Three grids, two not ready for alternative power

In our first two posts, we talked about how our reliance on turbine technology and carbon-fueled generation is not going to be going away anytime soon, even though it is inefficient. Our next few posts will be looking at the problem of power distribution. The growth of alternative energy technology has fueled a movement toward distributed generation over grid distribution, which is what we more commonly employ.  Grid power in the US comes mostly in direct current (DC) generation, resulting from Thomas Edison winning the debate over the benefits of DC power offer Nikola Tesla’s alternating current (AC). We are not going to get into the benefits of one over the other here but will, instead, talk about what is. We have a massive investment in most of the US in DC generation. The exceptions are most of the state of Texas, which has a unique grid system capable of handling both, as well as a small portion of southern Alaska and some of the northeastern states.

DC is easier to distribute power over long distances. All grid systems have a certain amount of electricity loss but AC tends to lose more power than DC over distance. The problem with alternative power and most of the grid in the US is that alternative power cannot be sent to where it is needed when it is needed. It must be localized or “boosted” along the line. With large grid-scale facilities, like many of the photovoltaic facilities being built in the Southwestern deserts, that becomes a significant issue.

Distributed generation is a concept becoming more popular because it fits better into the uses of alternative power generation. Quite simply, it means you generate the power adjacent to where it is needed. If you put solar panels or wind generators on your property, you are a distributed-generation facility. That causes significant problems for the grid.

First, your solar panels are producing AC power, similar to what your handheld device uses, but your home is set up for DC. You have to add an inverter to your home to change the AC into DC so it can be used in your home and placed on the grid. Second, as we mentioned previously, the power you produce isn’t necessarily when you or the grid actually needs the power, so the utilities cannot rely on the power you produce being available when it is needed. An AC grid would be able to better distribute your excess energy, as it does in Texas, but most of us are not on an AC grid so we have to make do with what we have. We have invested far too much in the infrastructure to rip it out and install a new one.

That brings us to the owners and stewards of the grid: Utility companies. Power generation has become a major headache for utilities that draws resources and money away from grid maintenance (in other words, the powerless and towers criss-crossing the country). There has been little investment in upgrading the grid because of it, but it remains a significant source of income for utilities, especially as the distributed power network grows. When it looked like they could make money off of people who generated power with alternative energy, by buying it cheaply and selling for a profit, they were more than willing to offer sweetheart deals to companies like SunPower, but as we have pointed out earlier, the profits have not been forthcoming and the deals, known as net-metering, are going away.

At the same time, some utilities are looking at getting out of the generation game altogether. PG&E in Northern California has made no secret that it is not only not building any new generation facilities, it is selling off what it does have to independent companies, with an eye to upgrading distribution infrastructure. The utility actually buys much of the power it delivers to customers from out-of-state power plants. While this practice makes financial sense for the utilities as well as for the integrity of the grid, it means higher power bills for customers including those who have already invested in alternative sources. The big losers in this paradigm shift will be the solar and wind companies that have relied on a steady steam of investment and revenue from the utilities.

Analysis: Time for the semi and wafer industries to make nice

By Lou CoveyEditorial Director

Last week we did a piece on the dysfunctional relationship between the semiconductor industry and the silicon wafer industry.  Both have the potential of healing the rift and ensuring a profitable give and take for several decades, but there is also the potential that, if attitudes do not change within the next decade, it will get even worse.

Last week’s article pointed out that the wafer companies stuck it to the semi industry when the solar boom hit 10 years ago.  Wafer fabs shifted resources to solar because the requirements for solar cells was not as stringent as those for semiconductors, and then they jacked up the prices for semi customers.  The chip companies took it in stride, but when the solar bubble popped five years ago they started demanding and getting price concessions and have been for several years, in the face of rising demand for computing silicon.

Here’s the rub.  The solar panels containing that silicon had a 20-year lifespan when they were installed.  It is now 10 years later and those early panels are showing degradation now, with an average degradation of 1 percent per year.  By the end of the second decade, early adopters will be back on the power grid unless they replace the older, less efficient panels.  That is going to create a new demand for silicon wafers for solar panel use in 10 years.

IBM stepped up with new processes to recycle semiconductor wafers and will be going into the business of supplying material to the solar industry, but the wafer industry as a whole could repeat history by looking to make a quick killing by selling cheap product to solar and jacking up prices again.  It’s time for both sides to sit down and plan accordingly.

