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Speaker 1: This is Tom Rowland's Reese and you're listening to Switched

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Speaker 1: on the podcast brought to you by Bloomberg an EF.

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Speaker 1: After years of rapid expansion, global solar growth is beginning

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Speaker 1: to cool. This year is set to be the weakest

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Speaker 1: in seven years, and twenty twenty six could see a

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Speaker 1: modest dip in new capacity editions, the first since b

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Speaker 1: and EF began tracking the market more than two decades ago.

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Speaker 1: Policy shifts, along with saturation in some mature markets, are

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Speaker 1: tempering growth at the margin, even as manufacturing capacity remains

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Speaker 1: high and prices stay near historic lows. But the slowdown

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Speaker 1: is also reshaping how sola is built. Developers are increasingly

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Speaker 1: pairing projects with batteries, using colocation to manage curtailment, share

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Speaker 1: grid connections, and unlock higher value revenues. As storage becomes

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Speaker 1: more central to solar economics, and as new demand from

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Speaker 1: sectors like data centers emerges, co located solar and storage

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Speaker 1: is playing a bigger role in keeping deployment moving. So

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Speaker 1: what does this period of slower growth mean for solar

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Speaker 1: and how could colocation shape the industry's next phase. Of

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Speaker 1: today's show, I'm joined by two guests bennif's head of

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Speaker 1: Solar research Lara Hyim and analyst Cosmo Vansinis, and together

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Speaker 1: we review findings from their notes four Q twenty twenty

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Speaker 1: five Global PV market Outlook, first ever DIP and co

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Speaker 1: located storage boost Solar's business case. BNF clients can find

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Speaker 1: these notes, along with other solar research by heading to

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Speaker 1: BNF go on the Bloomberg terminal or BNF dot com.

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Speaker 1: If you'd like to learn more about how BNF approaches

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Speaker 1: strategy research on the energy transition, including developments in commodity markets,

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Speaker 1: trends across different sectors, and the cross cutting technology shaping

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Speaker 1: the future, you can find more information on BNEF dot com.

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Speaker 1: And if you'd like to speak with a member of

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Speaker 1: our team about becoming a client, email US at Sales

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Speaker 1: dot BNF at Bloomberg dot net. So just how is

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Speaker 1: the solar industry adapting to this next phase? Let's speak

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Speaker 1: to Laracosmo to find out. Lara, Welcome to the podcast.

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Speaker 2: Hi, Tom, nice to be here, and.

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Speaker 1: Cosmo welcome to podcast as well. Hi. So I'm kind

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Speaker 1: of interested to sort of talk about one of the

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Speaker 1: headline figures you've come out with recently from your research

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Speaker 1: on solo, which I think was from your most recent

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Speaker 1: solar market outlook, which is that solar growth is set

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Speaker 1: to decline, and that would be the first time probably

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Speaker 1: in the history of humanity that that hasn't happened.

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Speaker 2: That's yeah, that's pretty much it. Since we've been tracking

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Speaker 2: the markets for over two decades, it's the first time

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Speaker 2: that the market is shrinking. And what we mean by

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Speaker 2: that is that the solar capacity editions in twenty twenty

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Speaker 2: six will be lower than twenty twenty five. It is

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Speaker 2: quite a small decline, I should point out, So in

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Speaker 2: twenty twenty five, globally the world installed six hundred and

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Speaker 2: fifty five gigawatts of solar and then this year we

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Speaker 2: expect six hundred and forty nine, so about a one

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Speaker 2: percent decline. But in the context of sort of solar

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Speaker 2: growing so fast in the past decade or so, it

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Speaker 2: is it is pretty significant, and we think that it

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Speaker 2: sort of signifies the I guess, the next phase of solar,

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Speaker 2: which which is much different to what we've seen in

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Speaker 2: the past.

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Speaker 1: Right, I was going to ask, because this is the

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Speaker 1: I wouldn't want to say the beginning of the end,

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Speaker 1: because there's still a lot of CERNA being installed. But

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Speaker 1: is this like the beginning of the plateau? I mean,

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Speaker 1: because with it growing exponentially, anything that's growing exponentially, you

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Speaker 1: know it can't do that forever. Has that day come finally?

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Speaker 1: Or is this more of a wrinkle in a story

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Speaker 1: of a technology that is still growing. So I mean both.

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Speaker 2: I guess it's a it's a bit of an anomaly

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Speaker 2: this year in terms of the shrinking of the market,

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Speaker 2: and that's mainly down to China, which we might come

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Speaker 2: onto in a bit. But if you look at the

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Speaker 2: next decade, we still see that there will be some

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Speaker 2: some growth in the market, and as early as twenty

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Speaker 2: twenty seven we expect the market to return to growth.

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Speaker 2: But if you look at the rate of growth, so

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Speaker 2: for the next decade or so, we expect the compounded

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Speaker 2: annual growth rate to be about three percent, and compared

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Speaker 2: to last decade that was around thirty percent, so it's

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Speaker 2: significantly lower. So we expect to see much much slower

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Speaker 2: growth rate. And solar installations and the mansuare solar modules

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Speaker 2: as a whole.

