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California: The weird business of solar thermal energy

Colleagues from the Energy and Resources Group in Berkeley tell me that California and the Western States can be supplied to a significant part by concentrated solar power (CSP) in 2022 - at least upon the implementation of a carbon tax > $40/tCO2. CSP is also part of the suggested EU-supergrid. Is CSP the second renewable energy technology after wind that breaks through? Let us contrast the abstract macro-economic modeling with a business perspective. Here some insights that I gained from a financial analyst, Shujia Ma.

How does CSP compete with other energy sources?

A CSP plant can be compared with a gas plant where heat steam drives a turbine. The CSP plant itself is currently more expensive than the gas plant but no fuel costs have to be paid for - solar energy is free. In this regard, CSP is similar to photovoltaics (PV). In contrast to current PV installation, CSP relies on economies of scale and is supposed to be cheaper. However, due to its plant characteristics, additional transmission lines are needed that are not required for roof-top solar panels. CSP and wind operate in different market segments, as CSP operates more in peak demand times whereas wind is mostly available at night (in California).

What are the challenges that limit CSP deployment?

For the US, currently financing is the dominant challenge. The few banks that have sufficient resources are reluctant to lend money. Another problem is state regulation which is often very slow in processing applications. The market for CSP is relatively weird, as only two firms control important parts of the supply chain such as mirrors or tubes (part of the heat transfer system). More competition in the supply market would bring down costs significantly.

Can technological progress bring down the price of CSP closer to grid parity?

Yes. Advancement in materials will lower the price for CSP deployment. However, Solar Millenium is mostly a developer and does not have sufficient resources for extensive research. The CSP business relies on R&D from public research agencies such as NREL.

That leaves open the question what role policies play. The current renewable portfolio standards (RPS) of the western US states clearly pushes utilities to purchase large-scale renewable capacities, including CSP, and by thus developing the market. Important condition here is that the RPS is actually enforced. It is ironic that the US currently relies much more on this regulatory approach, and that is Europe that builds on market instruments. In fact, also in the US, a combination of carbon price and feed-in tariff, providing long-term reliable incentives for investors, could brighten up the market for CSP and other renewables. A US-Europe comparison is somehow narrow: Given low labor costs (important for CSP), good solar resources, fewer transmission line problems and the potential availability financial resources from the government and uncomplicated procedures, also China may turn out to become an important CSP player.

Posted by Felix Creutzig on May 14, 2009 4:12 AM | Permalink