Adam Price
EIS, Fall 2011
Suntech Power and the Opportunities of Energy Storage
Note: the majority of this paper is based on experience from the summer of 2011 at Suntech Power and
discussions with Suntech CCO Andrew Beebe and the Suntech strategy team as part of internal projects.
Founded in 2001, Suntech Power is the world’s largest producer of solar panels (“PV”). Suntech emerged as
one of the first Chinese manufacturers to deliver panels at a significantly lower cost compared to its Japanese
and Western competitors while maintaining comparable or superior quality. In addition to excellent
products, Suntech succeeded in part because of its willingness to understand local markets and regulations,
opening regional offices and working closely with solar developers and utilities in individual geographies.
By 2011, PV manufacturing has emerged as a mature and competitive commodity industry. Although double
digit growth is expected to continue for the near future, dramatic reductions in unit revenues and expected
industry consolidation have given Suntech the motivation to expand into business lines outside of tradition
solar manufacturing. Acquiring an emerging energy storage company and related technologies has been
identified as a high impact course of action due to perceived synergies with solar and other renewables.
Suntech’s primary goal is to increase the attractiveness of its own solar products and establish a second
technological focus, but the company is unsure how to best enter this sphere and gauge the impact on
various customers and ecosystem players.
The Current Solar-Utility Ecosystem
The overall electrical utility ecosystem goal is to reliably meet end-user electricity demand, which is highly
variable due to weather and other external factors. Because of this, the electrical generation grid is built to
meet >99% of the historical maximum demand and uses a variety of tactics and technologies to respond to
second-to-second fluctuations. Secondary goals include minimizing electricity costs to end-users, maximizing
the profit of individual players, and (more recently) meeting environmental standards and requirements. PV
manufacturers’ direct customers are developers who build and own utility-scale solar power plants and
commercial or residential end-users who install smaller solar arrays on their property. Competing
technologies (renewable and conventional energy), finance and development partners, utilities, and
government/regulators all have important roles in the ecosystem.
Unit costs are compared across generation technologies based on the Levelized Cost of Energy (LCOE) which
is the average cost of a KWh of electricity across the lifetime of an asset including input and capital costs,
financing, % utilization, and pollution abatement costs.
Additional aspects of a generation option and the overall grid are:
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Intermitentcy / Variability – the extent to which a power source is available and the predictability of
that extent. Solar is intermittent as it is only available during daylight hours and variable as total
power is dependent on time of day and weather. Baseload power, e.g. coal and nuclear, is not
intermittent; it is ran at virtually 100% uptime.
Dispatchability – the ability to quickly increase or decrease output on demand. Solar has no
dispatchability due to its intermittency; Coal has minimal dispatchability due to high
startup/shutdown costs. Natural gas generators are often referred to as “peaker plants” as they can
quickly and cheaply be started up during times of high demand.
Power quality – different generating technologies inherently produce power of varying frequency or
power. Technologies that are “clean”, i.e. similar to grid standards, require fewer electronics and
transformers to regulate power. Excessive “dirty” power implies unstable frequency or too high/low
generation voltages and can damage electronics or cause power outages. Dirty power can be caused
directly on the supply side, for example by widely varying wind speeds, or a failed response to
demand side fluctuations.
Figure 1 - The Solar-Utility Ecosystem
PV Manufacturers
Suntech and other PV manufacturers compete among themselves on solar panel price and efficiency (power
produced per unit area). Manufacturers sell to (1) generating entities which build large solar power plants
and sell the generated electricity on to utilities and (2) end users who install solar arrays onto commercial
and residential property. Because of the high upfront capital cost of a solar project, additional partners have
arisen to facilitate financing, engineering, and construction. The term “bankability” refers to the perceived
riskiness of a manufacturer’s panels in regards to performance and lifetime guarantees so that a project can
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meet its required financial goals. Better bankability allows projects to obtain better interest rates from
financing partners.
