We break down the key terms within the solar industry, from upstream and downstream to utility regulations and panel materials.
Solar is once again on the table for investors.
The price of solar is steadily dropping. By 2021, solar will be cheaper than coal in China, India, Mexico, the UK, and Brazil, according to Bloomberg New Energy Finance.
However, solar energy continues to face regulatory headwinds. In the US, for example, President Trump recently enacted tariffs on imported solar panels, which could lead to an industry slowdown.
For now, though, the increasingly attractive economics of solar energy seem to be outweighing the uncertainties.
To provide a better understanding of the industry, we’ve put together this explainer.
The solar industry is capital intensive, technical, and encompasses everything from utility energy agreements to installing large-scale solar projects. Below we define some of the most common — and often confusing — aspects of the industry.
- The solar value chain
- Financing and metering
- Solar thermal vs. solar photovoltaics
- Types of systems
- General solar terminology
The solar value chain
Upstream solar: Upstream solar describes the segment of the industry that manufactures solar products. This includes the research and development arms of major companies as well as their distribution arms. In 2016, end-to-end solar company First Solar reportedly passed $1B in R&D spending on its manufacturing arm.
Historically, upstream solar has been capital intensive because of high manufacturing and installation costs. However, thanks to price wars across the globe, manufacturing costs for solar have gone down drastically. In turn, upstream companies have become cheaper to run.
Downstream solar: Downstream solar includes companies that install solar technologies, finance them, and distribute the product to consumers. This includes solar financing companies, solar monitoring companies, and those that maintain solar technologies at utilities. This part of solar is largely service-oriented and often less high-tech than the upstream segment.
As the price war for solar technology continues, many upstream companies have struggled to remain profitable. On the other hand
, downstream solar companies have thrived off the increasing affordability of solar technologies.
FINANCING AND METERING
Net metering: Net metering allows homeowners with solar panels to send extra energy they’ve produced to a grid where it can be stored. They can then pull energy from it when needed, or sell the energy to others in their community who are also connected to the grid.
Utility companies pay the solar producer retail price for returning this energy to customers, which is often priced significantly higher than if these companies were to purchase this energy independently. Known as a Feed-in Tariff (FiT), they’re required to pay back customers for any electricity that’s been fed back to the grid but has gone unused. These policies are aimed at encouraging solar uptake.
However, in order to keep service reliable and consistent, non-solar customers also end up shouldering parts of the cost. These rates also include the cost of planning, building, and maintaining the electrical grid. This financing model has created controversy — many complain that despite not using solar energy, they’re still required to opt into the system. It’s also put pressure on utility companies. If a significant amount of solar energy is produced, utility companies must juggle between paying high rates to buy back electricity and increasing prices for all of their customers.
As of 2017, 43 American states, including Washington D.C., have policies for net metering. Among the states that have no net metering policies in place are Texas and Alabama. The issue remains contentious in many states. As of November 15, 2017, the Rocky Mountain Power territory in the state of Utah stopped allowing retail-rate net metering.
Gross metering: Unlike net metering, which only sends a certain portion of energy to the grid, gross metering sends all of the solar energy produced in a home directly to a shared grid. From there, residents pay for the energy that they take back from the grid, usually at a price that’s lower than what they’ve sold it for.
While solar Feed-in Tariff rates for gross metering were once very high in order to encourage the usage of solar energy, these numbers have since dropped. Net metering’s setup, where utility companies buy back electricity at high prices, has ended up being more profitable for individuals. In net metering, each solar energy-producing home theoretically acts as its own self-sufficient, independent electricity company, creating, using, and selling its own power.
Power purchase agreement (PPA): In a PPA, a solar company pays to install and maintain a solar system at a residence or business. Instead of paying a utility, customers pay the company that develops, designs, and permits the solar energy system. These companies generally charge lower prices than a local utility’s retail rate.
Front of the meter: “Front of the meter” refers to energy storage technology that is installed to work with utilities and electric grid operators to meet supply and demand for the grid as well as maintain voltages.
Behind the meter: “Behind the meter” systems produce energy that’s intended to be used in the home, office, or some other commercial facility. These are often net-metered.