It’s sunny times for solar power. In the
U.S., home installations of solar panels have fully rebounded from the Covid
slump, with analysts predicting more than 19 gigawatts of total capacity
installed, compared to 13 gigawatts at the close of 2019. Over the next 10
years, that number may quadruple, according to industry research data. And
that’s not even taking into consideration the further impact of possible new
regulations and incentives launched by the green-friendly Biden administration.
Solar’s pandemic-proof performance is due
in large part to the Solar Investment Tax Credit, which defrays 26% of
solar-related expenses for all residential and commercial customers (just down
from 30% during 2006-2019). After 2023, the tax credit will step down to a
permanent 10% for commercial installers and will disappear entirely for home
buyers. Therefore, sales of solar will probably burn even hotter in the coming
months, as buyers race to cash in while they still can.
Tax subsidies are not the only reason for
the solar explosion. The conversion efficiency of panels has improved by as
much as 0.5% each year for the last 10 years, even as production costs (and
thus prices) have sharply declined, thanks to several waves of manufacturing
innovation mostly driven by industry-dominant Chinese panel producers. For the
end consumer, this amounts to far lower up-front costs per kilowatt of energy
generated.
This is all great news, not just for the
industry but also for anyone who acknowledges the need to transition from
fossil fuels to renewable energy for the sake of our planet’s future. But
there’s a massive caveat that very few are talking about.
Panels, Panels Everywhere
Economic incentives are rapidly aligning
to encourage customers to trade their existing panels for newer, cheaper, more
efficient models. In an industry where circularity solutions such as recycling
remain woefully inadequate, the sheer volume of discarded panels will soon pose
a risk of existentially damaging proportions.
To be sure, this is not the story one
gets from official industry and government sources. The International Renewable
Energy Agency (IRENA)’s official projections assert that “large amounts of
annual waste are anticipated by the early 2030s” and could total 78 million
tonnes by the year 2050. That’s a staggering amount, undoubtedly. But with so
many years to prepare, it describes a billion-dollar opportunity for recapture
of valuable materials rather than a dire threat. The threat is hidden by the
fact that IRENA’s predictions are premised upon customers keeping their panels
in place for the entirety of their 30-year lifecycle. They do not account for
the possibility of widespread early replacement.
Our research does. Using real U.S. data,
we modeled the incentives affecting consumers’ decisions whether to replace
under various scenarios. We surmised that three variables were particularly
salient in determining replacement decisions: installation price, compensation
rate (i.e., the going rate for solar energy sold to the grid), and module
efficiency. If the cost of trading up is low enough, and the efficiency and
compensation rate are high enough, we posit that rational consumers will make
the switch, regardless of whether their existing panels have lived out a full
30 years.
As an example, consider a hypothetical
consumer (call her “Ms. Brown”) living in California who installed solar panels
on her home in 2011. Theoretically, she could keep the panels in place for 30
years, i.e., until 2041. At the time of installation, the total cost was
$40,800, 30% of which was tax deductible thanks to the Solar Investment Tax
Credit. In 2011, Ms. Brown could expect to generate 12,000 kilowatts of energy
through her solar panels, or roughly $2,100 worth
Now imagine that in the year 2026, halfway through the
lifecycle of her equipment, Ms. Brown starts to look at her solar options
again. She’s heard the latest generation of panels are cheaper and more
efficient — and when she does her homework, she finds that that is very much
the case. Going by actual current projections, the Ms. Brown of 2026 will find
that costs associated with buying and installing solar panels have fallen by 70%
from where they were in 2011. Moreover, the new-generation panels will yield
$2,800 in annual revenue, $700 more than her existing set-up when it was new.
All told, upgrading her panels now rather than waiting another 15 years will
increase the (net present value) NPV of her solar rig by more than $3,000 in
2011 dollars. If Ms. Brown is a rational actor, she will opt for early
replacement. And if she were especially shrewd in money matters, she would have
come to that decision even sooner — our calculations for the Ms. Brown scenario
show the replacement NPV overtaking that of panel retention starting in 2021.
If early replacements occur as
predicted by our statistical
model, they can produce 50 times more waste in just four years than
IRENA anticipates. That figure translates to around 315,000 metric tonnes of
waste, based on an estimate of 90 tonnes per MW weight-to-power ratio.
Alarming as they are, these
stats may not do full justice to the crisis, as our analysis is restricted to
residential installations. With commercial and industrial panels added to the
picture, the scale of replacements could be much, much larger.
The High Cost of Solar Trash
The industry’s current circular
capacity is woefully unprepared for the deluge of waste that is likely to come.
The financial incentive to invest in recycling has never been very strong in
solar. While panels contain small amounts of valuable materials such as silver,
they are mostly made of glass, an extremely low-value material. The long
lifespan of solar panels also serves to disincentivize innovation in this area.
As a result, solar’s production
boom has left its recycling infrastructure in the dust. To give you some
indication, First Solar is the sole U.S. panel manufacturer we know of with an
up-and-running recycling initiative, which only applies to the company’s own
products at a global capacity of two million panels per year. With the current
capacity, it costs
an estimated $20-30 to recycle one panel. Sending that same
panel to a landfill would cost a mere $1-2.