Competing Technologies
Conventional generation (coal and natural gas), as well as other renewables (wind and biofuels), compete
directly with solar PV when a generating entity decided to build a new facility. Developers and utilities
choose among generation options based on grid and technical constraints, capital and input costs, and
regional factors such as climate which drive the overall economics of a plant. Each generating option brings a
different profile of LCOE, intermittency, dispatchability, and power quality. Utilities prefer to build a portfolio
of generation options to create the flexibility to meet various demand scenarios.
Developers / Generating Entities
Developers build and operate power plants as assets which sell generated electricity to utilities. For solar
projects, utilities and developers usually sign a Power Purchase Agreement (PPA) which guarantees the
purchase of certain quantities of electricity at a defined rate schedule. This allows developers to better
predict cash flows and estimate a profitable rate of return for their investment. Developers are usually
required to meet stringent standards for overall power availability and quality.
Finance and Development Partners
Finance and development partners facilitate the construction of a power plant. The most important player is
the finance partner, who provides the upfront capital to a developer. Interest rates are based on project risk
and perceived bankability of the chosen PV manufacturer. Another player is the EPC (Engineering,
Procurement, and Construction) contractor who physically builds a project and often makes the final decision
on the solar panel manufacturer. Finance and EPCs may also take on the role of the developer or generating
entity depending on the market, regulations and company.
In most markets, the utility is a regulated entity responsible for transmitting and distributing power to end
users. Utilities may also act as developers / generating entities. Although the primary focus of a utility is to
ensure grid reliability, any increase in rates for end-users must be justified (usually under high scrutiny) to a
regulatory board representing the end users or government.
End Users
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End users are companies or individuals which consume electricity. End users may choose to install solar
panels themselves to meet electricity needs. The majority of these end users still need to be connected to
the overall grid because of solar’s variability.
Government / Regulators
Government and regulators set rules, standards and rates for utilites such as the aforementioned regulatory
board. The government also acts in two keys ways: (i) setting incentives/taxes and (ii) creating RPS
requirements. Incentives and taxes impact all ecosystem players. Developers and end-users may receive tax
incentives for their capital investments. Utilities and technologies are subject to a variety of taxes at the
state and country level. Feed-in-tarriffs, popular in Europe, guarantee a certain rate for electricity to
generators. RPS (renewable portfolio standards) mandate a certain percent of electricity must originate from
specific sources; utilities which do not meet these mandates face fines and penalities.
Suntech’s Efforts to Align Ecosystem Players
Suntech and other solar manufacturers have made efforts to align other ecosystem players in favor of
building solar power versus other generation options for new capacity in the market, thus allowing them to
sell more solar panels. The first approach is in the technical design of panels and their non-photovoltaic
components, known as the balance of systems or power electronics. These components have been designed
so that solar panels inherently produce power at the quality of grid standards, regardless of sunlight levels.
This is done much more cheaply and efficiently than other generation options, creating an advantage for
solar on this evaluation criterion.
Next, Suntech has made efforts to reduce the financial risk of its partners and customers. Foremost, Suntech
has focused on maximizing the bankability of its products and reducing any negative connotations of a
Chinese firm. All inputs and equipment are either sourced from high-quality Western suppliers with long
histories or manufactured in-house, subject to 3rd-party audits. Suntech has aggressively built relationships
with banks (financiers) and utilities in each country to educate partners and remove the risk associated with
relationship uncertainty. This has often meant opening an office and hiring local personnel, incurring higher
fixed costs compared to Chinese competitors. Last, Suntech has facilitated financing vehicles to directly serve
end-users who purchase solar panels for commercial and residential use. These allow consumers to lease
panels without the upfront capital expenditure and reduce costs by consolidating systems under a single
entity to qualify for incentives and tax breaks usually permitted for larger systems.
