kilowatt-hour (KWH) equals to 3,600 kilo-joules. Your local electric utility bills you by the KWH, which according to the US Department of Energy Average Retail Price of Electricity in 2007 is approximately $0.11 per KWH.

Table 1 Specific Energy and Energy Density

The specific energy of a fuel tells us how much energy can be derived from a measured amount fuel by weight. By ranking each fuel by its specific energy, one can determine how efficient each fuel is. Specific energy and fuel density are often proportional to the ratio of carbon and hydrogen atoms in the fuel. A reference to the specific energy and energy values of most fuels can be found at Hydrogen Properties

Figure 1 Specific Energy
Figure 1 illustrates how fuels compare according to their specific energy. As we can see, hydrogen, because it’s extremely light, has the highest specific energy in comparison to hydrocarbon fuels.

This however, is not the full story because volume or energy storage requirement becomes a significant factor for gaseous fuels. Specific energy is important to analyze fuel efficiency by weight, but for hydrogen that must be pressurized and cooled to bring to a liquid state, the energy density become more relevant to fuel efficiency.

Figure 2 Energy Density: KWH per Gallon

Figure 2 illustrates how fuels compare according to their energy density, that is, energy relative the container size. As we can see from figure 2, hydrogen, because it is so light, requires 15.9 times the container volume to provide the energy of diesel or oil. In comparison to diesel, ethanol requires 1.6x the container size for the same amount of energy.

The container size becomes a significant detriment for housing hydrogen. Energy density is usually measured in kilo-joules per cubic meter (kj/m3). As kilo-joules are readily translated into KWH by multiplying by the number of seconds in an hour (3,600) and the College of the Deserts’ computation into gallons, we are converting the data into KWH per gallon for those of us in the U.S.

Hydrogen fares poorly relative to energy density. However, technology offers an approach to enhance the benefits of hydrogen with fuel cells. Fuel cell enable hydrogen molecules to interact with oxygen through a membrane that allows transmission in only one direction to convert H2 into an electric current to power your automobile. Fuel Cell Basics Fuel cells often capture the hydrogen electron from hydrocarbon fuel such as methane allow convention fuels to generate hydrogen for electric generation.

In a hydrogen-based economy, solar energy can provide electric to generate hydrogen through electrolysis and vice versa. Jeremy Rifkin’s The Hydrogen Economy eloquently illustrated the hydrogen economy where fuel cell act as mini power plants and the electric network resembles the Internet where cars plug into an electrical grid supplemented by solar cells at your home and work. Electric power generation moves from large utility generation to a distributed generation – everyone plugged in can generate power to the grid. The key benefit of hydrogen is that it democratizes the energy economy bringing power to all countries in the world.

An interesting technical analysis of hydrogen energy is provided by Ulf Bossel and Baldur Eliasson Energy and the Hydrogen Economy The bottom line is that solar and hydrogen energies offer tremendous potential to low long-term fuel costs and improve our environment and climate. More research is required to lower costs and improve feasibility.

There is considerable variance in calculating the cost of solar energy. Using U.S. Solar Radiation Resource Maps from the National Solar Radiation Data BaseThe (NSRDB) we found the amount of kilowatt-hours (KWH) per days of solar radiation per square-meter varies from less than two for Northern Alaska to six KWH/m2 per day for parts of Arizona. Using these maps we found that the cost of solar varies from $0.23-to-$0.68 per KWH with a mean of approximately $0.45 per KWH. The cost of $0.23 per KWH equates to Arizona and $0.68 per KWH reflects the cost of the lower solar radiation in Anchorage, Alaska. These cost are based on data from solar photovoltaic (PV) supplies before tax benefits or rebates. Please see SunPower (SPWR) and Sharp Solar.

Green Econometrics provided a normalized solar energy cost per KWH of $0.38-to-$0.57 with a mean cost of $0.45 as reference for what most of the U.S. would expect for solar energy. We have referred to the Lewis Group at Caltech which has provided estimates of $0.25-to-$0.50 per KWH for the cost of electric production from solar with a mean of $0.38 per KWH. According to Solarbuzz the average price of solar electric is approximately $0.38 per KWH. The Solarbuzz index is based upon an average of 5.5 hours of sunshine per day over a year, which relates to locations such as the US Sunbelt, Latin America, Africa, the Middle East, India and Australia. With large U.S. populations still residing in the North, we would still expect the average home in the U.S. to be paying closer to $0.45 per KWH.