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Speaker 1: Well, it's kind of I remember when I joined BNF,

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Speaker 1: everything we were doing was kind of not mainstream was

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Speaker 1: like alternative, this is like a sign like sonar is,

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Speaker 1: it's like our child. And then we've suddenly realized that

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Speaker 1: it's it's not just an adult, but it's kind of

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Speaker 1: middle aged now and it's getting some wrinkled that's you know,

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Speaker 1: three percent growth is you know, mature. You could say,

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Speaker 1: so you mentioned China. Let's talk about China and the

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Speaker 1: sort of significance of China in this whole story.

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Speaker 2: Yeah, I mean, as I said, the main reason why

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Speaker 2: the market is contracting this year is China, in addition

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Speaker 2: to some other bigger markets contracting as well. But in China,

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Speaker 2: we expect the market to go down by fourteen percent.

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Speaker 2: So it's sort of equivalent to about fifty gigawatts of

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Speaker 2: fifty gigawats less installations compared to last year. And the

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Speaker 2: reason for that is because basically the Chinese government has

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Speaker 2: liberalized its power markers. It then means that a lot

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Speaker 2: of the solar assets will be exposed to the volatile

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Speaker 2: power prices, and that obviously leads to investor nervousness around

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Speaker 2: solar asset. And as I said, so this is a

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Speaker 2: bit of a transition year, so we do expect this

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Speaker 2: to normalize a bit. We do expect the investors to

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Speaker 2: get comfortable with the current new conditions. There will be

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Speaker 2: contract for different so CFD auctions in different provinces, and

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Speaker 2: there will be some revenue certainty, but it is definitely

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Speaker 2: very different to the past, where you would get a

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Speaker 2: fixed price for every unit of electricity that you would generate.

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Speaker 2: So it is a completely different ballgame for the investors

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Speaker 2: in China. So that that is the main reason why

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Speaker 2: the market is slowing down this year.

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Speaker 1: And it is that also why you consider this although

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Speaker 1: you know we are maybe reaching the maturity of the industry.

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Speaker 1: But is this also why you're confident that you know

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Speaker 1: next year we won't be seeing another contraction. Is that

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Speaker 1: some of this is sort of short term adjustments that

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Speaker 1: are happening in China, which is obviously such a huge market. Exactly.

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Speaker 2: Yeah, So, as I said, the contract for different auctions

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Speaker 2: that are being announced in provinces, they haven't been all announced,

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Speaker 2: so there is a bit of this lull of making

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Speaker 2: investment decisions because no one wants to commit any capital

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Speaker 2: before they know. But once thores are more established, we

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Speaker 2: think the market will sort of return back to a

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Speaker 2: bit of normality. But having said that, we still think

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Speaker 2: that Chinese market has peaked, so it's never going to

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Speaker 2: install more than what it has installed in in twenty

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Speaker 2: twenty five, so the market will be slowly contracting. And yeah,

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Speaker 2: as I said, the government liberalizing the power markets has

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Speaker 2: contributed to that. But in addition, the market was showing

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Speaker 2: signs of saturation in any case, so we were seeing

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Speaker 2: you know, great congestion issues, we were seeing kurtailment on

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Speaker 2: the small scale side. Again, we were seeing kurtailment and

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Speaker 2: governments limiting small scale installations. So there were signs of

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Speaker 2: saturation in any case. So this was on top of

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Speaker 2: that the whole power market liberalization has really sort of

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Speaker 2: brought it to another level.

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Speaker 1: I guess right. It's really I suppose exposed what was

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Speaker 1: already happening, but kind of made it hit projects in

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Speaker 1: their revenues. Is China the only market where you're seeing

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Speaker 1: this saturation, you know, the only big market?

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Speaker 2: No, So there are similar stories all around pretty much.

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Speaker 2: So European markets. We think Europe as a whole has

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Speaker 2: also peaked in twenty twenty five. Now, obviously Europe consists

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Speaker 2: of many different markets, including the non European non EU market,

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Speaker 2: but overall, if you look at it, we see a

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Speaker 2: lot of the mature markets in Europe having saturated as well.

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Speaker 2: So Spain is a good example, lots of curtailment and

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Speaker 2: as a result, we do see inmesters getting a lot

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Speaker 2: more cautious than they were before due to law, daytime

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Speaker 2: power prices and curtailment. Similarly, Brazil as a prime example,

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Speaker 2: we've seen curtailment levels reach about twenty percent, and as

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Speaker 2: a result of that, we do see the Brazil markets

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Speaker 2: contracting as well. So going back to the whole global

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Speaker 2: story of the market contracting, yes, China is driving that,

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Speaker 2: but then we're also seeing Brazil, US and other European

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Speaker 2: markets contracting. Now, US is obviously policy driven at the moment,

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Speaker 2: but similar to China, there were some market saturation signs

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Speaker 2: in the US as well, So it's happening everywhere pretty

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Speaker 2: much all of the mature markets.

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Speaker 1: So then, I mean this kind of brings us on

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Speaker 1: to the other kind of main theme of this podcast,

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Speaker 1: because I mean, we could just talk about solar and

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Speaker 1: I think there's a lot of interesting questions to unpack here,

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Speaker 1: but we're talking also about storage. So what role does

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Speaker 1: storage have to play or has it? Has it not

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Speaker 1: been playing in enabling more solar?

