Tuesday, January 29, 2013

Misreading the Bones

In electricity markets there is nearly always much more generation available than needed. We have the extra generation for peaking, outages and so forth. All generation options are not equal. Some options have a price of 25 $/MWh, others 50 $/MWh and others still more. Some generation options provide firm energy, others non-firm. 
I'd argue that in solar manufacturing we don't have an overabundance of players that can deliver a competitive price at Tier 1 quality. There's extra capacity but the price point is either too high or the quality level is too low for what the market really wants and needs. Analysts yammer on about manufacturing overcapacity but when you look at what's competitive we're not far from balanced.
I follow Germany closely. To be honest I see plenty of demand for Tier 2 and Tier 3 product so that contradicts my points here to some degree. That said I also see plenty of demand for quality and the price differential between quality and Meh isn't ridiculous. I don't think the market is suffering from over supply - it's suffering from under information. 
At the Power System Operations level reliability trumps price - not by much but it's a Kings beats Queens situation. We pay more for Firm Energy than Non-Firm Energy because we recognize there's a premium that comes with reliabiltiy. I expect the same will happen with photoelectrics. Solar is a 25+ year investment. FiTs and assorted incentive policies create unnatural pressure to rush into the market to take advantage of incentives. Once we remove the artificial sweeteners I'm convinced we'll see the reliability bias take over. Take away the hurry factor and people will make smarter investments. If we view manufacturing capacity with a reliability bias the overcapacity situation goes away. Conclusion... the banalysts are misreading the bones.

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