Wednesday, March 16, 2011

After Japan Quake, Gas Should Eclipse Solar

After Japan Quake, Gas Should Eclipse Solar

By LIAM DENNING
Even as it reels from multiple catastrophes, investors still seem to think of Japan as the land of the rising sun: Solar power stocks have jumped sharply.

Japan's nuclear crisis has boosted a solar sector which faces chronic oversupply. Solar cheerleaders will be heartened particularly by Germany's shutdown of several nuclear power plants, since that country accounted for 40% of solar installations over the past two years, according to Credit Suisse estimates.

Solar power is safer but it cannot replace nuclear energy. In 2008, nuclear plants generated 13.5% of the world's electricity, according to the International Energy Agency. Solar power accounted for 0.06%. This understates the investment in solar power required to fill the gap, however, because nuclear plants run most of the time while solar power is by definition intermittent. In 2008, nuclear plants globally generated 80% of their total potential output. Solar units eked out 9%.

Solar power also remains relatively expensive. U.S. government projections for new plants entering service in 2016 put the total cost for electricity from solar photovoltaic units at nearly double the projected cost of new nuclear plants in 2009 dollars. Even if the latter now rise, solar power must compete with other fuels, most notably cheap natural gas. Those same government projections put the cost of electricity from modern gas-fired units at just 30% the cost of solar power.

Politically, gas faces its own problems, given concerns over shale drilling. But then solar power's higher costs and subsidies are also a political issue in these straitened times, which is why governments have been reining in incentives. Japan's tragedy could persuade them to cut the solar power industry some slack. But natural gas's better economics and reliability should make it the biggest beneficiary.

Write to Liam Denning at liam.denning@wsj.com

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