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Speaker 2: Yeah, I mean, obviously storage can play a significant role

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Speaker 2: in allowing more solar in the system, and we are

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Speaker 2: seeing more solar and storage projects being installed, and I

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Speaker 2: think Cosmo is gonna talk about that shortly. But what

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Speaker 2: we're saying is that the adoption rates of storage currently

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Speaker 2: is simply not enough to allow or to unlock the

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Speaker 2: bottleneckt for solar at the moment. So if you look

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Speaker 2: at the numbers cumulatively, we have around three terrawatts of

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Speaker 2: solar installed cumulatively, and then when you look at storage

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Speaker 2: that it's only I believe it's just gone over two

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Speaker 2: hundred and fifty gigawatts, So there is a long way

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Speaker 2: to go. And even in regions where you have quite

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Speaker 2: a big volume of storage installed, it still remains below

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Speaker 2: what is needed to shift large volumes of daytime solar

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Speaker 2: generation into into the peak hour. So that is just

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Speaker 2: to say that you need quite a lot of storage

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Speaker 2: to make a difference.

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Speaker 1: That's really interesting. But does that mean that because you know,

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Speaker 1: in my role, we look at wholesale power markets, we

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Speaker 1: look at the revenues that different types of technology capture

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Speaker 1: from the market, and when you look at it like this,

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Speaker 1: you know, solar and storage they're best of frenemies. I

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Speaker 1: would describe it because I suppose what you say is, yes,

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Speaker 1: solar needs the batteries to enable it to maybe to

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Speaker 1: deal with some of these price cannibalization, these saturation issues.

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Speaker 1: But batteries need the solar first before there's any opportunity

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Speaker 1: for them. But there's this kind of like, if you

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Speaker 1: have too many batteries, it's great for solar and bad

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Speaker 1: for batteries, and if you have too much solar, it's

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Speaker 1: bad for solar, great for batteries. So from what you're describing,

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Speaker 1: those battery projects that are getting built should be doing

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Speaker 1: really well. And so I suppose the question is is

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Speaker 1: why aren't there more of them being built?

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Speaker 3: Well? I think that if solar's becoming middle aged and

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Speaker 3: a bit more wrinkled, then it needs a beauty cream, right,

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Speaker 3: and that's what That's what storage is. So you know,

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Speaker 3: whilst we're seeing a plateau into twenty twenty six for

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Speaker 3: global solar additions, the part of that that's colgated with

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Speaker 3: batteries keeps going up. So co located solar and storage

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Speaker 3: where you build a battery and couple it in on

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Speaker 3: the same grid connections. As solar panel has grown seventy

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Speaker 3: percent since twenty twenty, we're now seeing nearly two hundred

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Speaker 3: and forty gigawatts of solar paired with about fifty gigawatts

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Speaker 3: one hundred and fifty gig what hours of batteries globally.

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Speaker 1: So this is you know, we were talking before about

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Speaker 1: the sort of the the exponential trends with ridiculous percentage growths.

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Speaker 1: Is it just that you know that the lack of

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Speaker 1: storage is more just a function of we're at an

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Speaker 1: early stage in the kind of the s cuve, like

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Speaker 1: solar has only just created the conditions, like created the market.

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Speaker 1: It has just like you say, you reached that maturity

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Speaker 1: where now it needs the beauty cream to deal with

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Speaker 1: the wrinkles, and so now sales of that are just

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Speaker 1: beginning to take off, and we're expecting more and more

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Speaker 1: colocation in the future. Is that fair to say?

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Speaker 3: I think if you look at what storage cost curves

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Speaker 3: have been doing in the last five years, in twenty

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Speaker 3: twenty two, that the average cost for a turnkey energy

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Speaker 3: storage system that is a utility scale battery that can

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Speaker 3: operate on the grid in twenty twenty two, that was

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Speaker 3: around three hundred and sixty dollars per killer what hour,

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Speaker 3: and that's now fallen to one hundred and seventeen dollars

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Speaker 3: per killer what hour in twenty twenty five. That's down

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Speaker 3: thirty thirty five percent since last year. And so as

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Speaker 3: battery cost curves continue to decline, utility scale batteries are

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Speaker 3: now the cheapest form of lithium ion pack of any

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Speaker 3: segment across all of transport. That means that the business

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Speaker 3: case for installing them along solar panels becomes more and

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Speaker 3: more economic.

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Speaker 1: So there's this one trend that is that, you know,

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Speaker 1: similar to solar, we had just had these exponential cost

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Speaker 1: decreases combined with solar creating the demand for batteries, because

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Speaker 1: I don't think if batteries were cheap but there was

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Speaker 1: no solar on the grid, I don't think there'll be

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Speaker 1: that much demand. But the location is kind of interesting

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Speaker 1: to me because in a very simple model of we're

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Speaker 1: thinking about, you know, how all this fits together, you

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Speaker 1: can put solar at one place and slap batteries somewhere

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Speaker 1: else and it should all work in a cohesive way.

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Speaker 1: So specifically, the colocation is kind of interesting. How does

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Speaker 1: that factor into the economic logic that is kind of

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Speaker 1: driving this specifically colocation side of things.

