PV as a disruptive technology...
a followup to enerested's business analysis is this
article I forwarded to Unisolar in 2001 that 4/5th's of the way down, in the sidebar text at the end, covers PV as just that citing Christensen and others.
Scroll down to the sidebar to save time but everything in the main article still seems apropos today.
Al
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Photovoltaics Rising—Beyond the First Gigawatt
EPRI Journal Magazine (www.epri.com/journal/)
Editor: Brent Barker
June 2001
The Story in Brief
Solar photovoltaic (PV) power has long been regarded as a clean and promising "green" technology that was too expensive for widespread use. Today, as the cost of manufacturing PV drops and its efficiency rises, that view is changing. Industry restructuring, net metering laws, and uncertainties in the future price and availability of natural gas and fossil fuel are making PV ownership easier and more attractive than ever. The technology may be nearing a breakthrough in which government-private partnership and the forces of the free marketplace combine to make it a widespread and economical generation option for rapidly growing numbers of customers.
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From rooftops to mountaintops to space stations, photovoltaic (PV) power is a $2.5 billion industry. It attracts investment capital from some of the largest multinational corporations in the world while enjoying a devoted following among environmentalists. Governments subsidize it and the public rightly regards it as a clean, quiet, high-tech source of power elegantly tapped from Earth’s nearest star.
So with so much working in favor of PV, why isn’t there more of it? Cost provides much of the answer; perception provides the rest. PV is too expensive to compete in conventional energy markets already served by mature generation technologies and a reliable grid. Electricity produced by PV currently costs at least 3 times more per kilowatt-hour than the same electricity tapped from the local utility. However, a price-only analysis hides solar power’s most attractive features. Many PV manufacturers, vendors, government officials, and customers argue that when PV is judged in terms of its value as a hedge against future energy and fuel costs, its environmental benefits, its long-term reliability and stability, and its distributed nature, a compelling case can be made for it as a significant option for energy portfolios even today—a case that will only grow stronger in the future.
Birth of an Industry
In 1839, French scientist Edmond Bequerel discovered that light shining onto metal electrodes in an electrolytic solution produced a tiny flow of electricity. This photovoltaic effect remained a curiosity of little practical value until 1954, when Bell Laboratory scientists used then-new semiconductor technology and silicon crystals to produce the first modern PV solar cell. Research and development continued through the 1960s largely due to the United States space program, which needed a safe, reliable, and lightweight method of powering satellites and space probes in the frigid vacuum of space for months or years at a time. The PV industry received a further boost with the oil crisis of the early 1970s, during which PV efficiency (expressed as the percentage of potential solar energy that a cell actually converts to electricity) increased, prices dropped, government support grew, and the first practical commercial products were introduced. PV cost and performance continued to improve through the 1980s and 1990s, and new technologies emerged to satisfy growing specialty markets.
PV is generally considered a distributed generation resource deployed near its point of use, typically on the ground or a rooftop. Many PV arrays are designed as stand-alone systems that are equipped with batteries to store electricity for sunless hours and operate completely independent of the grid. However, grid-connected PV, in which PV backs up or supplements standard grid power, represents the fastest growing market segment today, already comprising some 40% of current sales according to industry observer Strategies Unlimited. Industry forecasts by the National Center for Photovoltaics (NCPV) and others project that by 2020 approximately one-half of the PV market will consist of distributed generation applications, one-third will consist of familiar remote and high-value applications, and one-sixth will consist of wholesale utility-scale grid generation.
Several types of PV are in production or nearing commercialization. Monocrystalline cells, the direct descendants of the first Bell cells, are made of thin wafers sliced from large single crystals of silicon. They remain the most efficient PV available, with system efficiencies averaging 12% in typical commercial products. Polycrystalline cells are composed of ribbons or wafers containing many silicon crystals fused together, which makes them less efficient but also less expensive to produce. Typical system efficiencies are approximately 10%. Because they are easier and more economical to manufacture, polycrystalline cells are used in many commercial applications for which space is not a critical constraint.
