Abigail Hopper: It’s the big people that you know about, the Facebooks, the Targets, the IKEAs that are deploying solar on the roofs. But there’s another level of companies that are interested in doing it that aren't as well versed, aren't as sophisticated in terms of energy purchases. And designing business models for them around how they aggregate demand and how they aggregate supply, I think is a really interesting opportunity.

David Abel: I'm David Abel and this is Climate Rising, the podcast from Harvard Business School that looks at the challenges and opportunities that climate change presents for businesses. Today we'll be looking at the challenges facing the solar industry as it seeks to replace fossil fuels. With costs plummeting and the technology maturing, solar has made rapid advances over the past decade in the United States growing on average by 50% a year. It now produces enough electricity to power more than 12 million homes in the United States. At the same time, the cost of installing solar systems has dropped by about 70%. The solar industry now employs about 240,000 Americans. By comparison, coal in the United States now employs little more than 50,000 people. But the picture has become less rosy in recent years. Since 2016 the industry has lost at least 18,000 jobs. Much of that due to the Trump administration's decision last year to impose a 30% tariff on Chinese produced solar panels. Billions of dollars in plants' solar projects were frozen or canceled and with federal and state tax credits set to expire in the coming years, the fate of the industry is uncertain. In a bit we'll hear from Joe Lassiter, a retired professor of environmental management at Harvard Business School, someone who remains skeptical about solar. First, we'll talk to Abigail Ross Hopper, one of the nation's leading champions of solar. She's President and CEO of Solar Energy Industries Association, a national trade group for the solar industry. I started by asking her about the pros and cons of solar compared to other forms of renewable energy. And how much of its fate is tied to developments in storage technology.

Abigail Hopper: Solar is a really unique energy source. Think about it, you can have a solar panel on your house and have this very personal relationship with your energy source. I love wind. You really can't do that with wind unless you live out in a farm in the middle of nowhere. You can also put a big solar power plant in the middle of the desert, and create huge amounts of energy. Or if you're Walmart, or Target, or Ikea you can put it on your roof. And so it has this adaptability that is unique, really, in the energy industry. And so that is one of the reasons why I think it will be the energy source of the future. The prices have come down so dramatically that people are not having to choose going solar based on environmental concern. They're choosing it based on price. You want to save money, go solar. It has the added benefit of actually sort of bringing down carbon costs. And also you get your own power, you can choose where you went to electricity come from. That's all great stuff. But it's actually going to save you money. And your question about storage, the pairing of solar and storage is what's going to transform everything. I mean if we had this conversation in five years, nothing that we're looking at now, I think, will look like what we're going to see in the future. And again there is that personal relationship. Everyone knows what a battery is, right? You plug your iPhone in and it juices up, and then you can use it all day. Similar with solar plus storage. Sun shines, you save those electrons until you need them, and then you can use them whenever they're required. And so as that product also comes down in cost and sort of the product offerings get broader, I think it will completely transform how we use energy in this country.

David Abel: Fascinating. Your association has forecasted solar generation in the United States will double in the next five years. How concerned are you about the increasing tensions with China? Could the projected growth be stymied by the tariffs and the growing trade war?

Abigail Hopper: Yes, trade is definitely a major concern for us. I think one of the things that you said in the opening was about the tariffs that were placed on our industry. That actually was applied to panels from every single country, not just Chinese panels. That continues to be a challenge for us. So we actually don't get very many of our panels from China anymore and haven't for a couple of years. But there are all sorts of other pieces of solar panels that balance the system, all the other things that happen to make the solar project live, that are subject to tariffs. So the steel and aluminum tariffs, which have hit many industries, have also hit the solar industry. Because we use steel and aluminum in the racking systems. The things that either bolt to your roof, or in the middle of the desert. And so we are very cognizant of the trade issues, and are concerned

David Abel: Where are we getting most of our panels from now, if we're not getting them from China? Are we developing them on our own, and what caused that to change?

