In 2012, global private investment in solar power was $142.5 billion dollars for a meager return of $93 billion (Isola, 2013). This is a loss of 35 percent, which is far from profitable. The inability of the solar industry to show a profit reflects its use of inefficient technologies and poor business models. It is simply too early in the technology development to justify pouring large investments into the industry. With the current state of the solar energy industry, the produced energy remains too expensive to compete in the energy market. Until the solar energy industry becomes profitable, decreasing dependency on oil through solar energy use does not make sense because it is not economically sustainable.
A prime reason behind the solar energy’s inability to compete relate to problems with its primary business model, the purchase of solar panels by residential customers. Unlike almost all other energy purchases, this model requires the customer to completely cover the upfront purchase, installation costs, and ongoing maintenance. This is like the gas industry requiring that the customer buy a gas station, or the electrical industry requiring a customer to buy a utility plant (Himmelman, 2012). The model used is an illogical way to sell energy.
After looking at the numbers, potential solar energy customers realize that with the present solar panel technology it would take ten, twenty, even up to fifty years to just break even on the investment, depending on the amount of sun expected to hit their home (Clendaniel, n.d.). Until the costs of the technology come down, it will be impossible for the solar energy industry to mature into making profit, as mainstream customers will not routinely make such purchases.
Granted, a subset of solar energy customers are motivated by ecological concerns and the need to find a solution to the inevitable upcoming oil and gas shortages. These motivations are completely admirable, and do provide a real reason to use solar power, even in its current state. But until a mainstream market is found for solar energy, the money invested will continue to be lost. In fact, the 35 percent loss rate does not seem to be deterring investors. Nor has the long string of solar company bankruptcies, notably headed by Solyndra and Evergreen, slowed the rate of investment (Wesoff, 2013). McKinsey & Company, a management consulting firm, estimates that between $800 to S1.2 trillion will be invested in solar energy in the next decade (Aanesen, Heck, & Pinner, 2012). In my personal opinion, this is simply too much money to squander on an industry that has shown that it cannot innovate its products or business models fast enough to compete.
Current reliance on solar energy is impractical and wasteful. The money being used to keep the industry alive would be better spent on pure research and development in the area. For example, a recent breakthrough in nanotechnology claims to be able to deliver an extremely efficient and much cheaper solar cell, but plants to produce the molybdenum components are needed (Nanowerk News, 2013). Developing the needed manufacturing is where the money should go, rather than artificially buoying up a poorly run industry that is unable to make a profit. Until the solar energy industry reduces costs and becomes a profitable business, energy solutions to reduce dependency on oil are best found elsewhere.
References
Aanesen, K., Heck, S., & Pinner, D. Solar power’s next shining. McKinsey & Company. Retrieved from: http://www.mckinsey.com/Client_Service/Sustainability/Latest_thinking/Solar_powers_next_shining
Clendaniel, M. (n.d.). Do you like money? If so, solar panels may be for you.
Co.Exist. Retrieved from:
http://www.fastcoexist.com/1679371/do-you-like-money-if-so-solar-panels-may-be-for-you
Himmelman, J. (2012 August 9). The secret to solar power. New York Times Magazine. Retrieved from:
http://www.nytimes.com/2012/08/12/magazine/the-secret-to-solar-power.html/
Isola, J. (2013 January 14). New investment in clean energy fell 11% in 2012. Bloomberg New Energy Finance. Retrieved from:
http://about.bnef.com/press-releases/new-investment-in-clean-energy-fell-11-in-2012-2/
Nanowerk News. (2013 June 26). Atom-thick nanotechnology solar cells could pack hundreds of times more power. Retrieved from:
http://www.nanowerk.com/news2/newsid=31039.php
Wesoff, E. (2013 April 6). Rest in peace: The list of deceased solar companies. Greentechmedia.com. Retrieved from:
http://www.greentechmedia.com/articles/read/Rest-in-Peace-The-List-of-Deceased-Solar-Companies