First Solar and other competitors have taken this a step further by directly entering in the
Developer/Generating Entity, Financing or EPC role. The theory here is that by actively engaging in the
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project bidding and development process, manufacturers can more aggressively create a pipeline for their
own panels. To date this has had a mixed result for competitors: First Solar has successfully booked several
large projects through its own development arm, but these projects may have selected First Solar’s panels
anyways due to technical and sourcing constraints. Other manufacturers have seen their developer groups
choose against their own panels; the subsidiary’s incentives and arms-length operations mean the parent’s
products may not create the best financial return or ability to win a project bid. The manufacturers’ own
customers also see a conflict-of-interest, fearing wholly-owned subsidiaries may receive beneficial pricing
when competing for the same project.
Suntech has explicitly chosen not to enter development, direct financing, or EPC role to serve utility-scale
projects. Instead Suntech prefers to partner with other parties more closely during and after the selection
process. Suntech takes an active role in the project design phase, which often occurs prior to being selected,
as a free service; this advice often takes the form of helping developers optimize a site by maximizing
revenues instead of power output by taking into account various utility rates and expected demand. For
example, demand and rates (unit revenues) are often highest late in the afternoon when temperatures peak
while power output is highest in the middle of the afternoon. Suntech also takes on risk by forming joint
ventures with EPCs and developers on single projects, taking on execution and finance risk should the other
parties default. In this way, Suntech feels they have gained many of the benefits their competitors realize
from direct participation without creating conflicts of interest.
Lastly, Suntech has aligned its own guarantees to better meet customers’ own goals. Originally the focus was
on product warrantees to establish a product would simply last and operate for 25 years. This evolved into
performance guarantees on single units, for example power output would degrade by no more than 5% after
5 years. Today, based on Suntech’s experience and risk tolerance, performance guarantees can now be given
at the system level. By promising a certain level of power output per year or month (in KwH) for a project,
Suntech is financially guaranteeing its customer’s cash flows and reducing risk.
An Unfortunately Short Primer on Energy Storage
The development of radically improved energy storage technologies has opened up usage at the utility scale,
with storage capacity now in the equivalent potential of thousands of homes for multiple hours. Solar is
seem as an obvious candidate to pair with storage technologies because of its underlying issues with
intermittency and time of availability (daytime). Technologies range from updates to traditional batteries (EV
batteries), massive electrochemical arrays (commonly known as flow batteries), to physical storage
(compressed air, flywheels, etc.). Unfortunately, there is no one storage technology that is the clear winner
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based on performance or cost. Each has different aspects for charging time, the speed to switch from
charging to output, storage efficiency and density (volume required per capacity unit), maximum number of
charges, and cost. This means each technology has a different application for dispatchability, reduction of
intermittency, storage, improving power quality, and increasing flexibility.
Direct benefits to Suntech
For Suntech and PV manufacturers, bundling storage technology with solar would meet a frequent request.
Highly responsive storage removes short-term intermittency cause by cloud cover or shading. Storing larger
amounts of power extends the time power can be sold into the night or the ability to dispatch power into the
grid when rates are highest. Integrating storage at the point of generation may also be the lowest cost
approach by sharing infrastructure, construction, and other fixed costs while minimizing any losses created
by transmission. Increased levels of solar and energy storage capacity on the grid should also have a
synergistic effect, building on one another to allow a higher % of capacity to come from solar and drive
overall panel sales.
STP’s has several options to enter the storage industry. The initial bias is towards outright acquisition of a
storage technology, based on past preference to own rather than license technologies. Certain technologies
like flow batteries are also highly dependent on materials science, a domain where Suntech already has
extensive experience. Suntech could also aggressively pursue partnerships with storage companies and
become a leader in integrating solar with storage on a project-specific basis. Last, Suntech can do nothing
and wait until the industry further matures. Each option would have implications on aligning Suntech goals
with those of other industry players.
Allignment / Misallignment in the Ecosystem
Competing technologies
Competing technologies can realize several of the same benefits as solar from the integration of storage
technology. Addressing uncertainty and intermittency is attractive to wind generation. Cheap storage would
allow baseload power to store energy during times of low demand, then release this into the grid during high
demand, reducing the need for higher cost peaking option like gas or peak demand-following generation like
solar. This implies further development and integration of storage could actually harm the sale of solar
panels by Suntech. At the same time, acquiring a storage company could allow Suntech to sell directly into
competitors for their own projects and create a new customer segment.