Abigail Hopper: So there are two places. A couple of years ago in 2012 and 2014, 2015 there were tariffs placed on modules and sales coming in from China. And so there was a development of other countries. So places like Malaysia, South Korea, Singapore that have factories in them, Mexico. And so those have been operating for a long time. When the tariffs got put in place last year, those are all tariffed now, all at the same amount. There have been some domestic investments in solar manufacturing here in the US since the tariffs went into place. Even at full capacity, they're not going to serve a huge portion of the market. And so the tariffs have not solved the problem that I think the administration was trying to resolve.

David Abel: How important are federal and state tax credits and other incentives to maintaining the growth that we've been seeing. What else could state and federal officials do to spur demand for solar?

Abigail Hopper: Our vision is that solar will be able to compete on price alone in the future. Ideally when other fuels also compete on price alone. So I'm happy to talk about solar incentives, but we're both cognizant of the fact that all fuel sources in this country have tax incentives and various other government support. But first for solar specifically, it is an important piece of the puzzle, but it's not the only piece of the puzzle. Certainly making sure that homeowners who have invested in their systems have some certainty that that investment will remain sort of what it was projected at the time they made that investment decision, is important. Making sure that there is a fair transaction between utilities and their customers in terms of the compensation for their excess energy. But as we look out on the federal level, and the federal tax incentive that exists for solar, the projections that you referenced assume that that steps down. Which in current law it's supposed to do. So solar will continue to grow even knowing that. But honestly, if we want to think about how we address the climate crisis, and what tools the federal government has at its disposal, and what might actually be able to get passed in this Congress. Which is the big if. We know that the investment tax credit works. We know that there's been $140 billion deployed as a result of the investment tax credit. And our projections show that if we continue that policy it will deploy more solar, and take more carbon emitting fossil fuels off the grid.

David Abel: And just for our listeners who don't know how the tax credits work, can you just outline how they work?

Abigail Hopper: It's called the investment tax credit because it's based literally on the investment. So if you spend a dollar... Which that'd be pretty amazing if you got a solar system for a dollar. If you spend a dollar you get 30% back as a credit on your taxes. So multiply that by X.

David Abel: Why, in your view, have the costs come down so significantly in recent years? And is that decline now slowing? Are those costs declining at the same rate everywhere or are there regional differences? And how do you expect they'll change over the coming decade?

Abigail Hopper: It's like any good technology, right? You get more deployment, more people buying your product, it becomes easier to produce it. You get better at producing it, your systems become more efficient, your financing becomes better, your investors understand the product you're selling. For us it's solar power. All of those things have really added to the cost declines. It is sort of similar cost declines across the country. Where we see differential is really in the markets. So utility scale are the big projects out in the desert, or here in fields. The commercial industrial are on the rooftops. And then residential customers. And one of the areas where it's harder to cut costs is in soft costs. So for example, if you are going to put a solar system on your house, there's going to be an inspection by your city. There's going to be electricians up there. There's going to be this long process you have to go through. Those costs really add up and make up a big chunk of the residential costs, and they've been much more difficult to cut. How do I think it's going to change in the next coming years? I think technology will continue to evolve, I do. I think our federal government is spending a fair amount of money investing in technology, appropriately so. I think processes will get more efficient. And so customer acquisition perhaps on the residential side might get sort of more economic and we're trying to work on permitting and getting rid of some of those soft costs. And then I also think the financing piece shouldn't be understated. Understanding what the asset class is, and making sure investors are comfortable with it, comfortable with how it performs over the longterm so that there's more comfort and you don't have to price in as much risk is important. I think as we go from solar projects to solar plus storage projects, we're going to have that learning curve all over again with financiers. So they understand how the asset performs over time. But I think that will continue to bring costs down as well.

David Abel: But that's 70% decline that we've seen in recent years. Do you see that slowing, or do you see that trajectory remaining?

Abigail Hopper: So we're about to embark on a new decade, the 2020s. And we have termed the 2020s the solar plus decade. 2% of the nation's electricity generation comes from solar now. We think it will be 20% by 2030 so to get there, we do need to bring costs-

David Abel: By 2030?

Abigail Hopper: Yes. So in the next decade go from 2% to 20% that's obviously a huge increase. But to do that, our assumptions tell us, we need to bring costs down by another 50%. The trajectory is going to continue to be pretty rapid and pretty steep, but necessary.