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Speaker 3: There are two ways of coupling on a battery to

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Speaker 3: a solar plant. You can either DC couple it where

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Speaker 3: you connect behind the inverter, and essentially the battery is

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Speaker 3: just storing the additional solar power that you might not

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Speaker 3: want to sell during sunny hours in the middle of

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Speaker 3: the day when power prices are really low, and then

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Speaker 3: you can dispatch the energy either at the evening or

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Speaker 3: the next morning when power prices are a bit higher.

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Speaker 3: The other way of coupling on a battery is actually

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Speaker 3: couple it on just before the grid connection, so it

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Speaker 3: has a separate inverter. It almost operates as an into

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Speaker 3: separate entity. It just shares the same grid connection as

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Speaker 3: the solar panel. And what we found is that if

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Speaker 3: you pair solar wid storage in this manner, it cuts

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Speaker 3: your costs, your capex costs by around twenty two percent

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Speaker 3: compared to building two separate standard in assets, and yet

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Speaker 3: you still maintain the same flexibility and independence. The battery

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Speaker 3: can still charge and discharge from the grid when it likes.

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Speaker 3: It can still participate in arbitrage, ancillary service markets, capacity markets,

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Speaker 3: and it can also act as this load shifting entity

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Speaker 3: for the solar panel that's attached to.

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Speaker 1: Got it I mean to use Let's bring another metaphor

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Speaker 1: into this that DC coupled solar and storages like the

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Speaker 1: two of them are married, Whereas when they're coupled just

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Speaker 1: in front of the grid connection, it's like cohabitating adults

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Speaker 1: who are not in a relationship but gets some of

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Speaker 1: the benefits of living together. And that seems to be

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Speaker 1: the optimal option for solar and storage being.

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Speaker 3: Cold absolutely more frequently, absolutely, But so I think in

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Speaker 3: any good relationship, communication is key. With DC coupling, the

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Speaker 3: assets are paed directly together. As you said that they're

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Speaker 3: basically married, and that means they speak directly to each other.

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Speaker 3: They have the same line that they're discharging to the

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Speaker 3: grid through, and that means they can operate essentially as

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Speaker 3: one asset. I think the difficulty when you get to

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Speaker 3: AC coupled systems, which has been the most popular form

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Speaker 3: of coupling into date, is when power prices are zero

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Speaker 3: in the middle of the day, it makes complete sense

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Speaker 3: for the battery to charge and for the solar panel

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Speaker 3: to sit idle, and when power prices are kind of

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Speaker 3: at the level of solar's PPA, it makes sense for

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Speaker 3: it to dominate the grid connection. Not now, but in

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Speaker 3: years to come. You're going to see challenges when power

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Speaker 3: prices are in the middle range, when you don't quite

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Speaker 3: know which asset needs to charge, which needs to discharge.

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Speaker 3: And at that point, especially if the assets are almost

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Speaker 3: being operated separately, then you're going to start getting into

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Speaker 3: difficulties over who has control of the same shared grid connection.

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Speaker 1: I as see what you means. So at the moment,

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Speaker 1: they're not fighting over whose turn it is to use

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Speaker 1: the kitchen because they have different schedules, but that might

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Speaker 1: change in the future precisely, precisely, as precise as a

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Speaker 1: metaphor can be. So all of these you know, assets operating,

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Speaker 1: I mean, we're thinking a little bit in terms of

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Speaker 1: you know, wholesale revenues. I realize there's more to that

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Speaker 1: for the batteries, you know, there's ancillary services on other markets,

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Speaker 1: and then with solo there's you know, have they signed

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Speaker 1: a PPA and there's other potential contracts and I imagine

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Speaker 1: I imagine that when you kind of mix it all

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Speaker 1: together in a co located project, it probably gets a

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Speaker 1: little bit complicated. So what role do the kind of

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Speaker 1: the different revenue strategies have to play in all of this?

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Speaker 3: So we've modeled three different scenarios across our analysis for

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Speaker 3: co located assets. We've got a low scenario where both

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Speaker 3: assets operate under contracted revenue models. They both have a

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Speaker 3: power agreement like you mentioned, a contract for difference or

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Speaker 3: with the battery. You're starting to get mechanisms like totally

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Speaker 3: agreements where the battery is least to another operator in

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Speaker 3: return for a fixed series of revenue streams. These contracted

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Speaker 3: business models afford steady, bankable revenue streams. They're extremely easy

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Speaker 3: for a bank to finance. They fit into traditional project

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Speaker 3: finance models for renewable investment, and whilst they may not

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Speaker 3: deliver quite the same high returns as a battery might

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Speaker 3: be able to if it's engaging directly with the wholesale market,

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Speaker 3: they give much more certainty over a longer period of time.

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Speaker 1: It's sort of it's sort of like a little bit hedged.

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Speaker 3: I guess it's much more hedged.

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Speaker 1: Because you know, there's a price cannibalization. We're very familiar

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Speaker 1: with from solar in a particular market, but there's a

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Speaker 1: price cannibalization that you know, batteries can eat their own

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Speaker 1: opportunity as well. In theory, and I suppose batteries benefit

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Speaker 1: when solar is saturated, and solar benefits when batteries are saturated.

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Speaker 1: So if you have both, you're kind of just thinking

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Speaker 1: very simplistic terms, then you'll be fine whichever way it goes.

