S&A Holiday Best-of: Why every solar energy plant has a natural gas generator inside...

Editor's note: In today's second installment of our S&A Holiday Best-of series, we take on one of Porter's most controversial topics: solar energy.

For years, Porter has sold short leading solar-panel maker First Solar (FSLR)… and made consistent profits for his subscribers…

Solar energy is an absurd boondoggle and a hopeless money-loser. But no matter how correct Porter's investment thesis has proven… many people continue to pillory him for being "anti-solar energy"… His commentary on the "industry" regularly generates some of the angriest feedback we receive.

So in an essay we originally ran in the September 23 Digest, Porter explains in detail why solar energy is a dead end… not only from an investing perspective, but at its scientific core.

Why every solar energy plant has a natural gas generator inside...

I have received all kinds of funny notes… sent to me regarding my solar comments. Folks with Ph.D.s and engineering backgrounds, who should really know better, have sent some of the best. But most of the notes were simply ignorant comments from folks who desperately want to believe in the political "promise" of solar energy – that in the future, energy will be nearly free... if only trolls like me would get out of the way. Other folks were merely curious. They just wanted to know more about why I'm so skeptical. Or they wanted me to clarify what I meant – on the differences between local, passive solar energy and grid power.

This is as clear as I can be: Solar power, as a source of energy for the power grid, will simply never work. And by "work," I mean it will never even be even remotely economic. The reason why it will never work has nothing to do with technical hurdles or innovations that have yet to be made. The reason it will never work is because of the laws of nature, in particular, the Second Law of Thermodynamics.

Several readers have sent me quotes from various sources saying the laws of thermodynamics only relate to objects cooling, electron equilibrium, etc. Likewise, politicians, who know nothing of physics, have come to believe solar energy is akin to Santa Claus – a sort of electrical "freebie" that solves all our problems. Just wait until the voters realize they've been had again...

Alas... the laws of thermodynamics apply to solar power, just as they do to everything else in the universe. The Second Law of Thermodynamics, in particular, has many useful applications, including information technology (Shannon's Law), which is where I learned it. The critical point to understand about the Second Law is that the usefulness of energy (its ability to do work) decreases over time and space. Thus, by the time sunlight reaches the surface of the Earth, it has lost much of its useful energy.

The total amount of energy in sunlight doesn't change – that's the First Law of Thermodynamics – but the amount of useful energy dissipates over time and space. That's why some passive solar power applications, such as heating your pool or perhaps powering minor appliances during the peak heat of the day, can be relatively efficient. I say "relatively" because, in many places, the energy required to aggregate the sunlight and convert it into electricity will render the total costs of such systems uneconomic compared to grid power, which is generated with other fuel sources (coal, uranium, natural gas) that are far denser in useful energy.

Currently, tremendous efforts are being made with various types of technologies to harness the energy in sunlight. Major investments are being made – on the back of demands and with financing from governments – to use photovoltaic semiconductor (PV) technology to convert sunlight into electricity for the power grid. I believe this is a tremendous waste of capital. It certainly would NOT occur without the intervention of governments – which are notoriously bad at capital allocation – because it is horrendously inefficient.

PV processes use photonic energy in sunlight (not heat) to "lift" electrons and create electricity. The thermodynamic limitations of this approach mean that many of the electrons fall back into the hole from whence they were lifted. This makes the panels very inefficient. Theoretically, something called the Landsberg Efficiency stipulates that under perfect conditions and with perfect materials, semiconductors could convert 95% of the sun's power into electricity. This is the academic justification for the investments into PV solar power.

The catch is, in the real world, the materials needed to reach such efficiencies are rare and expensive. The other more important catch is that the main impediment to PV efficiency is... heat. Yes, that's right. As PV solar cells are exposed to ambient temperatures above room temperature, their efficiency plummets. And seeing as how most of the places best suited for solar power panels (like the roofs of buildings in warm climates) also have high ambient temperatures, I believe it's unlikely that this approach will ever prove worthwhile. I'm convinced PV solar panels will never be economic. (I'll explain more about the theoretical aspects of my cynicism in a moment.)

Currently, the best PV solar cells only convert about 15% of the energy they're exposed to into electricity. This makes solar power the most expensive of all energy sources – so using solar energy to power the grid is a functional impossibility.

The other approach to harvesting solar energy is based on using mirrors to focus the sun's rays from a broad area on some type of heated medium. This approach is called concentrated solar power (CSP). The medium can be water or gas ... or even molten salt, which is more efficient thermodynamically.

CSP works like any other kind of power plant – and thus the standard thermodynamic limitations are in effect. The amount of useful work created is dictated by the amount of heat generated. Think of nuclear power plants. They sometimes melt down because their cores are so hot. There's a lot of useful potential energy being created there. While that makes them dangerous... it also makes them extremely efficient. Nuclear power is, by far, the most economic way to produce electricity. That's because uranium is the most abundant dense form of energy on Earth.

Here's a simple, common sense way to think about nuclear power versus solar power. Who, historically, has been the best judge of power sources? The world's big navies. Governments might screw around with wind power or solar power... But you can bet the U.S. Navy won't – not for its most important ships. Navies switched from wind to coal… from coal to oil… and finally from oil to nuclear. You can bet they will never switch to solar. Not ever. Why not?