Thin-film PV is a newer technology that promises great cost reduction through automation. It is made by layering microscopically thin coatings of semiconductor material onto an underlying material such as plastic, metal or glass. Although not yet as efficient on a commercial scale as crystalline PV—current system efficiency is approximately 5%—the efficiency of thin-film PV in the laboratory is approaching that of crystalline PV. A big advantage of thin-film PV is that it can be more easily and aesthetically incorporated into building components such as roof shingles, siding, and window glass so that a structure can be built from the ground up to generate its own power. Most industry watchers expect this building-integrated market to grow enormously. Several companies, including industry leaders BP Solar and Siemens Solar, have recently begun mass-producing thin-film products and expect them to be widespread within a few years.
"Thin films have been improving pretty consistently, but they’ve also run up against many serious technical problems," explains Ken Zweibel, manager of the Thin-film PV Partnership Program for the U.S. DOE’s National Renewable Energy Laboratory (NREL). "I do expect continued progress. Technologies being developed and going through early commercialization right now have the potential to reach an installed system price of $2 per watt or lower," a price that some studies indicate would make them competitive with grid power. NCPV’s PV Technology Roadmap has set end-user price goals of a challenging but achievable $3 per watt by 2010 and approximately $1.50 per watt by 2020, while EPRI’s Electricity Technology Roadmap targets system costs of around $2.20 per watt in 2020 and $1.80 per watt in 2030.
Taking the Long View
The economic argument for PV ownership is straightforward: large upfront costs are offset over time by generating "free" electricity that would otherwise need to be generated by and purchased from a utility. The first question most commonly asked of PV concerns its payback period—the amount of time it takes the value of electricity produced by a system to offset its cost. PV proponents have two answers: first, as PV technology improves and costs drop, PV payback periods are becoming much shorter. Second, that’s the wrong question to ask.
"Unfortunately, people do not think long term about energy," says Rick Nuessle, a design engineer with California PV vendor Solar Depot, which sells both commercial and residential systems. "Payback for residential systems is about 15 years, which is still fairly long. It is significantly less than that for commercial systems, on the order of five to 10 years. But our PV systems have a 25-year warrantee and an expected lifespan of decades, and they offer high-quality clean power whose fuel supply is free and whose price will never go up. I’ve talked to companies that have rejected solar power because they say a five-year payback is too long, but they’ll still be buying power from their utility in 20 or 30 years." In fact, such companies illustrate an understandably common and critical distinction that many consumers make between capital and operating costs. Energy has always been regarded and budgeted as an operating cost, while purchasing PV would tie up capital that a company might prefer to commit elsewhere. Seeing PV as a long-term investment in energy independence often requires a difficult shift in perspective.
"What’s wrong with the way most people view PV is they’re not thinking about full product and life-cycle cost," says Janice Lin, director of business development for PowerLight Corp. PowerLight’s PV systems are designed for quick turnkey installation at commercial sites. "For example, people don’t factor in the fuel cost, and that’s huge. One of the reasons our customers are investing in PV as part of their portfolio of energy technologies is that it’s a hedge against future energy costs. Few of the other generation technologies offer that benefit."
A potential PV owner must also consider some questions that don’t have easy answers: What is the price of grid power likely to be years into the future? What type and size of array do I need? How much of my energy needs do I expect PV to satisfy? What are the environmental benefits of PV worth to me? And given the answers to those questions, does PV still make sense?
Until recently, PV was a sensible solution only for high-value uses too difficult or expensive to serve with grid power. Specialized applications such as remote telecommunication equipment, mountain cabins, lighting systems, and military installations made up much of the market. Since the 1970s, however, the retail price of PV has dropped by roughly two orders of magnitude while at the same time installed capacity has increased by three orders of magnitude. Today, there is approximately 1 gigawatt of PV operating in the world, with about 225 megawatts added just last year. To put those numbers in perspective, 1 gigawatt is about the output of a single large central-station power plant—globally, a relatively insignificant sum. However, a consequence of PV’s continued exponential growth is that it will emerge within the next decade as a substantial energy contributor. Industry analysts at Strategies Unlimited forecast that PV sales may grow to nearly 700 megawatts per year by 2005 and to 2,000 megawatts (2 gigawatts) per year by 2010.