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Speaker 1: If you know there's uncertainty over future capacity.

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Speaker 3: From talking two different investors and banks operating in the space,

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Speaker 3: we're starting to see this move towards a kind of

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Speaker 3: portfolio model of renewable investment where investors want this kind

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Speaker 3: of hedge over power prices. They want solar and storage

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Speaker 3: and potentially even wind in their portfolio so that in aggregate,

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Speaker 3: across all of the assets, you can cover all of

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Speaker 3: the different power price spreads. I think what's interesting when

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Speaker 3: you come to co located assets versus maybe standalone assets

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Speaker 3: that are built in different places, is that you're much

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Speaker 3: more in control of your own destiny. So the storage

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Speaker 3: is being operated live alongside the solar panel, and it

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Speaker 3: can respond quickly two differences in the intra day power market.

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Speaker 3: It can respond to times when the sola isn't making

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Speaker 3: the returns necessary to meet its PPA or its feed

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Speaker 3: in tariff, and I think that that is much more optimal,

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Speaker 3: especially for developers and operators who want to ensure that

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Speaker 3: the returns they get from that particular asset are safe

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Speaker 3: and secure.

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Speaker 2: And it's a big head towards caretailment as well, right,

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Speaker 2: which is a big headache for developers at the moment,

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Speaker 2: more than I mean some of them say powerplace cannibalization

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Speaker 2: is secondary to curtailment, and obviously if you have a

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Speaker 2: collocated asset, then you can mitigate some impacts of the

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Speaker 2: curtailment as well.

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Speaker 1: So I've been talking about this. I'm reminded of you know,

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Speaker 1: a couple of years ago, I was speaking at a

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Speaker 1: hydropower conference. In my presentation, I was talking about California,

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Speaker 1: and I was talking about how with so much solar

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Speaker 1: it's now opened the door for there being more batteries

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Speaker 1: and so for hydro assets, not just in California, but

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Speaker 1: in the region that supplies California, and there's quite a

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Speaker 1: lot of hydro The value of their flexibility is great

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Speaker 1: in the near term, but in the long term there's

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Speaker 1: other forms of flexibility coming in. They didn't love me

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Speaker 1: for saying this. Someone said, I've never seen such in

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Speaker 1: in all my life. You're trying to claim that California

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Speaker 1: is going to run just on solar and batteries, to

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Speaker 1: which I said, I didn't say that. I just said

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Speaker 1: there's going to be more solar and batteries. But the

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Speaker 1: interesting question that I didn't have an answer to is

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Speaker 1: how far can you go with solar paired with batteries

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Speaker 1: in meeting existing demand and in meeting new demand? Right

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Speaker 1: where you know, we talked about we've reached in certain

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Speaker 1: markets the saturation points for solar and then co located

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Speaker 1: solar and storage and just storage generally is coming and

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Speaker 1: that's kind of raising the bar on both of them.

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Speaker 1: So what is the saturation point for both of these technologies?

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Speaker 1: How far can it go?

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Speaker 2: So we say that there is a limit to how

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Speaker 2: much storage can allow for more solar, and we actually

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Speaker 2: model this in our new Energy Outlook in the economics

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Speaker 2: transition scenario, which is basically a lease cost system modeling

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Speaker 2: of you know, what the energy system might look like

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Speaker 2: twenty thirty years down the line, and within that, according

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Speaker 2: to our modeling, we saw that solar generation plateaus in

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Speaker 2: a lot of markets even if you build loads and

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Speaker 2: loads of storage. And obviously that plateauing can happen at

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Speaker 2: different levels depending on you know that market's individual characteristics,

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Speaker 2: including harm itt sunshine it gets, or what the grid

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Speaker 2: mix is, and the inherent demand flexibility within its grid.

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Speaker 2: But what that modeling showed us is that on average globally,

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Speaker 2: once you hit around twenty three twenty four percent of

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Speaker 2: solar share in your generation mix, then you start hitting

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Speaker 2: this plateauing. And that is mainly because there is diminishing

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Speaker 2: returns from the storage assets, because ultimately the price arbitrage

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Speaker 2: opportunities start slimming down as you add more more storage

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Speaker 2: into the system and you start cycling the batteries less

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Speaker 2: as well, so the business gate for the batteries deteriorate

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Speaker 2: as well. So you see less and less storage being

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Speaker 2: built as a result of it. And that's why we

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Speaker 2: say there is a limit to how much storage can

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Speaker 2: allow for more solar in the system.

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Speaker 1: That's interesting, I mean, and it sounds to me like

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Speaker 1: because in our economic transition scenario it's all economics driven.

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Speaker 1: But then we also think about the technicalities of keeping

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Speaker 1: the lights on. It sounds from what you're describing that

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Speaker 1: we don't hit a technical limit. We hit an economic limit.

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Speaker 1: The batteries aren't making enough revenues. If the batteries costs

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Speaker 1: were to decline faster than we anticipated, you know, like

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Speaker 1: imagine we did an economic transition scenario, but we said,

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Speaker 1: you know, solars and batteries to all intents and purposes,

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Speaker 1: are free. Then their limiting factor would be the technical limit.

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Speaker 1: You probably have massive overcapacity of both. But you're what

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Speaker 1: I'm hearing from you is, in a way, the cost

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Speaker 1: of batteries limits how far you can take this exactly.