The direct cost of recycling is
only part of the end-of-life burden, however. Panels are delicate, bulky pieces
of equipment usually installed on rooftops in the residential context.
Specialized labor is required to detach and remove them, lest they shatter to
smithereens before they make it onto the truck. In addition, some governments
may classify solar panels as hazardous waste, due to the small amounts of heavy
metals (cadmium, lead, etc.) they contain. This classification carries with it
a string of expensive restrictions — hazardous waste can only be transported at
designated times and via select routes, etc.
The totality of these unforeseen
costs could crush industry competitiveness. If we plot future installations
according to a logistic growth curve capped at 700 GW by 2050 (NREL’s estimated
ceiling for the U.S. residential market) alongside the early replacement curve,
we see the volume of waste surpassing that of new installations by the year
2031. By 2035, discarded panels would outweigh new units sold by 2.56 times. In
turn, this would catapult the LCOE (levelized cost of energy, a measure of the
overall cost of an energy-producing asset over its lifetime) to four times the
current projection. The economics of solar — so bright-seeming from the vantage
point of 2021 — would darken quickly as the industry sinks under the weight of
its own trash.
Who Pays the Bill?
It will almost certainly fall to
regulators to decide who will bear the cleanup costs. As waste from the first
wave of early replacements piles up in the next few years, the U.S. government
— starting with the states, but surely escalating to the federal level — will
introduce solar panel recycling legislation. Conceivably, future regulations in
the U.S. will follow the model of the European Union’s WEEE Directive, a legal
framework for the recycling and disposal of electronic waste throughout EU
member states. The U.S. states that have enacted electronics-recycling
legislation have mostly cleaved to the WEEE model. (The Directive was amended
in 2014 to include solar panels.) In the EU, recycling responsibilities for
past (historic) waste have been apportioned to manufacturers based on current
market share.
A first step to forestalling
disaster may be for solar panel producers to start lobbying for similar
legislation in the United States immediately, instead of waiting for solar
panels to start clogging landfills. In our experience drafting and implementing
the revision of the original WEEE Directive in the late 2000s, we found one of
the biggest challenges in those early years was assigning responsibility for
the vast amount of accumulated waste generated by companies no longer in the
electronics business (so called orphan-waste).
In the case of solar, the
problem is made even thornier by new rules out of Beijing that shave subsidies for solar panel producers,
while increasing mandatory competitive bidding for new solar projects. In an
industry dominated by Chinese players, this ramps up the uncertainty factor.
With reduced support from the central government, it’s possible that some
Chinese producers may fall out of the market. One of the reasons to push legislation
now rather than later is to ensure that the responsibility for recycling the
imminent first wave of waste is shared fairly by makers of the equipment
concerned. If legislation comes too late, the remaining players may be forced
to deal with the expensive mess that erstwhile Chinese producers left behind.
But first and foremost, the
required solar panel recycling capacity has to be built, as part of a
comprehensive end-of-life infrastructure also encompassing uninstallation,
transportation, and (in the meantime) adequate storage facilities for solar
waste. If even the most optimistic of our early-replacement forecasts are
accurate, there may not be enough time for companies to accomplish this alone.
Government subsidies are probably the only way to quickly develop capacity
commensurate to the magnitude of the looming waste problem. Corporate lobbyists
can make a convincing case for government intervention, centered on the idea
that waste is a negative externality of the rapid innovation necessary for widespread
adoption of new energy technologies such as solar. The cost of creating
end-of-life infrastructure for solar, therefore, is an inescapable part of the
R&D package that goes along with supporting green energy.
It’s Not Just Solar
The same problem is looming for
other renewable-energy technologies. For example, barring a major increase in
processing capability, experts expect that more than 720,000 tons worth of
gargantuan wind turbine blades will end up in U.S. landfills over the next 20
years. According to prevailing estimates, only five percent of electric-vehicle batteries are
currently recycled – a lag that automakers are racing to rectify as
sales figures for electric cars continue to rise as much as 40% year-on-year.
The only essential difference between these green technologies and solar panels
is that the latter doubles as a revenue-generating engine for the consumer. Two
separate profit-seeking actors — panel producers and the end consumer — thus
must be satisfied in order for adoption to occur at scale.
None of this should raise
serious doubts about the future or necessity of renewables. The science is
indisputable: Continuing to rely on fossil fuels to the extent we currently do
will bequeath a damaged if not dying planet to future generations. Compared
with all we stand to gain or lose, the four decades or so it will likely take
for the economics of solar to stabilize to the point that consumers won’t feel
compelled to cut short the lifecycle of their panels seems decidedly small. But
that lofty purpose doesn’t make the shift to renewable energy any easier in
reality. Of all sectors, sustainable technology can least afford to be
short-sighted about the waste it creates. A strategy
for entering the circular economy is absolutely essential — and
the sooner, the better.
HBR.org