Solar Panel Manufacturing In Germany
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Why an oil guy believes solar has a big future

Sep 26, 2015

I’ve worked on oil platform design. I’ve worked with oil companies on four continents (North and South America, Europe, and Asia). I live in Houston. And I spend about three-quarters of my time working on oil and gas issues. In short, I’m an oil guy.

But I am also bullish on solar.

There is no contradiction here. The point of energy is to move people around the world, to keep us warm (and cool), and to power an industrial economy that has created more wealth in the last 150 years, by far, than in any other time.

There are lots of ways to provide energy. Which technology makes sense at any given time is a matter of geography, economics, and policies. And what I am seeing is that solar is building potential on all three dimensions, for three reasons.

installation-chart US Department of Energy Lawrence Berkeley National Laboratory

In principle, solar cannot perpetually depend on the government’s helping hand; it needs to make its case in the market, which it is beginning to do. In states where the price of power is high, such as Hawaii, solar is already at “grid parity” with conventional sources, which need to be imported. (One in eight homes in Hawaii has rooftop solar.) But there is little doubt that at the moment that helping hand is, in fact, helping.

  • Sun-rich countries are getting serious. This matters because solar obviously has the most low-cost potential in places that get a lot of sun. And many of those places, both rich (Saudi Arabia, Dubai) and poor (South Africa, Kenya) are taking notice. Last year, oil-rich Dubai signed a deal with ACWA, a Saudi holding company for a 100 MW solar plant at a record-low price of 5.98 cents a kilowatt hour. And Saudi Arabia itself has big plans. Saudi Aramco, the state-owned enterprise that is the world’s biggest oil company, is building 10 domestic solar plants; all told, the Kingdom is talking about building 41 gigawatts of solar PV by 2032, or enough to meet about 20 percent of its power needs.

The most interesting developments may be coming from countries that are short of power of all kinds, with all the limitations that implies in terms of economic development and human health. In 2014, the World Health Organization estimated that indoor air pollution, caused mostly by unsafe cooking practices using wood, dung, or charcoal, kills 4.3 million people a year.

So it makes sense that as costs come down, a number of developing countries are seeing solar as a realistic option. India has an ambitious agenda, known as the National Solar Mission, which seeks to install 100 GW of solar by 2022. South Africa’s Renewable Energy Independent Power Producer Procurement Program (REIPPPP) has proved effective at generating private-sector investment—$14 billion since 2011. And because South Africa is the economic engine of the region, its success could spawn imitators. Kenya, where only 30 percent of the population is connected to the grid, is home to a very different model. Homeowners pay up front a fraction of the price for a solar lamp and pay a daily fee of about 45 cents for a year, using their cell phones. After that, the customer owns the device, which is cheaper and safer than kerosene, and of course cleaner. (These lamps now come with a solar-powered radio and mobile phone charger.) Launched in 2013, this is still a relatively small experiment, with about 200,000 users, but it is growing fast. In terms of making the economics of solar work for the poor, it is well worth watching.

So that’s the case that solar has a sunny future, and I believe it is sound. What I do not believe is that the end of fossil fuels is nigh. As the US Energy Information Administration noted in July, for every year since 1900, some combination of fossil fuels (petroleum, gas, coal) has made up at least 80 percent of the country’s fuel mix. Moreover, the EIA analysts conclude, “the predominance of these three energy sources is likely to continue into the future.” The International Energy Agency also sees them continuing to play a crucial role, although a lesser one (from 68 percent of power generation in 2012 to 55 percent in 2040).

There is room for both; in fact, there is a need for both.

Scott Nyquist is a global leader in McKinsey’s oil & gas practice and also its Sustainability & Resource Productivity Network. He writes a column for LinkedIn on energy and environmental issues.

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