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Speaker 2: Yeah, you need some sort of policy support or revenue

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Speaker 2: support otherwise you hit this economic limit of how much

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Speaker 2: more storage you can you can add to the system

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Speaker 2: that's economically feasible, and that will allow for more solar

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Speaker 2: in the system. And I think that's why investors are

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Speaker 2: very welcoming of any auctions and any sort of revenue

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Speaker 2: certainty that you can provide for those storage assets.

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Speaker 1: I want to turn back to solar for a moment

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Speaker 1: because I think maybe one question I probably should have

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Speaker 1: asked when we were focusing purely on solar famously, being

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Speaker 1: a solar manufacturer is pretty tough. It's very competitive, the

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Speaker 1: margins are raiser thin, and that's in a market that

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Speaker 1: has been growing all the time. So if we're anticipating

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Speaker 1: a year of there being less solar capacity being built,

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Speaker 1: how is that going to affect the industry?

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Speaker 2: Yeah, I mean, it's certainly not the news that the

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Speaker 2: industry was expecting. So the last two years have been

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Speaker 2: particularly hard for the manufacturers. Rock bottom prices, historic laws

435
00:23:49,480 --> 00:23:53,040
Speaker 2: on all parts of the supply chain pretty much, and

436
00:23:53,560 --> 00:23:57,640
Speaker 2: that was due to significant auvo capacity. And we've seen

437
00:23:57,680 --> 00:24:01,320
Speaker 2: these companies recording billions and billions of of losses. And

438
00:24:02,160 --> 00:24:05,040
Speaker 2: the fact is that all these companies are entering twenty

439
00:24:05,119 --> 00:24:08,280
Speaker 2: twenty six with huge amounts of inventories as well to

440
00:24:08,400 --> 00:24:11,520
Speaker 2: add to their woles pretty much. And just to put

441
00:24:11,640 --> 00:24:14,920
Speaker 2: the extent of over capacity into context, currently we have

442
00:24:15,400 --> 00:24:19,520
Speaker 2: one terrawatts of manufacturing capacity in the most constrained part

443
00:24:19,640 --> 00:24:22,760
Speaker 2: of the value chain, so the wafer manufacturing, which is

444
00:24:22,800 --> 00:24:27,320
Speaker 2: one of the stages for manufacturing modules. And we forecast

445
00:24:27,480 --> 00:24:31,320
Speaker 2: demand for twenty thirty five as eight hundred and sixty gigawatts,

446
00:24:31,359 --> 00:24:34,479
Speaker 2: So you can basically say that there is enough supply

447
00:24:34,680 --> 00:24:37,159
Speaker 2: to meet demand for the next decade. So that's the

448
00:24:37,280 --> 00:24:40,320
Speaker 2: extent of of the over capacity that there is in

449
00:24:40,440 --> 00:24:43,080
Speaker 2: the market at the moment, and the fact that demand

450
00:24:43,160 --> 00:24:46,480
Speaker 2: is slowing down is basically adding salt to their owns.

451
00:24:46,560 --> 00:24:49,280
Speaker 2: So it's going to be another hard few years for

452
00:24:49,320 --> 00:24:50,200
Speaker 2: the manufacturers.

453
00:24:51,320 --> 00:24:55,040
Speaker 1: I find this interesting from the perspective of you know, again,

454
00:24:55,119 --> 00:24:58,160
Speaker 1: I look at power markets and you know, the one

455
00:24:58,240 --> 00:25:01,320
Speaker 1: topic right now that always will get you interest as

456
00:25:01,320 --> 00:25:03,760
Speaker 1: if you can somehow make it about data centers. And

457
00:25:04,359 --> 00:25:08,000
Speaker 1: when it comes to data center driven demand, which is

458
00:25:08,040 --> 00:25:12,080
Speaker 1: set to grow really rapidly in some specific markets, not

459
00:25:12,240 --> 00:25:14,640
Speaker 1: all that, there's this question of who's going to compete

460
00:25:14,800 --> 00:25:17,440
Speaker 1: to meet that new demand, and there's pros and cons

461
00:25:17,480 --> 00:25:20,879
Speaker 1: of different technologies. Feels like thermal capacity like gas, seems

462
00:25:21,000 --> 00:25:24,680
Speaker 1: very like a logical option because you know, it's dispatchable,

463
00:25:25,040 --> 00:25:27,600
Speaker 1: can meet power demand twenty four hours a day, but

464
00:25:27,720 --> 00:25:31,520
Speaker 1: there's like a gas supply chain bottleneck which counts against it.

