All is not harmonious in the solar world after the publishing of an article about Citizenre in Renewable Energy Access.
The highly critical opinion piece, entitled "Citizenre: A House of Cards?" accuses the secretive renewable energy start-up of setting impossible expectations in the minds of it's "Ecopreneur" sales force and for potential renewable energy customers.
REA has followed up with a highly informative and balanced Podcast on Citizenre.
Citizenre's business model has been one lightning rod of criticism. Rather then selling PV systems, their model is to rent them to consumers at the same cost they are currently paying for electricity. Claiming that they will be able to start doing this in September 2007, in any state with net metering, implies that Citizenre has found a way of achieving "grid parity" -- that is, solar electric generation that is the same cost of buying energy for the utility.
Adding to the furor is the fact that Citizenre is employing the technique of "multi-level marketing" (MLM) to sell their systems. Amway is the best-known company to employ this technique. Independent Ecopeneurs who sign up with the company are given some training, then go out to and get customers signed up and build their "downline". The more levels beneath them in their "downline", the more potential money a Ecopeneur can make on the "residual" income streams passed up the line. This model has it's share of critics.
Adding fuel to the fire, an internal strategy memo was leaked this week that calls into question the underlying economics and marketing strategy. Claiming that the organization has lost control of it's sales associates and their claims - now posted all over the web, of free solar power and millions to be made by signing up - the memo posits a major PR disaster looming for the company. Said PR disaster appears to be unfolding at a rapid pace.
It is quite clear that most informed commentators simply can't get their heads around how it's possible that Citizenre can lower their costs enough to achieve grid parity all the way down to utility rates at $0.07 / kWh.
Citizenre claims the following will allow them to do this:
1) Vertical integration. Citizenre will build out a 500 MW cell and module plant (the largest in the world), coming online in 100MW phases. They claim that Phase 1 will be online in September and 500 MW will be online in 24 months. They will also be building their own inverters, and will standardize the installation systems. They claim this will increase efficiency and reduce the amount of markup in the value chain.
2) AC modules. Each module will have an inverter and this will save installation time, eliminate DC redundancies, and improve efficiency.
3) Low-cost, unconstrained silicon supply. Citizenre will be making cells from ingots that are produced partially with metallurgical grade silicon rather than solar grade polysilicon, which is in relatively short supply due to production constraints and high demand.
5) Claims competitors are not focused on reducing costs, and are trying to rake in "feast year" profits after "famine years" in the industry.
6) Claims they have $650 Million in funding.
Much has been written about the financial aspects of Citizenre's offering. Let me just state that their model implies, in most states, an installed system cost of around $4.00 / Wp. It seems quite a feat given that the average retail price for PV modules in the US is $4.80 / Wp.
Keep in mind that this is before the cost of installation, balance of system components, overhead or margins. I know, but can't tell you wholesale module pricing to a large integrator; and what it costs us to put in systems of all sizes (efficiently). I also know, but can't tell you what it costs a module manufacturer to make a module. However, I can tell you that no amount of vertical integration or standardization gets you to $4 /W installed, in 2007, using crystalline modules. It's not even possible to get there using the most inexpensive thin-film technologies, because they are so inefficient that all of the fixed costs are spread out over fewer installed watts.
Also, I have to point out the $650 million is a lot of dough, yet no investors have been announced, and despite many requests Citizenre has yet to confirm that they actually are in possession of the funds. This has led some to believe that the funding does not exist.
However, assuming for a moment that Citizenre is totally legit and aboveboard, I'd like to focus on some of the technical issues implied by these claims.
First, lets get this out of the way: a new company with no track record in the industry claims to be building the largest solar module production facility in the world. They have not yet selected a site for said plant, never mind started construction nor even gained permits.
From this facility, they say they'll be able to produce UL Listed modules at the rate of 100 MW per year within 8 months. These will be AC modules - PV modules packaged with small integrated inverters of the company's own design.
For reference, industry experts say that in normally would take 18-24 months to bring a 100 MW plant online. Typically, it takes about 6 months to obtain a UL Listing on a module (after production on a pilot line produces product to test). I am speculating that Citizenre may be considering the use unconventional materials in their PV laminates in order to lower costs. If unconventional materials are used this could stretch out UL Listing further. Presumably getting an AC module approved could significantly complicate the Listing process.
Moreover, one would expect that anything done differently along the lines of module construction would also significantly delay product roll-out because of the long-term testing required to validate the reliability of the product. Even with conventional laminate construction, introducing AC modules is a very significant change from normal practice and there will be a steep learning curve; taking customers along the ride up that curve can be painful, if not fatal for any company. Taking shortcuts on reliability testing, while tempting, would be a major mistake. Even small changes in module construction have resulted in major issues, BP's recent experiences being a prime example - they have had two recent recalls, one due to a fire hazard and another due to shorting from a minor production process change.
Most PV manufacturers are extremely focused on quality and reliability because they are on the hook for 25 year performance warrenties, and their brand is at stake. However, reliability is particularly crucial to Citizenre's model. In order for their finances to work, they must be vey confident that their systems will actually produce what they are predicted to produce. This means these guys need to be very sharp with their energy modeling capabilities (which is difficult even for experienced industry players) and they need excellent reliability from their products, both in terms of avoiding physical failures and performance degradation. In order to keep their costs down, they will need to avoid service calls.
Getting back to the AC modules for a moment, let's recall that inverters are the Achille's heel of any grid-tied system. Well engineered power electronics, like inverters, typically demonstrate a Mean Time Between Failures (MTBF) of 100,000 hours -- which is to say about 11 years. Like many systems, failures tend to lie on a "bathtub curve". The rate of failures is relatively high for newly installed products; this is often referred to as "infant mortality". Any slight defect in power electronics tends to be revealed quickly once energized (the magical go-genie typically escapes from the device in the form a of a puff of smoke). Over time, failures stabilize at a low level. Then, as the 100,000 hour mark approaches, there is an accelerating frequency of failures as the old dogs lie down for a last nap.
This is relevent because with AC modules, 10-20 of these devices will be deployed instead of one. This means that there is a 10 - 20 X chance of failure. Now, it is true that ACPV will degrade more "gracefully" in case of failure - one failed inverter doesn't take the whole system out of commission. This seems at first blush to be an advantage, but consider a few things. One, if a central inverter goes down it is very obvious if you are paying the slightest bit of attention to system performance. Two, swapping out a centrally mounted inverter is pretty easy. It's mounted in an accessible location and is designed to be readily installed. Three, once you swap out an inverter, it's very unlikely to fail again at that location unless there is a separate problem (i.e. dirty power on the utility side).
Now imagine that you have 20 inverters on a roof. If one fails, system output decreases by 5%. It might be hard to ascertain that this has occured due to normal variations in the weather, but if you are Citizenre, it's hitting your bottom line. The loss will continue until the problem is discovered and technicians are dispatched to fix it - in most cases, said technicians will be from local installers who will be more likely inclined to do a higher margin job, like putting in a system, on any given day. To service it, you have to get on a customers roof, figure out which unit has failed and partially disassemble the array to access and replace it. It all costs time and money. Not only that, but your chances are then 20 times higher that you will have to go back to the same house to replace a different inverter, also a vicitim of infant mortality, a week, a month, or 6 months later. If there is a secondary problem like dirty grid power, it will probably take even more service calls, and scrapped inverters, to figure out what's going on.
Moreover, module-integrated inverters will be operating in a harsher thermal environment -- i.e., much hotter. This will result in reduced lifetime.
Something else to point out on costs - in order to have a fighting chance of determining that an inverter has gone down in a timely fashion, and determining specifically which one has gone down without a snipe hunt, requires that there be fault monitoring & communication capabilities in each inverter; that will add cost. From what I've seen in my time in the PV industry, it's almost always better to have fewer, bigger inverters than many small inverters. The redundancy just isn't worth it - it only leads to deferred replacement and ends up costing more money in the end. There are advantages to AC modules, but the idea has been around for years, and the advantages have never outweighed the liabilites.
So, my point is that the use of ACPV really cuts against their business model, where reliability has to be absolutely paramount; any small gains in efficiency (and these are questionable) will quickly be overwhelmed by reliability problems.
Onto another issue - Citizenre's claim that they will be using metallurgical grade silicon. This means they will be using a silicon source that has no commercial track record and which will result in low efficiency cells and modules -- this will drive cost per watt up, not down. Moreover, it poses both schedule and reliability risks. Let's be clear about this - no one has ever made photovoltaic cells from metallurgical grade silicon outside of pilot lines. Dow-Corning is currently producing this type of silicon from the first factory of it's kind, in Brazil, but it is not intended to replace polysilicon, rather it is typically blended at only 10% with polysilicon. If Citizenre is truely building it's plant around this technology, it is an audicious move indeed - especially given that polysilicon prices are set to fall dramatically starting in 2008 as expected production comes online.
As far as the solar industry not being "lean and mean", I can tell you from experience that at least where I sit, the solar industry is cutthroat about cost reduction. Standard efficiency PV modules are becoming a commodity, with low cost Chinese cells and modules flooding into the market (still significantly more expensive than the cost Citizenre requires). Standardization is not yet a reality in the retrofit market, because it is quite difficult to accomplish. However, successful large system integrators have driven the costs of large-scale PV installations downward very aggressively through standardization and sophisticated logistics; still, costs are significantly higher than Citizenre claims it can achieve in the much more difficult to serve retrofit market. The PV industry is highly competitive at every level of the value chain. It consists of many large, well funded entities staffed with extremely savvy technical and business people, as well as a multitude of small, scrappy, hungry (and increasingly well funded) startups, all competing for market share. Citizenre is correct in identifying the residential retrofit installation market as fragmented and relatively inefficient. However, the fragmentation that exists is a response to market conditions. Small, agile companies with low overhead, a laser-like focus on their local market, a desire to do quality work, and a committment to educating their customers are successful; word of mouth referrals are key. An attempt to parachute in with "standardized" offerings and a slick marketing approach is likely to collide messily with the facts on the ground.
Finally, some thoughts on the use of MLM by Citizenre. This method of sales and marketing is normally used to sell customers on the emotional value of products. Products typically offered by MLMs are things like cosmetics, vitamins, water purifiers, and motivational books - which often have little inherent value, aside from the extent to which the customer (and the salesperson) believe they "need" it. The technique tends to encourage hype and sales for sale's sake.
It heavily depends on motivational themes and "positive thinking" to encourage low level sales associates to work hard for little gain, while often framing questions or dissent as negativity and a lack of will. Rob Styler, the current VP of Marketing at Citizenre, was formerly at Equinox - a MLM company that had numerous civil and criminal suits filed against it, and which eventually dissolved it's assets and setted with victims for $40 million. Interestingly, Equinox focused on "eco-friendly" consumer products. Styler has written a book about the experience. As MLM models often veer dangerously close to illegal pyramid schemes, many question this choice of business model.
This aspect of Citizenre deeply concerns many in the PV industry, because there is clearly a powerful emotional element. Most people who are in the business are "true believers". Those who buy the systems do so, in part, because they want to do right thing and help to solve serious problems. However, PV is fundamentally about technology and financials. Those who have been in the industry for a long time, seem to have a consensus that the right approach is to have a deep understanding of these fundamentals and educate their customers so that they have the facts. In contrast, it appears that Citizenre Ecopreneurs and executives are promising many things that are physically impossible to deliver, at least in the time frame that is claimed.
The problem is that if enough people are taken in by unrealistic hype, once it is revealed that they've been taken for a ride they may turn, not just against Citizenre, but against PV. Once people's trust has been broken, it is extremely difficult to regain it. The solar industry was incredibly burnt by the solar thermal debacle of the early '80s -- another era when the hype machine significantly outpaced reality, and fly-by-night manufacturers dumped shoddy products into an overheated market. That experience, and the long solar winter that followed, has led many to say never again.
For myself, I think that there are many interesting aspects to Citizenre's model. Offering no-money-down financing to residential customers would greatly accelerate PV acceptance. It's not a new idea, it's just that no one has gotten it to work in this difficult market segment. If Citizenre can do it, more power to them.
That said, I hope that if there are unseemly shenanigans frolicking in Citizenre's shadowy recesses, that they are brought to light now. Rumors abound that there are still other shoes to drop with regards to this story. No money has yet changed hands and Citizenre hasn't yet done any permant damage to the reputation of the PV industry. So, now's the time to get it all out in the open. It will be much to Citizenre's credit to transparently address these issues, move forward, and be successful in rolling out solar power to the masses.
Thursday, February 15, 2007
All is not harmonious in the solar world after the publishing of an article about Citizenre in Renewable Energy Access.