David Abel: Walk us through how solar technology has changed in recent years. What do you see as potential advancements in the technology going forward? For example, when might we see office building windows covered in solar PV? Or similar technology built into cars on their roof to help power electric cars? Or even built into roads? As I've heard there've been some experiments in China.

Abigail Hopper: So all of those things I think will continue to evolve. I'm not the technologist in the family, but I do think as we look at sort of what the Department of Energy is investing in, they are investing in a couple of things. One is that cell technology. Right now it's photovoltaic, but there's other materials that we can use and that work is going on and incredibly promising. Some of it is a bit more sustainable, and more easily manufactured. And so that's important. I think the applications base is what you're talking about, right? Where can we put all of this solar? And as we think about certainly roads, certainly buildings, parking structures, stadiums, I think that there'll be innovation in how we use it. And then, you're talking about the film, right? For the windows and things. I think that that will be the norm. I do think the other area of evolution, if you will, we are not surprisingly looking to California. California passed a mandate that all new home construction has to have solar on their roof by 2020. That's going to completely transform both the housing market and the energy market in that state. Some cities across the country are also requiring that mandate. And I think that will be another area where there's transformation and sort of what seems odd now is going to become normal.

David Abel: Aside from hippie California, where else is that happening?

Abigail Hopper: There are some cities in the great state of Florida that have done that. I think some of the cities in Texas. Places that have the solar resources and perhaps their state government isn't quite ready to embrace those mandates, but local government is.

David Abel: What are your biggest concerns about how public policy in the United States and abroad will affect the solar industry?

Abigail Hopper: So I think that your question is sort of twofold. Are we doing enough to remain a leader in terms of technology development, and research and development? And I think that we certainly are in research and development we have invested and will continue to invest. It’s sort of ironic that in the last few years, the Trump administration has proposed either zeroing out or significantly cutting those funds. And every year a Republican Congress has put them back in. And so it sort of speaks to how valuable that investment is. It is valued by people of all political parties. So I think on the R&D side we're doing well. Obviously we have a national conversation about manufacturing in this country, and sort of what we're doing well and what we're not. I think there are whole sectors of the solar industry where we do have a strong manufacturing base. Things like trackers and inverters, so the wiring systems that are important to the projects, we're doing well on in that regard.

David Abel: But the last administration really, had a kind of bully pulpit on these issues. And the Department of Energy in those days was really championing all kinds of companies and ideas and technologies. Even if Congress keeps putting the money back in, is there some sort of loss without having a champion in the White House for this?

Abigail Hopper: There's certainly a lost opportunity. Obviously our current president is a big fan of oil and gas and of the nuclear industry. And talks a lot about how we revive coal plants. I am not particularly concerned about it because the market has spoken. There's actually a finite amount of things that the federal government can do to interrupt the energy markets. And they're trying to do it, don't get me wrong. And we are fighting them voraciously on all of those fronts. But so far people that run energy markets, people that run the grid, and people that run utilities understand that this transformation is happening. And so we have utilities on their own, not because of regulation, or not because of mandate, or not because of pressure from their public service commission saying we're going 100% clean energy. We're going 100% renewables, and we're doing it because it makes sense for our shareholders and for our customers, and that's going to cost less money. And so when you have forces like that at work, my opinion is that there's only so much that the federal government can do. Would it be better to have someone with a clear vision about how we solve the climate crisis and sort of put in place plans to aggressively do that? Absolutely. But our industry is not going to be halted by this.

David Abel: If you were starting out, leaving Harvard Business School, and you had an interest in getting into the solar industry, what are some of the opportunities that are most promising?