465
00:25:31,760 --> 00:25:33,720
Speaker 1: On the other hand, from what I'm hearing from you,

466
00:25:34,200 --> 00:25:36,560
Speaker 1: is that in the next few years, when a lot

467
00:25:36,640 --> 00:25:40,640
Speaker 1: of capacity needs to be built to meet this new demand, Hey,

468
00:25:40,800 --> 00:25:43,440
Speaker 1: there's like more solar panels than we know what to

469
00:25:43,520 --> 00:25:47,360
Speaker 1: do with globally, with the slight complicating factor, of course,

470
00:25:47,400 --> 00:25:48,920
Speaker 1: that a lot of these data centers are going to

471
00:25:48,920 --> 00:25:50,840
Speaker 1: be built in the US, and there's all sorts of

472
00:25:50,880 --> 00:25:53,520
Speaker 1: trade restrictions about getting these panels to the US if

473
00:25:53,520 --> 00:25:56,320
Speaker 1: they're coming from China. So how do you see some

474
00:25:56,520 --> 00:25:59,800
Speaker 1: of this playing out? Is some of this overcapacity going

475
00:25:59,880 --> 00:26:02,720
Speaker 1: to make its way to meet some of the demand

476
00:26:02,800 --> 00:26:05,600
Speaker 1: growth we're seeing in certain markets? Do we think that

477
00:26:05,840 --> 00:26:09,160
Speaker 1: that gives SOLA an advantage in the race to meet

478
00:26:09,200 --> 00:26:12,080
Speaker 1: that new demand? Or I should have said co located

479
00:26:12,160 --> 00:26:16,000
Speaker 1: solar and storage, which okay, maybe is a better, better

480
00:26:16,040 --> 00:26:17,560
Speaker 1: way I could have framed the question.

481
00:26:18,160 --> 00:26:20,800
Speaker 3: I'd say what's interesting with the data center is that

482
00:26:21,240 --> 00:26:23,720
Speaker 3: it needs to be utilized ninety nine percent of the

483
00:26:23,800 --> 00:26:26,920
Speaker 3: hours in the year and needs a really steady, firm

484
00:26:27,119 --> 00:26:29,960
Speaker 3: base load of power, which is what a gas turbine

485
00:26:30,000 --> 00:26:33,399
Speaker 3: can provide, and a solar panel on its own cannot

486
00:26:33,440 --> 00:26:37,000
Speaker 3: provide because the solar power can only generate power during

487
00:26:37,080 --> 00:26:40,480
Speaker 3: sunny hours. Once you add storage into the mix, the

488
00:26:40,640 --> 00:26:44,520
Speaker 3: question becomes more interesting. We're currently seeing that the levelized

489
00:26:44,560 --> 00:26:48,240
Speaker 3: cost of electricity for solar plus storage, particularly when you

490
00:26:48,359 --> 00:26:51,639
Speaker 3: start getting batteries that have a duration long enough to

491
00:26:52,160 --> 00:26:55,000
Speaker 3: cover the hours needed to power data center. If they

492
00:26:55,040 --> 00:26:56,920
Speaker 3: were to power one hundred percent of the load the

493
00:26:57,040 --> 00:27:00,520
Speaker 3: data center requires, they would be far more expensive combined

494
00:27:00,560 --> 00:27:04,720
Speaker 3: cycle gas turbine. However, as you mentioned, the lead times

495
00:27:04,800 --> 00:27:07,200
Speaker 3: for gas turbines, particularly in the US at the moment,

496
00:27:07,320 --> 00:27:10,240
Speaker 3: are five to six years, whereas you can put up

497
00:27:10,359 --> 00:27:13,480
Speaker 3: a co located solar and storage facility in eighteen to

498
00:27:13,600 --> 00:27:16,199
Speaker 3: twenty four months. What that means is that we might

499
00:27:16,320 --> 00:27:19,120
Speaker 3: start to see a situation where you're using a mix

500
00:27:19,400 --> 00:27:23,359
Speaker 3: of solar and storage and gas to meet the load

501
00:27:23,480 --> 00:27:26,040
Speaker 3: of the data center, and maybe the solar and storage

502
00:27:26,160 --> 00:27:29,080
Speaker 3: is responsible for sixty or so percent of the load

503
00:27:29,280 --> 00:27:31,480
Speaker 3: and the gas deals with the other forty and that

504
00:27:31,600 --> 00:27:35,320
Speaker 3: becomes much more interesting economically. We've already seen in the

505
00:27:35,480 --> 00:27:38,879
Speaker 3: UAE A facility being built by mas Dar and NG

506
00:27:39,320 --> 00:27:41,879
Speaker 3: which is a five point two gigawatt solar panel with

507
00:27:42,000 --> 00:27:46,040
Speaker 3: a nineteen gigaw hour battery attached, designed to provide firm

508
00:27:46,440 --> 00:27:49,760
Speaker 3: one gigawa base load power twenty four to seven. And

509
00:27:50,320 --> 00:27:52,920
Speaker 3: I don't know quite what the LCRE of that plant is,

510
00:27:53,160 --> 00:27:55,960
Speaker 3: but we're hearing that it's competitive with gas turbines in

511
00:27:56,040 --> 00:27:58,960
Speaker 3: the region. The story may be different in Texas and

512
00:27:59,080 --> 00:28:02,600
Speaker 3: in California and in PGM because the capacity factors might

513
00:28:02,640 --> 00:28:05,480
Speaker 3: be different. The Middle East c sunny hours at a

514
00:28:05,640 --> 00:28:08,680
Speaker 3: very consistent basis all twelve months of the year. But

515
00:28:08,920 --> 00:28:12,639
Speaker 3: the economics, especially because of falling battery costs, are becoming

516
00:28:12,840 --> 00:28:15,840
Speaker 3: such that solar and storage is increasingly competitive and can

517
00:28:15,880 --> 00:28:19,160
Speaker 3: increase be used to provide some of the firm load

518
00:28:19,400 --> 00:28:20,800
Speaker 3: that these data centers need.