Economics and Vengeance wreak havoc with wafer market

By Lou Covey Editorial Director

As Semicon West approaches in two months, there will be a rising chorus of predictions for 450mm manufacturing and test equipment. But silicon wafer industry revenues are heading in the wrong direction, dramatic technology advances in test and reclamation, and an overall urge for revenge among their customers over gouging during the solar boom.

In February, SEMI issued its annual report on the state of silicon wafer industry that showed a small increase in the delivery of wafers to customers in spite of a well-known glut of supply, but a sharp decline in revenues that outstripped reasons based on inventory. What is more, this appears to be developing into a trend over the past three years.

When questioned about the discrepancy, SEMI replied simply, but cryptically, that it was due to "market pressures and a weak yen.” Yet placing the blame on the decline of Japanese currency seemed knee-jerkish at best. While it is true the yen has plummeted over the past 20 years, the decline has relatively flattened out over the past five years. Japan, while still the leading supplier, has seen a significant increase in competition worldwide especially in China, Malaysia and even the US, modifying the yen's influence even more. The extremely vague explanation "market pressures" is even more suspect. Let’s take a look at test, for example.

A joint study by Hewlett Packard, the University of Oregon and the University of California, San Diego showed that applying data mining to optimize IC test resulted in significantly higher yields on virgin wafers. At ITC in 2013, Craig Nishizaki, Senior Director of ATE Development at NVIDIA, extolled the benefits of test data management methodologies. Higher yield through improved test reduces demand. Although, you wouldn’t know it talking to people in the test management industry.

Jim Reedholm, an independent representative of Yieldwerx, based in Austin Texas. “I haven’t seen any data that would backup any claim that effective test management would reduce demand for wafers, but it sounds right.” Executives at other semiconductor test management technology companies were either unresponsive or, strangely enough, unlocatable.

OK, so maybe no, maybe yes. How about reclaimed wafers?

According to Semico analyst Joanne Ito, improvements in reclamation processes for silicon wafers has dramatically dropped the demand for test wafers for semiconductor manufacturing and, according to SEMI, both revenue and material shipments are up 14 percent from last year. Ito believes that will be a trend going forward, but SEMI predicts that increase will flatten out by 2015. We might be getting closer to a reason for the discrepancy between revenue and shipments.

According to Ito, during the solar boom up to 2008 there was a significant lack of raw material for wafers, which drove up prices for the high-quality virgin wafers that the semiconductor industry needs. That same solar demand ate up the capacity for 200mm and 300mm manufacturing. When the boom blew out, demand for the raw material dropped and a huge overcapacity developed in 200-300mm facilities.

OK, so oversupply tends to push down prices and revenues. Econ 101. There is only one problem. Demand has not decreased in the semi industry. It is increasing as demand for smart devices worldwide drives semi design starts. Hence, the steady increase in shipments to semi customers. Why the dramatic drop in revenue?

Ito thinks the answer might be vengeful purchasing executives in semiconductor companies.

“During the solar boom, the semi industry (which has higher requirements for the wafers than solar) saw an annual increase in prices of 10-12 percent from the wafer manufacturers because of the cost of silicon raw materials. So the semi industry said, ‘We paid you a when the cost went up, we want this cost reduction reflected in our prices.”

Now we have a better idea what “market pressures” are actually in play. The opportunity to return to the wafer manufacturers what they forced upon their customers a decade ago is too good to resist.

This quid pro quo may seem good for the industry in the short run. However, long-term it is causing significant problems. We will take a look at that next week…

Do you agree there is an element of vengeance going on, or do you see other factors at play? Leave a comment and tell us what you think.

Can Solar survive Solyndra aftermath?

By Lou CoveyEditorial Director, Footwasher Media

The recent collapse of a few high-profile solar energy companies, like Solyndra and Beacon Power, has caused even the most ardent fans of alternative energy to ask, "Can this industry survive?"  The answer is a resounding, yes and no.  It all depends on what government on all levels does.

Current public impressions of the health of any industry are colored by recent history.  The financial failings of companies and industries considered "to big to fail" are what most people think of when hearing news about solar.  But unlike the auto industry, with a population of three major players, the solar industry is filled with hundreds of start-ups struggling to establish themselves.  Even if one, two or two dozen go down, it is still well populated.