Abigail Hopper: Well, I talked about financing, right? Reform and sort of continued evolution and financing being a critical part of bringing down costs and greater adoption. So if I was a recent Harvard Business S chool grad, I would think about opportunities to marry those two. Finance plus renewable energy. I think one of the trends we see in the industry is corporate procurement. So it's the big people that you know about, the Facebooks, the Targets, the Ikeas that are deploying solar on their roofs. But there's another whole level of companies that are interested in doing it either for corporate sustainability, or for cost, or both that aren't as well versed, aren't as sophisticated in terms of energy purchases. And designing business models for them around how they aggregate demand and how they aggregate supply, I think is a really interesting opportunity. And if I was a recent grad, I'd go figure that out. I think there are lots of opportunity for small businesses and startups. The solar industry is both national but incredibly unique. Every state has its own pricing system. Every energy market is different, there's a different set of rules. That's one of the challenges of being in the energy space, but also one of the opportunities. So we see tons of startups around software design. As we think about how do we incorporate all of this solar onto the grid. And how do we build the systems that allow that kind of back and forth flow. I think there's opportunity there. I think that in the technology space there's lots of opportunity and I think that especially on the residential side, there's only so much you can do to standardize that one by one by one customer acquisition and customer engagement. And so I think that there's a great opportunity. I will say the thing that is changing is if you look at some of the oil majors, some of those companies that I engage with on the oil and gas side are making big capital on the renewable side. And so they're both purchasing companies, or stakes in companies, that are doing solar deployment or battery deployment. And they're also becoming off tickers themselves. So for example, ExxonMobil signed a deal with a renewable energy company for wind and solar production to help fuel their oil producing facilities in Texas. So there are these multi technology solutions that are being created that certainly we're not just a couple of years ago.

David Abel: As more cities and states call for building 100% renewable energy systems. How much do you expect that solar will be a part of that and how much does geography play in that equation?

Abigail Hopper: Solar will be a huge part of that, and I think geography will play an important part but maybe not in the way you think. You are right that the sun resource is different in different places, but that's not the gating factor. The real gating factor is around access and transmission. Where do you put these projects and then how do you get the energy to the people that need it. And solar is actually uniquely situated, as I said at the beginning. It can grow and expand, it could be five panels on top of a house to a huge power plant. And so geography is helpful in that regard because we can cite it and size it given where the location is available. So that does differentiate it from some of the other kind of renewables out there. But the importance of transmission, in terms of getting electrons to people that need them, can't be understated.

David Abel: Joe Lassiter has studied the viability of renewable energy around the world, but he has his doubts. It's unclear to him whether solar can really make a difference in ultimately weaning ourselves off fossil fuels.

Joe Lassiter: In the end, people want power that's available 24 by seven by 365, and they want it to be cheap. And there are limitations in renewables today that I'm sure we will address in time, that are keeping the world from being able to get a clean, cheap, reliable energy that fundamentally it needs. And those are barriers.

David Abel: And are those barriers so high that we will likely not see the doubling of electrical generation from solar power over the next few years, as Abby suggests is likely to happen?

Joe Lassiter: I think we're liable to see even greater growth in capacity. Again, the thing that matters the most is not kilowatts or watts or gigawatts, but gigawatt hours. Not how much power you have in place, not how much money you can spend building power. But how much energy can you literally deliver to people that they can make use of on a continuing basis. And I think we're going to have a hard time getting enough energy from renewable resources to change the rate at which fossil fuels are being burned around the world. The world needs 24 by seven by 365 day power. It needs high quality power. People need it to run their homes, to run factories, they need it for transportation. They need it for all the things that you and I use electricity for that we take absolutely for granted when we walk into a room and flip a switch. And the developing world wants the same kind of power with the same availability at the same low cost that you and I enjoy. And they're going to get that, whether it comes from fossil fuels, or renewables, or any other source.

David Abel: How much of a problem is it that in countries from the United States to Australia electoral seat changes have brought new administrations that have taken very different approaches to promoting renewable energy?

Joe Lassiter: That's a big problem, and it's one that companies in some cases can look around. But if you really want steady progress on a problem, you need continuity of policy. And whether it's the yellow jackets in France, the Australian elections, the policies that our own government has gone through around flip flopping on the Paris agreements. That kind of stutter stepping keeps people from making the longterm commitments in capital and human resources in careers, in changing their own habits to change the energy picture. So lack of continuity is a problem. And since we live in democracies, lack of continuity is a thing that democracies have as a weakness. But I think we tend to like democracy more than we like authoritarian control over our choices.

David Abel: What are, in your view, the most effective policies that would stimulate demand for solar and enable it to continue to grow at a steady rate?