NCPV looks for the domestic PV industry to provide up to 15%—approximately 3.2 gigawatts—of the new U.S. peak electricity generating capacity expected by 2020. By then, NCPV anticipates a cumulative installed capacity of 15 gigawatts in the United States and 70 gigawatts worldwide. By most estimates the off-grid market continues to grow at 15% to 20% per year while the grid-connected market is expanding at a healthy rate of 25% to 30% per year. PV vendors say that much of that new capacity is ending up on ordinary homes and businesses.
"In the last three or four years the real growth has come from grid-connected power plants, both residential and commercial," says Lin. While environmental arguments are well and good, Lin says her customers have their eyes on the bottom line. "One reason PowerLight has been successful is that we do focus on PV’s economic benefits," she says. "Nobody is going to invest hundreds of thousands of dollars in a solar energy system unless it makes sense financially."
"About 60 to 80 percent of our business is grid-tied interactive PV," agrees Nuessle. "Probably the majority of those installations are still residential, although we are seeing rapid growth in commercial installations that require large three-phase systems rather than small 3- to 5-kilowatt single-phase.
"People still have the old 1970s’ mentality that PV isn’t very powerful, it’s much too dilute, it’s too expensive," Nuessle continues. "They have no idea that the technology has improved so much, and that there are new policies and sophisticated inverters out there that make it easy to sell the power they generate back to the utilities. You don’t need a battery bank and all the equipment that you used to." In effect, a grid-connected PV owner can use the utility system itself as a 100%-efficient battery, putting excess energy into the grid when it is generated and removing it when needed.
Market Challenges Open Opportunities
Almost any discussion with PV manufacturers or vendors quickly turns to the California energy crisis. Thanks to its troubled—yet now maturing—implementation of deregulation and insufficient generation and transmission capacity, the state has endured months of power shortages along with rapidly rising electricity and natural gas prices. As price caps are phased out in coming years, Californians’ electric bills could multiply several-fold as a result of consumption during only a few high-cost periods. The economics and attributes of PV suddenly look a lot more attractive.
Also working in PV’s favor is California’s status as an international center of high-tech industry, the world’s sixth largest economy, and home to a point of view similar to NIMBY ("Not In My Back Yard") known as BANANA: "Build Absolutely Nothing Anywhere Near Anybody." Public sentiment and environmental regulation discourage or prohibit the construction of new coal, diesel, hydro, or nuclear generation in the state. Even new natural gas plants have been protested and blocked in some communities. At the same time, much of California comprises some of the sunniest terrain in the United States. This unique confluence of circumstances has PV proponents cautiously predicting a California gold rush the like of which hasn’t been seen since 1849.
"We’re booming," says Solar Depot’s Nuessle. "We are going to do a hundred times as much business this year as last. Right now I have five new contracts on my desk, each of which is for more than our annual revenue in 2000." Other vendors such as Delaware’s AstroPower, Colorado’s Altair Energy, and California’s PowerLight Corp. all report a sudden surge in interest and more business than they can handle throughout the country, with California leading the pack. So far, PV manufacturers have been able to meet the growing demand. A key uncertainty is how long such strong demand will last, and whether manufacturers will risk responding to it with major new investments and increased capacity.
"What has to happen to advance PV is what’s happening in California now: economic impetus and market instability," Nuessle says. "It’s really hitting home that we have way too much power consumption and not enough generation, and we’re not willing to build any other kind of power plant. Traditionally, people who bought PV were interested in protecting the environment or just wanted to do something good and be different. But as energy gets more expensive the economic argument has really become number one."
The California Solar Energy Industries Association (Cal SEIA), a non-profit trade group with more than 80 members, issued a white paper earlier this year arguing that solar energy could help solve the state’s energy crisis by reducing peak demand and decentralizing power generation.