519
00:28:21,080 --> 00:28:24,119
Speaker 1: This is interesting and it's kind of important because I mean,

520
00:28:24,160 --> 00:28:26,680
Speaker 1: I hear what you're saying. It can't completely displace the

521
00:28:27,119 --> 00:28:28,920
Speaker 1: sort of the gas turbine you would build, but it

522
00:28:29,400 --> 00:28:31,920
Speaker 1: can lead to building a much smaller gas turbine. What

523
00:28:32,040 --> 00:28:34,359
Speaker 1: it requires, though, is to kind of get the foot

524
00:28:34,400 --> 00:28:36,359
Speaker 1: in the door first, because if it was the other

525
00:28:36,440 --> 00:28:39,680
Speaker 1: way around, if it was took ages to build solar

526
00:28:39,760 --> 00:28:42,120
Speaker 1: and storage and you've had a gas turbine you could

527
00:28:42,120 --> 00:28:44,640
Speaker 1: get in about a year, then you'd get a full

528
00:28:44,720 --> 00:28:47,120
Speaker 1: scale gas turbine, and then the solar and storage would

529
00:28:47,120 --> 00:28:50,360
Speaker 1: have to compete against an existing gas turbine rather than

530
00:28:50,560 --> 00:28:53,560
Speaker 1: a new gas turbine in terms of its economics, so

531
00:28:53,600 --> 00:28:55,720
Speaker 1: it would therefore end up a lot smaller. So this

532
00:28:56,080 --> 00:29:01,160
Speaker 1: kind of current glut of solar is interesting in regards.

533
00:29:00,920 --> 00:29:04,280
Speaker 3: That it is with the corollary as you mentioned that

534
00:29:04,400 --> 00:29:08,080
Speaker 3: there are currently US import tariffs on solar panels, not

535
00:29:08,320 --> 00:29:10,960
Speaker 3: as of yet on batteries, and there's still an ITC

536
00:29:11,160 --> 00:29:13,920
Speaker 3: credit available for storage which can take off thirty percent

537
00:29:13,960 --> 00:29:15,960
Speaker 3: of the cost of facility. I will also say the

538
00:29:16,000 --> 00:29:19,400
Speaker 3: other corollary is that the price of gas, of fuel

539
00:29:19,640 --> 00:29:21,960
Speaker 3: for gas is starting to fall in some states in

540
00:29:22,000 --> 00:29:22,400
Speaker 3: the US.

541
00:29:23,040 --> 00:29:26,960
Speaker 1: This has been a really fascinating discussion. It is like,

542
00:29:27,560 --> 00:29:30,920
Speaker 1: like I said earlier, it feel like maybe a grandparent,

543
00:29:31,200 --> 00:29:34,840
Speaker 1: our child's solar has grown up, not just to become

544
00:29:34,880 --> 00:29:37,680
Speaker 1: an adult, but it's now getting wrinkles. And then there's

545
00:29:37,760 --> 00:29:41,440
Speaker 1: this new grandchild, I suppose, which is the storage market,

546
00:29:41,480 --> 00:29:44,440
Speaker 1: which is breathing new life into the sector. And that

547
00:29:44,600 --> 00:29:47,640
Speaker 1: is where there's like now a new frontier of excitement

548
00:29:47,720 --> 00:29:50,960
Speaker 1: and progress and all sorts of different dynamics bring out

549
00:29:50,960 --> 00:29:53,560
Speaker 1: of this, you know, the surplus of solar. How much

550
00:29:53,600 --> 00:29:56,280
Speaker 1: of this can cover new demand, you know, or just

551
00:29:56,440 --> 00:29:59,960
Speaker 1: existing demand combined, I think is a really interesting story

552
00:30:00,160 --> 00:30:02,680
Speaker 1: to watch. So, Lara, thank you very much for joining.

553
00:30:03,040 --> 00:30:05,680
Speaker 1: Thanks Don and Cosmo, thank you very much for joining.

554
00:30:06,000 --> 00:30:06,880
Speaker 3: Thank you very much.

555
00:30:16,000 --> 00:30:19,120
Speaker 4: Today's episode of Switched On was produced by Cam Gray

556
00:30:19,360 --> 00:30:23,040
Speaker 4: with production assistance from Kamala Shelling. Bloomberg NIF is a

557
00:30:23,080 --> 00:30:26,200
Speaker 4: service provided by Bloomberg Finance LP and its affiliates. This

558
00:30:26,320 --> 00:30:29,480
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559
00:30:29,520 --> 00:30:32,959
Speaker 4: a vice, investment recommendations, or a recommendation as to an

560
00:30:33,000 --> 00:30:36,160
Speaker 4: investment or other strategy. Bloomberg ANIFF should not be considered

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00:30:36,200 --> 00:30:39,479
Speaker 4: as information sufficient upon which to base an investment decision.

562
00:30:39,640 --> 00:30:42,600
Speaker 4: Neither Bloomberg Finance LP nor any of its affiliates makes

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00:30:42,600 --> 00:30:46,320
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566
00:31:00,080 --> 00:31:00,120
Speaker 1: M