Developers / Generating Entities
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Developers and solar plant operators are the customers which in the end realize many of the benefits
mentioned for Suntech above. Depending on the scale of storage, solar could become a baseload power
source if there are enough sunny days in the year. Intermittency problems from cloud cover are also
addressed, which reduce some variable costs in an operation. Power delivery to the grid can also be better
shaped to match output with times of higher electricity rates.
Overall, Utilities will likely see storage as independent from generation. Utilities gain the benefits above, but
can also begin to demand stricter performance from generating assets like output guarantees, preventing
plant operators from excessively shifting power output. Power services, like frequency modulation and
demand response, should become cheaper with more competitive options to provide such services. The
economics of storage will reduce the need for peaking capacity and can also eliminate investments in
transmission lines or distributed generation. For example, transmission lines into a region may not need
upgrades to meet peak or growing demand; instead, storage can be used to capture energy during low
demand, then redelivery it into the system as needed. Like the situation for competing technologies,
Suntech may be able to reach a new market of customers or customer needs, but the impact on solar panel
sales themselves is uncertain.
End-User (Suntech Customers)
End-users which directly install solar panels see storage as a way to create backup power and further
independence from the grid. Nevertheless, unless the combination of solar and storage fulfills 100% of
energy needs, connection to the grid will still be necessary. Here, regulation in many regions will further
destroy the benefit back-up power during power outages. Because of the grid structure, low amounts of
power being pumped back into the grid in an uncontrolled manner during an outage can actually damage
equipment. This means many facilities (the exceptions being hospitals, police stations, etc.) with
independent power sources must actually turn off their own power supplies during outages.
Storage still has benefits for some consumers. Storage can prevent the need for investments to meet only
peak power demands; for example, some utilities charge more for high voltage lines into a facility or if
demand from a facility peaks excessively above average usage levels. This can commonly occur when heavy
machinery is being started up. Therefore, storage can help mitigate these events. Storage can also shift
when power is taken from the grid away from peak rate times (like in the afternoon) to periods when
electricity is cheaper.
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A Suggested Strategy for Suntech and Storage.
As briefly described, storage technologies will have an impact on many players of the utility ecosystem and
would allow Suntech potential sales into Utilities and Competing Technologies, two areas where it lacks
direct presence today. At the same time, the immaturity of storage technologies at a large scale means the
nature of influence and needs is still largely unknown. The variety of technologies and their current
performance means no single technology will be appropriate for multiple types of projects. Any long-term
winning technology will likely be commoditized quickly and spread to multiple providers. In the short term,
Suntech lacks the focus needed to commercial storage at a wide scale. In whole, there is minimal benefit to
Suntech for directly purchasing a storage technology at this point in time while the cost of waiting is low.
Suntech should still begin to actively play in the energy storage industry as a partner. It is a good bet that
storage will follow a similar trend in development as solar. The most successful companies will not
necessarily be the best technologies; more important will be the ability to meet the needs and influence
other players in the ecosystem. By working alongside storage companies that already have strong knowledge
of the ecosystem, Suntech can learn from them and gain experience. As competing storage technologies
develop, Suntech can then transfer its own knowledge to parties with minimal required capital investment.
Close knowledge and experience in the area will also allow Suntech to acquire or invest in storage companies
on an opportunistic basis as winners become more obvious. Recommendations for the near future include:
Further diligence of storage in conjunction with customers to better gauge uses and requirements.
Participation in studies with utilities, especially where storage is paired with various technologies
Building of relationships with current storage leaders, like AES, SustainX and A123
Sources / Interviews
Andrew Beebe – CCO, Suntech Power
Jake Wachman & Evan Hindman – Strategy group, Suntech Power
Josh Gould (T’09) – Director, Cleantech Group