There are a number of factors to consider such as total system cost, the use of concentrators and tracking systems to align the solar panel to be perpendicular with the sun during the day and the property location. There are factors to consider with property location such as whether the roof is facing south or towards the east or west. If the system rests on the ground, shading from building or trees becomes a factor. Other considerations include latitude, climate, weather, and time of day, season, local landscape, and temperature. The Department of Energy provides some information for home owners considering a solar energy system Small Solar Electric Systems

The cost for solar energy systems refers to the average efficiency of solar photovoltaic (PV) panels. The average efficiency for PV devices is between 15%-to-16%. According to SunPower, which has the leading PV device efficiency of 22% there is a practical limit to solar efficiencies of approximately 30%. SunPower is targeting a 23% solar efficiency as a goal to reduce its solar energy system cost by 50% by 2012. Sanyo is second with solar efficiency of 18%. SunPower claims to have patented solar PV architecture and production processes that enable the company to command a lead in solar efficiency.

For solar energy systems below 5 kilowatts, the cost of the inverters represents a substantial part of the system cost. An inverter is used to convert the direct current (DC) from the solar panels to alternating current (AC) used in your home. Inverters can cost from $400-to-$700 per 1000 watt adding to the total cost of deploying small solar energy systems. See Wholesale Solar

How long will it take before solar energy is at parity with hydrocarbon fuels? In terms of cost per Kilowatt-Hour (KWH), solar energy is four-to-ten times the cost of hydrocarbon fuels. Green Econometrics’ research estimates that solar energy cost about $0.38-to-$0.53 per KWH. (See Understanding the Cost of Solar Energy ) There are two significant market factors that should help reduce the cost of solar energy: strong market demand for solar energy driven by rapidly rising oil prices that should lead to new product developments and the economies of scale derived from experience curves in the production of solar panels.

With oil harder to find and more costly to extract, energy prices should continue to rise. In the U.S. oil production continues to decline despite increased drilling activity. (See How vulnerable are we to energy shocks? ) These market factors should continue to drive demand for solar energy. With strong market growth rates we wanted to assess various solar energy cost assumptions for different experience curves found in the semiconductor industry.

The productions of solar photovoltaic cells are similar to semiconductors and enjoy cost reduction as production increases. We briefly mentioned experience curves, the production cost reductions associated with doubling production of semiconductors in our last post from an article from the Lockwood group TECHNOLOGY TRANSFER: A PERSPECTIVE. These experience curves translate into cost reductions of 10%-to-30% as production volume doubles.

Our analysis attempts to develop a what-if scenario for the solar energy market by comparing energy costs for different experience curves and market growth rates. Research into new materials or processes could significantly reduce the cost of solar energy. Of course the funding of solar R&D is limited, but there are programs that appear promising such as The Lewis Group at Caltech

Figure 1 Cost per Kilowatt-Hour

Figure 1 illustrates the cost disparity between solar energy and hydrocarbon fuels. Our what-if scenario provides a framework to measure the number of years it will take before solar energy cost are at parity to oil and electric. Our assumptions are solar energy market growth rates of 40%-to-60% and experience curve of 10%-to-30%. Current growth rates for domestic solar suppliers such as SunPower (SPWR), First Solar (FSLR) and Evergreen Solar (ESLR) are current enjoying revenue growth rates of over 100%.

Figure 2 Solar Parity

Oil and electric prices are assumed to increase at a modest 2.6% per annum for electric and 3.3% for oil. In the most optimistic scenario of market growth of 60% and experience curve of 30%, suggest that it would take until 2014 or seven years before solar energy is equal to the price of electric. With 10% experience curve and 40% market growth it could take 20 years before parity. Increased funding into solar energy research and higher energy prices shorten the time.

The bottom line is that as solar energy reaches parity with hydrocarbon fuels, energy security is achieved for all countries.