The scale still impresses Nat Bullard.
When he first started tracking solar as an analyst in 2007, the world was building a few gigawatts of expensive photovoltaics a year. Today, we’re connecting a half-terawatt of PV annually — billions of modules that are 40% more efficient than they were a decade ago.
“In the course of two decades, you’ve moved from installing in a day what you used to install in a year on a global basis in these markets,” said Bullard.
Bullard released his annual slide deck of decarbonization trends last month, and talked them over with Shayle Kann on the Catalyst podcast. Here’s a roundup of seven highlights from part one and part two of that conversation, from battery tech shifts to hydropower’s climate problem.
LFP’s massive jump in market share
Lithium-iron-phosphate (LFP) batteries grew from representing 5% of batteries sold in 2019, measured in gigawatt hours, to 42% in 2023, according to data from BloombergNEF.
“This is a very big deal,” said Bullard. He points out that this growth is largely happening in the Chinese electric vehicle market, where EV behemoth BYD relies on LFP batteries. “But I have to say that it’s unlikely that this capability and this chemistry is going to be ring-fenced to China forever.”
In the U.S., Tesla, Rivian, Ford, and other automakers are planning to roll out or are already selling models with LFP batteries, which are less energy-dense than the nickel-based chemistries NMC and NCA that have long dominated the lithium-ion market. But LFP batteries also tend to be cheaper, safer, and longer lasting.
Unlike solar, where one type of photovoltaic technology — crystalline silicon — has dominated, Bullard predicts that in batteries a variety of chemistries will prevail, serving different uses in the market.
“In batteries, I think we will see a world where you’ve got some separation based on use cases,” he said. “You know, there will be the NMC batteries that get used for hypercars and for aviation. And maybe the LFP battery becomes much more common for middle-market automotive applications. And then you’ll have batteries that use sodium, for instance, that will find their way into the system as well.”
The market for transferable tax credits is growing up fast
Renewables developers have been selling transferable tax credits at a rapid clip, and the market for these credits is showing signs of maturity and diversification. A market analysis from Crux found that the market was worth between $7 billion and $9 billion in 2023, outpacing expectations. And data from Basis Climate shows that smaller transaction sizes sell at lower prices with higher returns on investment.
“So the smaller the transaction, the deeper the discount to par value is, which is a normal kind of thing for having to deal with the aggregation challenges and the risks involved in smaller assets,” said Bullard.
Solar and wind developers don’t always make enough profit to take advantage of the Inflation Reduction Act’s tax credits, but the 2022 law also allowed developers to sell those credits for cash.
For purchases that are under $1 million, buyers pay 84 to 86 cents per dollar with a 16-19% return on investment. For purchases above $50 million, buyers pay 94 to 96 cents per dollar with a 4-6% return on investment.
Bullard described this market development as “great,” and added that “it would be really healthy to have a much broader market of participants.”
“A lot of the players in tax equity today, not just the institutions, are the same ones that you and I would have met for a cup of coffee at a conference in San Diego in 2009,” Bullard added. “And so it’s really valuable to see this expanding and taking on a sort of a platform basis, as opposed to a very bespoke basis.”
First Solar’s rapidly growing order book offers a peek into the U.S. market
First Solar’s quarterly order book rose from 10 GW in 2020 to 80 GW in the third quarter of 2023, a massive jump driven by tax credits for solar manufacturing in the IRA. It’s a positive sign for the U.S. solar market — and for the company itself, which is the only U.S. manufacturer of cadmium-telluride PV cells.
“First Solar is a story people, I think, do not sufficiently appreciate within the solar universe,” said Kann. Despite the company’s surviving the late-2000’s collapse of U.S. solar manufacturing, “it is not like First Solar is on its last legs,” he said. “In fact, if anything, First Solar has been going from strength to strength, in part thanks to the IRA.”
The company’s success, Bullard argues, is a peek into a U.S. solar market that has been supercharged by the IRA.
“It’s a fascinating look, not just that this technology has survived and thrived,” Bullard said. “But also it’s a great lens on the U.S. market because it’s a U. S. manufacturer — it is probably uniquely suited to taking advantage of all of the mechanisms within the IRA. And therefore, it’s a great kind of forward look on what people think about the U. S. market.”
“North America — read, mostly the United States — is almost 80% of the new potential booking opportunities that First Solar sees not just of its book, but of what it sees happening in the future,” said Bullard, pointing to the company’s internal projections.
Crystalline silicon is the dominant solar technology in the global market, capturing more than 95% of the market in 2022. Solar module efficiency improved 38% from 2012 to 2023, while prices had dropped 89%, according to BloombergNEF.
“How have solar modules gotten to be so cheap? So much of it is industry scale, right?” said Kann. “First Solar benefits from none of that. You know, they have a completely different process with completely different inputs, and they’re alone on an island with their own technology. And yet they’ve been able to compete.”
