Using Bulk Purchase Commitments to Foster Sustained Orderly Development and Commercialization of PV
The largest barrier to the widespread adoption of photovoltaics (PV) is its high cost. PV is particularly well suited for mass production and installation that could greatly reduce its costs. However, mass production and installation may only occur if prices decline sufficiently to stimulate increased and sustained demand. Several utilities, cooperatives, and clean energy funds have attempted to overcome this classic chicken-and-egg problem by making bulk purchase and installation commitments. This case study explores the efforts of the Sacramento Municipal Utility District (SMUD), the California Power Authority, the Western Solar Utility Network (WesternSUN) Cooperative, and the City of Chicago. Innovative Features
- Early experience with buy-down programs for PV has shown that deep PV price reductions, at least for residential systems, are not assured in the near term (see separate case study on buy-down programs). Lack of sustained markets and manufacturing economies of scale, and a weak installation and servicing infrastructure, are often-blamed culprits. To overcome these challenges, each of the programs described in this study uses innovative bulk purchase and/or installation efforts.
- SMUD offers the longest-running experience, and although recent allegations suggest that its program has not been as successful as some have claimed, SMUD's efforts nonetheless exemplify the strategy known as "sustained orderly development and commercialization," which calls for steady growth in the market rather than haphazard large volume purchases that can actually cause supply shortages and lead to price increases.
- Two of the cases we examine, SMUD and the City of Chicago, have used bulk purchase commitments in an attempt to secure not only price reductions, but also local economic development benefits by attracting manufacturing facilities to the area.
- Of the programs examined, SMUD has the most experience to date, installing more than 10 MW of PV since 1993 and reportedly achieving cost reductions of nearly 11% per year on average, to the point where the installed cost of SMUD PV systems comes in at about half that of systems sold elsewhere in California. These claims have recently been challenged.
- The California Power Authority has received guaranteed bids through 2005 that reflect more modest price reductions, but this is perhaps due to the substantial uncertainty over the eventual outcome of the Power Authority's efforts.
- WesternSUN reports being able to secure price discounts with relatively modest purchase commitments, particularly among thin-film PV dealers.
- Spire Solar Chicago has had a difficult time meeting its price targets, due primarily to delays in the construction of its new manufacturing facility.
- While the possible role of clean energy funds in this process requires further thought, this case study illustrates the advantages of bulk purchase and installation programs.