"With the rapid increase in natural gas and fossil fuel prices, solar electricity is rapidly becoming on of the most competitive electric generation options on the market," says Cal SEIA Executive Director Les Nelson. "Unlike other available distributed electricity generation alternatives such as fuel cells and microturbines, only PV enables 100% renewable, zero-emission electricity production that is modular, scalable, and completely hedged against future fossil fuel and natural gas price increases." The California SEIA also echoes a warning voiced by others: California may be the first to face steeply rising energy prices, but it won’t be the last.
"The issue of deregulation in California is really a red herring," says Tom Tanton, EPRI’s general manager for renewables. "Of course, I don’t know if the series of confounding events—such as concurrent plant outages for maintenance and natural gas pipeline explosions—or their consequences could have been predicted. Perhaps the most important lesson, as always, is to not put all your eggs in one basket, but also to not view any particular technology as a ‘silver bullet.’ Avoiding risk through portfolio management is the key; in turn, employing a variety of options, such as PV, is the key to portfolio management. Tempering of boom-bust cycles is a critical element of risk avoidance."
Finding a Market
PV players range from multi-billion-dollar international petroleum giants to storefront mom-and-pops. The strategies they pursue reflect their corporate strengths, their expectations for future energy markets, and to some extent their environmental and philosophical perspectives. Although traditional utilities might seem to be natural candidates to lead PV development they have with few exceptions ignored it as a business opportunity, arguing that it is uneconomical and doesn’t meet the needs of their customers (see sidebar on "disruptive technologies"). Large oil companies such as BP, Arco, Shell, and Mobil were among the earliest and largest investors in PV, generally treating solar power as another energy source to be explored and a potential hedge against future unstable fossil fuel price and availability. Their interest has waxed and waned over the years depending on their view of the energy market, and now appears to be on an upswing. For example, BP Solar, which designs and markets both crystalline and thin-film products, claims a global market share of 20% and annual revenues of more than $200 million. The company produced approximately 40 megawatts of PV in 2000 and has lately focused on rural electrification efforts in Southeast Asia and the heavily subsidized residential market in Japan. Arco Solar built two megawatt-scale demonstration PV power plants in California in the 1980s, both of which were sold and then decommissioned because their new owners found their components were more valuable sold piecemeal. In 1990, Arco sold its solar business to Siemens AG of Germany to create Siemens Solar, a world leader in the deployment of utility-scale PV. Now another oil company, Shell, has announced a partnership with Siemens Solar.
One of the few electric energy companies to step into the PV arena is GPU Solar, a joint venture company owned by GPU International, a developer of independent power plants, and PV maker AstroPower. GPU Solar President Jim Torpey, who also chairs the nonprofit Solar Electric Power Association (formerly the Utility Photovoltaic Group, or UPVG), says many companies like his are trying to figure out how PV can fit into their business strategy. Sometimes the effort demands a little trial and error. For example, in 1997, GPU Solar began selling a system in which PV charged a battery that would then provide power to critical circuits during power outages. It was aimed at homes and small businesses.
"We spent a year and a half marketing that product, and learned that the market was a bit immature and prices were still a bit too high to support a number of middlemen," says Torpey. "We needed to streamline the consumer chain to have any margin, and we decided that particular product didn’t draw on the strengths we offer as a generation company." That product was turned over to AstroPower and GPU Solar subsequently set its sights on developing, operating, and maintaining independent solar plants to serve customers interested in supporting green power. The strategy allows GPU Solar to bypass the wholesale power market, in which their PV would be noncompetitive, and directly address customers willing to pay a premium to reap the environmental benefits of PV.
"Until now the entire energy industry has been run by engineers and financial people, not marketing people," Torpey says. "Real success for PV will come through marketing—treating these products like others that were initially niche products before they caught on in the general market. We’re just starting to see companies like Green Mountain and New Energy starting to stretch the minds of the public, and that’s very good for the PV business." Smaller solar vendors and entrepreneurs are limited by budgets that can rarely afford an ambitious advertising campaign. Some aim their outreach efforts at very specific audiences to, for example, provide training seminars so that electrical and building contractors can learn to install PV, making it easier for them to present it as an option to their clients.