Joe Lassiter: Well, I think the big thing is to recognize that solar is a piece of the puzzle. So you hear expressions today that people say quickly: Solar is cheaper than coal. Well, unless the sun's not shining. Things of that kind I think confuse people as to what we need to get done, and the magnitude of the problem, and the rate of change that's going to be necessary. So I think first a more honest discussion of the real energy problems that the world faces and a recognition that if we want to change it, we're going to have to change a lot of the things we've gotten used to doing.

David Abel: What should we be doing to try to persuade other countries such as China and India to spend more on renewable energy than on building new coal plants?

Joe Lassiter: I think the most practical thing we can do for China and India is to make natural gas an alternative to coal, blend it with renewables to give people reliable low cost grids with low local air pollution. Certainly there's more carbon pollution, half of what it is with coal. But certainly they get a big improvement in local air quality, and they get a network renewables plus natural gas, which can deliver electricity 365 by seven by 24.

David Abel: This is something of your mantra, marrying solar with natural gas as a backup, especially at nighttime and cloudy days. Why does that make sense when you have to spend millions, and depending on the scale, billions of dollars to create an infrastructure with pipelines and new plants to facilitate that natural gas or other kinds of fossil fuel supply?

Joe Lassiter: Without a doubt, you have to look at what capitals in investments make sense over what point in time. And any one point in time you're going to make an investment, which is a bridge to the future. The bridge is not a permanent structure, it changes over time. I read an incredibly interesting story today about energy storage in a facility in Utah, which is going to be burning natural gas in a gas turbine as part of a storage facility. They're going to mix it with hydrogen developed from a renewable energy array, and over time they hope to substitute hydrogen for all of the natural gas and as a result have a completely neutral renewable grid... Or fossil fuel emissions, neutral grid. Those were interesting ideas and I think what we've got to do is stay focused on the problem. And the problem is reliable power for people, low cost power for people, and clean power for people. Not technology specific solutions of renewable, or nuclear, or fossil or whatever. But stay on the things that people really care about. And they care about their electrons being cheap, they care about them being reliable. They care about them being clean. They don't care what technology is used to produce them.

David Abel: Right. But if we are to live up to our commitments to Paris and as well as other countries, if we are to really try to bend the curve of the accelerating warming process to try to keep us below two degree Celsius-

Joe Lassiter: Or one and a half.

David Abel: Or even one and a half, which doesn't seem even practical anymore. But if we are to try to do that, it will mean that we need to really cut ourselves off of all fossil fuels as quickly as possible. So if we were to be building all of this additional infrastructure for natural gas, marrying that with solar wind, isn't that problematic? Wouldn't we be perhaps better off investing in maybe the less efficient or effective storage technology that exists that might be able to be upgraded over time, so that we were building more of the renewable energy infrastructure as opposed to focusing and spending money on carbon intensive infrastructure?

Joe Lassiter: I think the model is you go from extremely carbon intensive to less carbon intensive each and every day. And I think you'll be able to support that path, I E. afford to take that path, and get popular support attic if you do it in an extremely low cost fashion. If you start with extremely high costs, voters will revolt. They've revolted in Australia, they revolt in France, they revolted in provinces in Canada. I think you've got to show people steady progress and be very efficient in how you approach it. I think in general, if you look at natural gas, it's dramatically decreased the amount of coal that's being burned in the world. It's dramatically reduced local air pollution. Which saves lives today, not only lives in the future. I think it's a valuable step along the way. All of that economics has to be taken into account as you play it. And I don't think there's a simple answer of let's all build renewables. I think that will cost too much and you won't get the political support you need, and you won't get the power that people have to have in order to run their lives.

David Abel: And what do you see the promise of the solar industry to be in terms of it being a key player in our future grid?

Joe Lassiter: If I step back and look at all the energy sources, the decreases and costs, particularly in solar, have been stung. And by the way, there's still opportunity for substantial decreases in solar technology itself. And there will be new improvements in batteries that come. But tomorrow morning you can take renewables, plus gas turbines acting as a battery, and you can build them any place in the world. And you can keep the coal in the ground and you can deliver people the power they need, the air quality that they need to have health with. And you can make all of that available to them if you have the will to do it. I wouldn't wait for the technology of batteries to persist. I'd get started and I'd get it cleaner every day. The lesson of investing in clean technologies in 2008 was that people wanted secure energy, I. E. energy that couldn't be manipulated by foreign powers. They wanted clean energy, energy that was not associated with carbon emissions or in particular in parts of the world with local air quality. And they wanted power that was available when they needed it. That it could meet their need. And the truth of the matter is that we tried to solve too hard a problem. The problem that the world solved was not clean, but cleaner. Not cheap, but cheaper. Not secure, but securer. And they solved it with natural gas, the single greatest gift of the environment that we've had, because it's driven coal from the market. And by the way, new innovations will drive natural gas from market at some point in time. But with all new technologies, there's always a pattern of adoption. And adopting too soon is as big a mistake as adopting too late.

