Renewable Energy Will Promote a More Diverse and Sustainable Economy

T. J. Rodgers, PhD, President and CEO, Cypress Semicondutor, Chairman of SunPower Corp.

It¡¯s time for the world to wake up and realize that the age of fossil fuels is nearly over. While it will be some decades before the transition is complete, the harsh economic realities that oil, gas, and other carbon-based energy sources are becoming too costly to sustain a vibrant, free-market economy are apparent today. Even ignoring any environmental issues, the real cost of fossil fuels now includes the political capital we lose as we increasingly rely on undemocratic regimes for our energy, not to mention the vast amounts of human and economic capital that is spent securing the world¡¯s oil supplies.

This contrasts sharply with wind, solar, and biomass technologies which do not rely on dwindling resources and are actually less expensive to manufacture with every passing year. Most of the research and initial investments needed to push renewable energy technologies past the point where they can compete with once-cheap fossil fuels are already in place. In fact, when we consider the real cost of fossil fuels, renewable energy sources begin to look downright cheap. But besides the direct economic benefits, these so-called ¡°green power¡± technologies produce some very important secondary returns on investor¡¯s dollars. While it¡¯s hard to attach a firm price tag on the social benefits and economic stimulus provided by access to clean, reliable energy, it¡¯s becoming increasingly obvious that it has the potential to move the global economy from a period of uncertainty and scarcity to a new era of sustainable growth and long-term abundance.

I don¡¯t say this as a fuzzy-headed theorist, but as a successful, bottom-line-oriented high-tech entrepreneur who has put his money where his mouth is. As head of Cypress Semiconductor, I was successful in convincing our Board to invest in SunPower Corporation, a company which makes the world¡¯s most efficient commercially available solar cells. Our first large-scale production facility went on-line in late 2004, and should ramp to full capacity of more than 32 million solar cells per year by the close of 2006. That means we¡¯ll be able to deliver over 100 megawatts (MW) of generating capacity to the global economy every year. And that¡¯s before our second plant ramps up to an anticipated capacity of at least 300 MW when it is fully built out.

Some might wonder why we committed approximately $150 million into SunPower, what most of the conventional business community would regard as a risky, blue-sky venture? The answer is simple - it¡¯s good business. Back in 2000 when we installed a 350 kW solar-electric system at Cypress, it was purely a business decision. Even with the higher cost-per-Watt of the older less efficient panels that we installed (we didn¡¯t have SunPower¡¯s high-efficiency panels back then), we expected the system to pay for itself in seven years and then continue to make us money for the remainder of its 25 year active life. The cells SunPower produces today offer an efficiency of 21 percent which dramatically improves these economics .

Thanks to these higher efficiencies, we¡¯ve already begun wringing costs out of manufacturing with scale and rapid cycles of learning. We can foresee achieving a 40-50% manufacturing cost reduction within a decade. Of course we cannot rest on our achievements since we have several aggressive competitors who will do their best to match and exceed the excellent price/performance ratio which we provide today. Over the next few years, this fierce competition will drive both SunPower and its competitors to fine-tune our technologies, processes and products to match the extreme efficiencies found in more traditional commodity semiconductor markets such as memories and microprocessors.

Steadily improving scale efficiencies coupled with steadily-growing demand have put the solar industry at the inflection point of a classic ¡°hockey stick¡± growth curve that we¡¯ve seen in so many other high-tech markets. In fact, the year 2004 marked an important turning point because that was when the year¡¯s total shipments amounted to about 1,000 megawatts (MW), or a gigawatt (GW). In that one year, the solar power industry managed to deliver roughly the same amount of total capacity that it had produced between 1976 and the year 2000. Crossing that gigawatt threshold is also significant because the largest of the 400-odd power plant units across the U.S. generate between 1,000-1,200 megawatts. This means that today there are several big plants that didn¡¯t need to get built somewhere in the world because the solar industry provided the power exactly when it was needed.

The news since 2002 is even better. By 2005, the total available market for the solar industry was about 1,500 MW, a number that reflects a compound annual growth rate (CAGR) of over 40% percent this decade with worldwide demand expected to exceed 3 GW/year by 2010 (See Fig. 1). Compared to the semiconductors I¡¯m used to manufacturing that have demonstrated an average market growth of 10 or 12 percent during the last decade, this is nothing short of a remarkable opportunity.

But these numbers tell only half the story. Besides the obvious ROI, investment in solar energy will yield other returns that we¡¯re just beginning to figure out how to measure. For example, solar energy is becoming an important factor in carbon trading, the practice of buying and selling credits for greenhouse gas emissions that is already a very real part of the economy in Europe and parts of Asia. And while America does not have a national carbon trading policy yet, California is leading the way with its own cap-and-trade system modeled after the European carbon exchange. So with global climate change on everyone¡¯s mind and carbon emission caps Figure 1 ¨C World PV Installations Forecast¡± being put on both utilities and industries, how much are the deferred carbon credits from solar panels worth in addition to the electricity they produce? It¡¯s a sure bet that the next few years will see more than a handful of fortunes built by enterprising individuals who find ways to consolidate and broker the billions of tons of carbon credits our products will generate each year.

Another difficult to quantify but important ROI is the value of stable and even declining energy prices to a business, industry or regional economy. Unlike fossil-based energy, renewable power actually becomes less expensive over time, governed by relatively predictable forces, such as the pace of innovation, and cost curves dictated by well-defined economies of scale. Much like a tech-savvy entrepreneur can easily predict what a Gigaflop worth of processing power or a Terabyte worth of storage will cost their company in one, two, or three years, solar and wind energy technologies have matured to the point where we have a good idea of what a megawatt hour worth of power will cost over the same period.

hile traditional economic metrics have a hard time putting an exact value on what a predictably-priced energy supply is worth, the electricity shortages that my home state of California suffered a few years ago makes it apparent that it is of considerable value to a business or a nation. It¡¯s also easy to see how stable energy prices afforded by solar power will encourage economic growth by giving business the confidence they need to make long-term investments. Likewise, a city, county, state, or province that can guarantee a steady supply of low-cost electricity to a developer or perspective business considering setting up shop there will enjoy a strong competitive advantage over other locations.

We stand on the edge of a green energy revolution whose size and economic impact will eventually equal or even exceed the wealth created by the telecommunications boom of the 1990¡¯s. Rebuilding our economy around technologies that support efficient use of abundant, renewable energy will require significant investments, but the returns on those investments will be substantial and provide the foundations for a much more robust, diverse and sustainable economy. The leaders who will build tomorrow¡¯s wealth are those who recognize both the traditional and non-traditional ROIs afforded by solar energy and take a pragmatic, bottom-line approach to capturing them.