A Role for Government
Given the resources required as well as solar power’s genesis in national space and defense programs, it is not surprising that government support has been and remains central to the development of PV. In the United States, the U.S. DOE provides key funding through research and development (R&D) work done primarily by NREL and Sandia National Laboratories.
"Historically, the government has been involved because PV, like other alternative energies, was seen as a social need rather than an economic need," says NREL’s Zweibel. "Until recently there hasn’t been much economic drive for PV except for high-value markets. The government was there because, lacking sizable markets, private enterprise couldn’t be there. We need to keep the thread of government resources involved in developing these new technologies that aren’t yet fully cost competitive and paying their own way."
"What we’ve seen recently is a movement away from strictly R&D to more of a market-based approach, including transformation of markets," says EPRI’s Tanton. "Fostering R&D and funding some of that R&D to enable entire industries is an important role for government, but making the results of R&D used and useful is most effectively undertaken by the private sector.
"There is also the compelling need for infrastructure development given the change from a point-to-point electric grid to an increasingly networked one," Tanton continues. "Government’s role in infrastructure remains key. The delineation is not clear-cut, but what is clear is the need for public and private cooperation and collaboration. Neither the public sector nor the private sector can be the sole driver along a technology innovation’s trajectory."
Government programs can also encourage PV by providing another important resource: financial support through tax breaks and rebates. A 10% federal solar energy tax credit is currently available to any taxpaying business in the United States, and some states offer cash rebates on both residential and commercial PV systems.
"As the price of PV and the price of electricity approach each other, it becomes more realistic to leverage quite a bit of volume through a subsidy or tax rebate," says Zweibel, who adds that any rebate should be based on a system’s wattage rather than its price tag. Calculating rebates as a percentage of system cost, Zweibel argues, only encourages the purchase of increasingly expensive systems, while basing rebates on output encourages consumers to find the most efficient PV available and prods manufacturers to improve their technology. "Any kind of government scheme should foster the greatest competition and the lowest cost systems," he says.
On another front, the federal Million Solar Roofs Initiative, begun by the Clinton administration in 1998, aims to install one million solar energy systems—including PV, water heating, and space heating—on the rooftops of American homes and businesses by 2010. The initiative includes federal procurement programs, technology grants, and lending programs. Its stated goals include reducing greenhouse gas and other emissions, creating high-tech jobs, and keeping the United States’ solar industry competitive internationally. Officials say that meeting the initiative’s targets over the next decade will create 70,000 new jobs and reduce atmospheric carbon by an amount equivalent to the emissions from 850,000 automobiles. The Bush administration’s commitment to the Million Solar Roofs program is currently unclear, although President Bush’s position papers on energy policy voice support for solar and other renewable energy technologies, calling for tax credits for electricity produced from alternative resources. Bush also proposed that companies wanting to explore for oil and gas on federal lands should bid for the opportunity, with the resulting funds—an estimated $1.2 billion over 10 years—dedicated exclusively to basic research in renewable energy.
Many in the PV industry argue that current levels of state and federal support in the United States are inadequate and look longingly overseas for examples of more aggressive solar energy policies that work. According to Strategies Unlimited, Japan installed approximately 60 megawatts and Europe approximately 40 megawatts of PV in 2000, compared to the U.S. total of just 8 megawatts.
Germany’s Green Party coalition government has set a target of providing 50% of that nation’s energy supply via renewable resources by 2050—"50 by 50." To advance that goal, in February 2000 the German parliament passed the Renewable Energy Law (REL), which sparked a stampede of installation proposals. Under the law, companies and individuals that install PV will receive a paid incentive of 0.99 DM—approximately 50 cents—per kilowatt-hour generated for 20 years. REL-related PV efforts are fully funded by a nominal 0.1-pfennig (0.05-cent) per kilowatt-hour surcharge on electric bills. Another German program that offered zero-interest loans to cover the complete cost of a PV system, of which the borrower would have had to repay just 87.5%, had to be scaled back when it was deluged with more than 15,000 requests in its first month.