David Abel: And now here's Mike Toffel, a professor of environmental management at Harvard Business School with a wider view about the solar industry.

Mike Toffel: We just heard Abby Hopper talk about how the solar industry expects that the amount of us electricity generated by solar will increase tenfold from 2% to 20% in just 10 years. And Joe Lassiter said that because solar power is intermittent, it only generates power when the sun shines. It requires scalable storage that won't be economically competitive for a long time. And so natural gas will be used to generate electricity for decades to come. While that seems like disappointing news to those who argue that we need to completely decarbonize as soon as possible. Joe points out that we shouldn't lose sight that it's actually good news that natural gas is replacing coal, especially in places like China and India. Not only because it's less carbon intensive but also because burning coal causes so many other health problems. Their conversation was largely about grid scale electricity generation, but that's just one part of the solar story.

Abby highlighted that solar panels can be a distributed source of power operating off the grid. And solar can also be a mobile source that can be transported by vehicle, or even people walking or biking. It's interesting to think about how these features of solar are leading to innovative applications and business models that might disrupt a wide range of technologies and industries. For example, you can't generate electricity from natural gas at your house, but you can from solar. That means with solar you can own or rent your own onsite power plants. And when you have rooftop solar and are connected to the grid, you can draw from the grid when you need more power than your solar array produces. Or you can sell to the grid when you're a rooftop solar plant generates more electricity than you need. Solar can also be economically deployed off the grid to reach some remote areas which can avoid the expense of building out the grid.

This includes both developed and developing countries where the grid might not ever reach. There are lots of entrepreneurs working on this including HBS alumna Nicole Poindexter who cofounded the company Blackstar Energy to provide solar power to remote communities in Ghana, and is expanding into Sierra Leone, Nigeria and Benin. In a sense, solar enables electricity to skip the grid, just like cell phones enable telecommunication without building out telephone lines. Another benefit of rooftop solar is that companies and households can avoid blackouts when storms knock out the grid's power lines. Think of Puerto Rico where hurricane Maria decimated its electricity grid and damaged 80% of its power lines. This resiliency feature is increasingly important as climate change brings more frequent and intense storms. Local solar can also shield you and your business from intentional blackouts like those in California that are meant to prevent wildfires. Another risk that will only grow with climate change.

The US military is increasingly building solar on its bases, in part to build resilience against potential cyber attacks on our electrical grid. Another totally different type of solar application leverages its mobility. Most of us don't even notice that our pocket calculators have long been powered by solar, but the next generation of mobile solar is solar mats, which US army and Marine troops carry in their backpacks to power their technology. A solar mat is not only lighter than the batteries they replace, but they also reduce the need for risky missions to replenish batteries and diesel fuel to power generators and innovations are also taking place with solar panels being installed on cars and airplanes, potentially disrupting fossil fuels used to power transportation. It's this wide range of applications and the wide range of business models that will develop as a result. That has me really excited about the future of solar.

David Abel: That's it for Climate Rising this week. I'm David Abel, in our next episode, we'll look at the challenges facing the nation's growing wind industry.

Francis Slingsby: The hardware is just sensational. And the growth, in terms of the scale of these turbines and what their ability to generate, is phenomenal. To see how these machines are able to capture a natural resource and convert that into clean energy. What it means is that this industry is really very much becoming part of the backbone of a number of countries when they look at their energy future and the generation mix.

David Abel: Thanks for joining us. I'm your host, David Abel. This is Climate Rising, a podcast produced by the Business and Environment Initiative at Harvard business school. You can subscribe on Apple podcasts or wherever you listen. And please leave us a review, we appreciate the feedback.