"Although panel manufacturing is in trouble, the solar industry is doing relatively okay." said Chirag Rathi, a senior consultant on the energy industry for Frost and Sullivan. "This is largely due to the advent of solar leasing companies in the U.S. One such company, SolarCity, was even give a contract to install solar power on up to 160,000 military homes. The program was supposed to be supported by the Department of Energy (DoE), which had extended a conditional commitment for a partial guarantee of a $344 million loan to support the project."

Government subsidy and purchase are the key to whether the industry thrives. The DoE recently announced a new initiative to fund solar collection technology development and the Department of Defense (DoD) is under congressional mandate to reduce fossil-fuel consumption by 50 percent.

The reality is that all forms of energy production are heavily subsidized by government throughout the world.  China has invested hundreds of billions of dollars in their solar panel industry.  Spain's financial difficulties are directly tied to the 100 percent subsidy it gave to the industry there, that it can no longer support.  Even Germany, relatively healthy in the world economy, is struggling to maintain its levels of support to the industry.  In the US, most of the government support – Federal, state and local – is actually tied to the installation industry.

"The purpose of government subsidies for renewables is to reduce costs and make them economically viable alternatives to fossil fueled electricity generation." said Jay Holman, research manager for solar energy strategies at IDC. "As the cost of electricity from renewables drops, it is natural that the subsidies drop as well: this is an indication of progress. The trick with subsidies is to encourage industry growth without placing too heavy a burden on electricity ratepayers or taxpayers. A flat, constant subsidy won't do the trick: it needs to drop in line with falling costs."

Holman said Germany and Italy automatically reduce subsidies based on the amount of solar installed in the previous year, which provides transparency and predictability for the market.

"In the US, however, we send the issue back to congress every few years and let them duke it out. That is an incredibly inefficient approach that makes the subsidy situation extremely difficult to predict."

Holman concluded that what the US industry needs is a long term subsidy plan that makes automatic subsidy adjustments based on the rate of installations and/or the cost of electricity from renewables.

Solyndra collapses.  Why are the generals smiling?

The fall of Solyndra was expected, and the DoD is happy

By Lou CoveyEditorial Director, Footwasher Media

The collapse of Solyndra has been the subject of both major news coverage and a foundational bit of political discourse recently.  A closer look at the facts reveals that the reality of Solyndra and the solar industry is far from the speculation, especially when viewed from a military perspective.

In the wider scope, industry analysts and observers wonder what all the kerfuffle is  about because everyone who knew the industry knew that Solyndra was not going to make it, especially in the current market.

"Solyndra's CIGS solar panels were expensive," according the Chirag Rathi of Frost and Sullivan. "The technology was innovative when it started out 6 years ago, but the global market place changed so fast in this time period that it became incredibly difficult for them to compete on price.  Their per watt production cost was widely believed to be above the $6 mark, much higher than the poly-crystalline technology of $1.75 per watt and falling."

According to the industry rule of thumb, for alternative energy to be competitive with fossil fuels, the cost per watt needs to fall below $1.

Rathi pointed out that the solar panel industry is in oversupply with the massive capacity coming out of China and Taiwan. "The Chinese government has provided more than $30 billion in soft loans to the domestic panel manufacturers."

With all this common knowledge, the persistent question has been: Why did the Obama administration push forward with the loan program?  The first answer is, well, that's been the way things have been done for some time.

Contrary to conventional thought, alternative energy gets the lion's share -- by far -- of any government investment in energy, including fossil fuels.  According to the Institute for Energy Research, direct federal subsidy (that's cash, not tax incentives) for renewable energy topped $14 Billion in 2010, while total subsidy of fossil fuel (gas, oil and coal) was just under $3.4 Billion... and 90 percent of the latter was in tax incentives, not actual cash payments.  And since the Solyndra investment was only in the form of loan guarantees, it won't come out of the federal budget until the bankruptcy is complete.  In other words, the fall of Solyndra has not yet cost the government anything.

So what, specifically, did the government get out of the Solyndra deal?  That's where no one is looking, and where you need to look to find the more interesting story.

Find out why the generals are smiling at Element14.com