In Japan, home to the 1997 Kyoto Protocol that called for worldwide cuts in greenhouse gas production (and which was recently repudiated by the Bush Administration), government guidelines call for 4,600 megawatts of PV power generation by 2010. Two Japanese policies adopted in the 1990s, the "Action Plan to Arrest Global Warming" and the "Basic Guidelines for New Energy Introduction," have led to aggressive new measures in energy conservation. Renewable resource development programs, including a "70,000 Solar Rooftops" program that predated U.S. efforts, were well received. Japanese buydown programs pay for one-third to one-half the cost of a solar energy system with no size restrictions.
"Most of today’s PV applications are not being installed in the United States," Torpey says. "For a number of reasons, I think it would be an important policy for the United States to begin to reestablish leadership in PV technology which, due to lack of government support, I’m afraid is going to drift elsewhere."
Those involved in PV research, development, and sales forecast continued incremental gains in economy and efficiency over the coming years. Most say that spectacular scientific breakthroughs, although they would certainly be welcome, are not necessary for PV to advance and succeed. The downward slope of the "PV Module Price Experience" curve has held steady for decades and in fact may have slightly accelerated since the early 1990s, indicating that prices may be dropping faster than in the past. Thin-film PV in particular shows great potential for technological and manufacturing improvements that could open vast new markets. At the same time, deregulation is making it possible, for the first time, for consumers to choose their electricity provider and even generate electricity themselves.
"Electricity has always been thought of as a commodity, so all generation technologies have always been compared on a cost-per-kilowatt first-cost basis," says Torpey. "What people are beginning to recognize—although certainly not in the mass market yet—is that an electron is a very valuable product. It allows you to maintain your lifestyle as you see fit and express your opinion about the environment. As we get more sophisticated about how we look at energy, more of that value will be recognized by customers."
Although deregulation promises to lower energy costs in many markets, its actual impact—as demonstrated in California—can be unpredictable. In addition, concerns about global climate change and the environment are making many competing generation technologies less attractive. Oil is subject to fluctuations in price, availability, and politics; natural gas faces problems with potential shortages and delivery. If history is a guide and those trends continue, at some point the falling price curve for PV and the price curve for grid power will intersect. Companies and individuals that prepare for that day now will benefit the most when it arrives.
"We are in one of a continuing series of interesting times," says Tanton. "Each period has different causes and manifestations, but each also teaches the same message: think and act strategically, keep all options open, look forward not backward, and watch for unintended consequences. I expect PV to be more than an option unexercised, but to become a used, useful, and significant element of the energy mix. I would be pleased, though not surprised, to see PV’s contribution approaching 10% of all electricity by about 2020 and perhaps 15% to 20% in 2040. Achieving that will require on-going public and private-sector cooperation."
Sidebar:
Photovoltaics as a Disruptive Technology
Is PV the PC of the 21st Century?
Mainframe computers yielded to the PC. Montgomery Ward surrendered to Wal-Mart. Generations of computer hard drive manufacturers rode new products to success only to see their fortunes fade as other upstarts offered even more innovative products. New understanding of how such "disruptive technologies" emerge to blindside established companies—many of which seem unable to react until fatally wounded—may offer important insights into the future of PV. Is solar power the next big disruptive technology?
The concept of disruptive technologies gained wide notice through a 1995 Harvard Business Review article written by Joseph Bower and Harvard Business School Professor Clayton Christensen, and was further fleshed out in Christensen’s 1997 book, The Innovator’s Dilemma. The twist in Christensen’s argument is his belief that established companies don’t lose opportunities to nimble upstarts because their managers are incompetent, arrogant, or complacent. Rather, he says they go wrong by doing exactly what good companies are supposed to do: giving their customers what they want.
Christensen’s thesis is that companies build business by increasing the performance and quality of products to meet their customers’ evolving needs. This is defined as a "sustaining technology." Disruptive technologies, on the other hand, by their very definition do not give customers what they need. They are often simpler, cheaper, offer fewer features, and promise lower margins instead of greater profit. They are typically first commercialized in emerging or insignificant markets. And, at least initially, they are products that an established firm’s customers cannot use and do not want. Since there is almost no incentive for a big company to risk investing in them, it often falls to smaller, less mature organizations to seize an innovative technology and find new markets for it.
One of the best examples of a successful disruptive technology is found in the rapid rise of personal computers at the expense of the mainframe market. Initially, old-school bastions such as IBM had little interest in PCs, and for good reason: their business customers didn’t need them and the home market didn’t exist. Compared to the large mainframes then in use, PCs performed poorly and didn’t support well-established systems and software. From IBM’s perspective, meeting customer need meant improving the performance of products their customers already demanded, not stepping "backward" to develop an unfamiliar and inferior product. It was left to upstart companies to improve PC performance and create the software and networking solutions that over the years made PCs a dominant rival of mainframe computers. To its credit, IBM provides a good example of an established company adapting to a disruptive technology—making and marketing its own successful line of PCs, albeit later and with a smaller market share than its competitors—but many other companies fail to make that transition.
PV possesses many of the attributes of a disruptive technology. First, it displays consistent performance improvement and cost reduction over time (see "PV Module Price Experience" graph). According to Christensen, that graph’s trajectory must indicate that continued improvement could someday make a disruptive technology competitive in parts of the mainstream market. That is clearly the case for PV within the first two decades of this century.
Some business analysts believe that timing can also be crucial to a disruptive technology’s success. A disruptive technology may have only a small window of opportunity in which customers will abandon a sustaining technology they thought they wanted for a disruptive technology they come to realize they need. Such opportunity often surfaces during times of industry uncertainty or chaos that allow a disruptive technology to not only compete with the established technology on its own turf, but also to help redesign the playing field. The restructuring and deregulation of the electric power industry may provide such an opportunity for PV today. It is possible—though certainly not assured—that PV could emerge in a reordered energy arena as an enabler of benefits and structure that are as-yet only dimly articulated.
The tendency of a disruptive technology to be simpler and cheaper than its established counterpart may appear problematic for PV: what could be simpler and—for at least the near term—cheaper than plugging an electric appliance into a wall socket? Christensen’s approach suggests recasting the question and seeking out markets in which this perceived weakness becomes a strength.
"Established firms confronted by disruptive technology typically viewed their primary development challenge as a technological one," writes Christensen. "In contrast, the firms that were most successful in commercializing a disruptive technology were those framing their primary development challenge as a marketing one: to build or find a market where product competition occurred along dimensions that favored the disruptive attributes of the product." Many PV proponents recognize that solar power production is simpler and cheaper than conventional grid power when entire product life cycle—including fuel processing, transport, generation, transmission and distribution—is considered. Finding and nurturing markets that appreciate those qualities will be key to advancing PV.
Christensen also points out that a disruptive technology need not surpass the performance of an established technology to succeed. It must only meet the needs of the marketplace. PV may not need to prove that it is technically "better" than grid power to compete with it, but only that it can provide the kind of performance that customers expect.
While steady progress is necessary to lower costs and improve performance, true disruptive technologies cannot rely on technological breakthroughs for success. "Rather, they consist of components built around proven technologies and put together in a novel product architecture that offers the customer a set of attributes never before available," Christensen writes. This very closely describes the state of the PV industry, which forecasts continued incremental progress in efficiency while offering customers new products—such as building-integrated PV—plus an unprecedented degree of energy independence and environmental benefit.
"The key to prospering at points of disruptive change is not simply to take more risks, invest for the long term, or fight bureaucracy," write Christensen and Bower in the Harvard Business Review. "The key is to manage strategically important disruptive technologies in an organizational context where small orders create energy, where fast low-cost forays into ill-defined markets are possible, and where overhead is low enough to permit profit even in emerging markets." With relatively modest investment in PV today, companies can serve a small but growing customer segment, receive public recognition for supporting renewable energy, and gain critical early experience with an emerging disruptive technology. Every advance in PV cost and performance will open new markets to companies both old and new.
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