Very simply: Sunlight is a diffuse energy source. Attempts to aggregate into more useful forms of energy (capable of doing more work) require additional energy – lots of it. If you don't believe me, just take a close look at the world's biggest operating solar power plants. They are CSP plants. Inside every CSP plant in the world, you'll find... a lot of natural gas. In fact, these plants require natural gas pipelines to operate. No, I'm not kidding.

I believe without the natural gas burners inside CSP plants, these plants wouldn't work at all. California state regulations allow natural gas to produce 25% of all the energy at "solar" plants. What's not measured is the percentage of useful work the natural gas is providing. And my bet is, almost all of it.

The diagram below shows a schematic of the operations at Nevada One, a huge, 64-megawatt CSP power plant built in the late 2000s in the Nevada desert. Note the crucial "additional heat" box immediately in front of the turbine generator. Guess what "additional heat" means? You guessed it. Natural gas.

Now... you'll recall from my earlier writings and from above in this note, that I'm particularly concerned about the government's massive investment in PV solar technology. My concern is that it will never work. PV isn't a heat engine. I don't believe it will ever generate much useful energy in the real world. The Second Law of Thermodynamics renders it practically irrelevant as a source of on-grid electricity. Quite simply... technology can't do much to improve a weak fuel. That's a fact of nature.

What solar plants actually do is hide huge energy inputs in the form of materials. Take a CSP project like Solar Two, which claims to produce a peak of 10 megawatts (MW) of electricity from 130 acres of mirrors. (Actual output is much lower, only about 1.6 megawatts.) Scientist Petr Beckmann calculated that solar plants like these were not capable of producing enough energy to build another solar plant of comparable size. To put the limitations of thermodynamics in stark relief… to produce as much power as a 1,000MW nuclear plant, Solar Two would require 127 square miles of mirrors.

The physics (and thus the economics) of PV plants are even worse. Florida Power and Light recently opened its Desoto PV plant – billed as the largest solar photovoltaic plant in the country. It is rated at 25MW peak production. But the company actually estimates the plant will create 42,000 megawatt-hours over the course of a year... or 4.79MW per hour on average. That's roughly a 19% operating capacity factor.

Worse, there's no way to store this power, which means it's only available for a few hours each afternoon. Assuming perfect operating conditions, that's enough power (for that part of the day) to serve about 3,000 homes. And for this small amount of electricity, Florida Power invested $150 million – or $50,000 per customer. Do the amortization and merely paying for the capital cost of the plant (not the costs of its operation, which are substantial) will cost each rate-payer $322 per month... For electricity they can only use part of the day.

On the wholesale electrical markets, nuclear power costs about $1.65 per kWh. Solar power is selling for around $14-$20 per kWh, depending on the location. That's roughly 10-12 times as much. Why?

Because when you study the physics closely, you will find that the sun isn't providing any of the useful power. All of that must still be delivered by other, more dense sources of energy. What you're buying is solar panels that are being metaphorically stuck on top of natural gas generators, nuclear power plants, and coal-fired power plants. This is merely to appease the idiocy of our political leaders, who are in turn, responding to the absurd dreams of the public, which knows nothing about the hard realities of energy.

Chris Lee, writing in Physical Review, about the limiting impact of electron behavior in PV solar cells said...

The truth is, some scientists (and their backers in government) aren't fighting something like the laws of thermodynamics... they're fighting THE laws of thermodynamics. Doing that my friends is simply stupid – the laws of thermodynamics are undefeated. And they always will be.

Regards,

Porter Stansberry

Baltimore, Maryland

September 23, 2011

Editor's note: For the record, we've also received some encouraging feedback on our views about solar energy… Here are a couple responses from subscribers who know a thing or two about physics and thermodynamics… We thank you for your feedback. And as always, please e-mail us at feedback@stansberryresearch.com.

"You are a really good thinker. You are correct. In the global view, it is possible to include the costs of all components in any system to effect optimal design...

"System design is also possible to incorporate 2nd Law in for system design using minimization of entropy over the life cycle of the system. This is not normally done, but it certainly is valid and would assist a designer to create minimum life-cycle costs. I have actually incorporated such an approach in examples presented in my advanced thermodynamics classes... I don't know how you understood this except that you are a darn good thinker. This design approach in not normally used; we adhere to economic principles and rules of thumb for subsystem design. However, darn ya', we should be using thermodynamic underpinnings for design so that photovoltaic panels for electric power would not even be in the running... I hope I taught you a bit of second law detail, but you seem to have very keen intuition about all that." – Paid-up subscriber Bob Colwell, Ph.D.

"I'm a retired engineer from The Boeing Company. I have been studying the feasibility of solar/photovoltaic and wind turbine generated electricity. It's ludicrous to think that solar power sources could provide any meaningful electricity to the national electricity grids...

"In the real world of market economics solar/photovoltaic is only economical for niche applications. High feed-in tariffs for photovoltaic-produced electricity is the only reason arrays are being built. If the playing field were leveled, without high feed-in tariffs for photovoltaic electricity, they couldn't compete with other power plants. By the way, wind turbines are plagued by analogous problems in the effort to scale them up to be major sources of electricity.

"Oh, by the way, I love reading your Friday S&A Digests. I'm learning a lot from them. Keep on writing them." – Paid-up subscriber Gregg Armstrong