“Nobody else has replicated it,” he added. “There’s presumably a technology moat in cadmium telluride. There were, at one point, a number of cad-tell producers, but now not really. So it’s this exception to every rule we think of in solar.”
ESG has become the new third rail of finance
Investing that focuses on ESG has become a lightning rod for conservative backlash, and companies are responding by reducing the quality of their ESG reports, according to data from the Harvard Law School Forum and Corporate Governance.
“The resolution, the data quality, or the readability of this stuff has declined. And this is, frankly, a terrible outcome,” said Bullard. “So the number of reports that had an ESG data table — to my mind, the minimum good grace you could give an analyst — [fell] 76% to 54%. The number of reports that had a press release has gone down from about 76% to 50%. And now only 20% of these reports have even a summary or highlights version.”
The decline in ESG report quality is part of a larger response by companies to dial back their ESG messaging, also known as “greenhushing.” And yet, many are still issuing reports.
“It does sort of raise the question for me: what purpose are these reports serving if they are not conveying this very basic information?” said Bullard. “If this was the equivalent of your annual report and you didn’t have a summary data table in it, it would be ridiculous. Like the market would be absolutely up in arms.”
So many carbon credit certification standards — maybe too many
There has been an explosion of standards for carbon credits, said Bullard, and he questioned the usefulness of having so many.
“In 1996, we had one carbon certification standard. In 2023, we [had] 37 of them,” he pointed out. “But I don’t think that in the long run markets are asking for more standards. They’re asking for better application of a number of standards.”
Buyers and suppliers in the carbon credit markets face the unenviable task of sorting through so many options.
“This makes work very, very complex if I’m in this business. How do I pick between these 37 different standards?” asked Bullard. “No one is designing them to just further complicate people’s certification efforts; they’re adding them because they do one thing better. They serve this market better, that technology better. They serve this particular end user in a better way.”
Regardless, Bullard is skeptical of the trend: “I don’t think the market will be better served if this keeps going and we have 50 of them by 2025.”
Biodiesel is eating Europe’s animal fats supply
Almost half of Europe’s animal fat supply, almost 1.5 million tons, went to biodiesel production in 2023, according to data from the UK-based non-profit Transport & Environment.
“That’s really significant because it’s going to start crowding out these other uses for it,” said Bullard. “And if biodiesel appetite is going to increase, then you’ll have to start finding other sources of it.”
More and more end-uses are competing for limited animal fat resources. Airlines, for example, are trying to ramp up supply of sustainable aviation fuels, which can use animal fats as a feedstock, too.
“Are you going to start importing animal fats from somewhere else?” Bullard asked. “Are you going to find other feedstocks that you use for your biodiesel? Are we going to have a run? Are we going to have bid ups in the prices?”
Bullard says that the competition for animal fats gives us peek into an increasingly prominent dynamic in a decarbonizing economy: the scramble for limited resources, like biomass and land.
“I think it’s useful to look at this because it’s a microcosm,” he said. “It’s a relatively small market. But it’s an important one when we think about how resources are going to compete in the future.”
Hydropower capacities drop
Hydropower capacity factors are declining across multiple countries that rely on them.
“Hydropower is the backbone of zero-carbon power in many economies,” said Bullard. “It is the backbone of power in general in a number of different economies. In particular I’m thinking, here, of Brazil.”
Brazil’s hydropower capacity factors dropped from nearly 60% in 2010 to below 40% in 2021, according to energy think tank Ember. Full reservoirs in 2023 allowed it to bring natural gas imports to their lowest levels in two decades, but the overall trend in hydropower capacity factors is down.
“It shows that there’s this high degree of exposure to climate in general, like as a sort of long run trend, but also to weather more specifically,” said Bullard.
And it’s not just Brazil.
“Canada’s gone from about a 60% capacity factor to a little over 50%,” he added. “The E.U. has gone from mid-thirties to mid-twenties capacity factor for hydropower.”
Unlike intermittent renewables, hydropower has the key advantage of dispatchability, but at 20% capacity factors hydropower starts to look more like wind or solar. Hydropower’s year-to-year variability leaves openings for other forms of generation, like utility scale batteries, pointed out Kann, who is a partner at the VC firm Energy Impact Partners.
“We’re investors in Form Energy, for example, which is a hundred-hour battery,” he said. “It’s a capacity resource, right? Why does that have value, for example, in a market like the Pacific Northwest in the United States, which has a lot of hydropower? Because you can’t always count on that hydropower.”
But the decline in hydropower also leads to increasing reliance on fossil fuels, like in China where summer droughts have accelerated China’s increase coal-fired generation.
Want to dig in further to many more trends? Listen to both parts of Catalyst featuring Nat Bullard:
