2013 was an extremely successful year for the solar industry in the United States. After two horrible years of poor performance, solar companies have made a turn-around and stock values have more than quadrupled. On the global scale, the United States still trails behind China and Japan in terms of short-term development but has still seen a 27 percent increase in installation capacity. This year, the increase in solar installations should remain steady, while others speculate that it will more than double as new states introduce local incentives.
As solar energy becomes more and more prominent, the big driver for development in the United States has been the decrease in cost of materials. The biggest factor in the price decrease has been the cost of PV modules. In early 2013, a race to the bottom between major Chinese module manufacturers caused a rush and boom of installations in Massachusetts. Prices for modules dropped by over 50 percent in less than six months. As the module market stabilized from this short-term trend, other components manufacturers had to innovate and cut costs to be competitive in the industry. Overall, the total cost of installation fell 30 percent.
The solar industry growth cannot rely simply on equipment and materials to become cheaper. A critical component of the overall system cost is the land that large-scale solar projects must be constructed upon. Since no two properties are ever the same, it is extremely difficult for developers to set standards and filters for cost-cutting mechanisms. It has been traditionally acceptable that any increase in land preparation cost would be spread out between every participating party in a single project. This should not be the case any longer.
‘Solar-Ready’ Land
As the equipment manufacturers retool their business models and production methods, developers should look towards improving their own costs. The decrease in cost for equipment can only stretch so far, and we are already seeing the limitations of unsustainable price wars with many Asian manufacturers going out of business. Developers should look towards land that is essentially “solar-ready” with minimal to no work required for preparation. Fortunately, farmlands are ideal for solar, and Massachusetts has an abundance of usable farm properties. Farmlands are typically cleared of any major obstructions, and the topography favors the installation of ground mounted solar arrays.
Although solar requires a lion’s share of land in order to maximize the collection of the sun’s energy, there is no reason why farmlands should be converted exclusively to solar energy harvesting. There are plenty of hybrid agricultural and solar models that exists and are currently in practice. One example would be the implementation of shade farming, where crops that require protection from direct sunlight can be grown underneath individual solar modules. Another method would be to plant low height crops, such as strawberries, or root plants, such as carrots, in-between the rows of ground mounted modules.
The hybridization of solar and agriculture can present an advantageous offer to lenders. Agricultural loans have been a strong backbone for lenders for hundreds of years. With a strong solar Power Purchase Agreement, the blend of revenue from crop harvests can yield a strong return that can in turn help create a strong investment or loan portfolio. It would be true to say that the agriculture and solar components are mutually benefiting, and help hedge against risks that one or the other would normally not be afforded to.
The opportunity of incorporating solar into traditional farming is an efficient cost-cutting approach that can help further increase the installation capacity of solar in Massachusetts. Solar is also a minimally invasive method to help preserve farmlands that are currently being sold off to real-estate development firms that convert them into commercial properties. In addition to conservation and financial risk mitigation, the solar farming method would help create a multitude of permanent jobs that will be required to sustain the day-to-day agricultural operations of the agriculture, as well as operations and maintenance of large-scale solar arrays. This model is unique for Massachusetts where there is a strong and sustainable state solar program, and would help set an example for other farming states to follow. Lenders and investors should pay close attention to solar farming projects that might come their way. This is a great way to support many industries, and is a strong financial source of income.
Tom Wu is CEO of Invaleon Technologies Corp., based out of North Andover.
