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Solar's curse is its intermittency. Not many people are content to only have electricity during daylight hours, so other technologies are required for baseload generation. To environmentalists' ire, coal commonly fills this role. Now technological advances are pushing biogas forward and a number of synergies between it and solar are starting to develop.
General Electric (NYSE: GE ) has had great success with its Jenbacher gas engines. These flexible systems generate electricity from feedstocks as diverse as sewage and cheese whey. Such systems are much more than novelties. The EIA estimates that a cheap biomass plant produces electricity at a levelized cost of energy, or LCOE, of around $98.0 per MWh, comparable to conventional coal's average LCOE of $100.1 per MWh.
In countries that have few natural resources biogas really shines. Nations like Japan pay big bucks to import natural gas and coal. By replacing expensive imported natural gas with biogas sourced from domestically produced sewage or agricultural products, nations can achieve energy security at a reasonable price.
General Electric is playing its cards well. Its flexible turbines can run on traditional natural gas or biogas. In the fourth quarter of 2013 GE's power and water segment's operating profit margin of 24.7% beat those of every other segment. 24.7% is well above the company's overall 2013 continued operating margin of 10.6%.
Through its partnership with First Solar (NASDAQ: FSLR ) GE is taking more steps to grow its distributed energy business. In 2013 GE and First Solar signed an agreement whereby GE received 1.75 million shares of First Solar and First Solar acquired GE's intellectual property portfolio related to CdTe solar technology. Thanks to the GE acquisition and recent improvements, First Solar now hopes to bring its module efficiencies above 19% by mid-2016, as opposed to its early goal of just 17%.
Size is a big disadvantage. Biogas plants are usually many times smaller than utility-scale plants. The most powerful version of GE's popular Jenbacher engine only produces 9.5 MW. There are some larger biogas systems like the recently constructed 140 MW Finnish biogas plant, but big coal plants are still much larger than that as they have more than 1,000 MW of capacity.
Still, biogas can use its size to its advantage. Feedstock normally comprises 20% to 50% of a biogas system's LCOE. By placing small biogas plants in industrial facilities that already produce feedstocks, biogas systems can compete more easily with retail electricity rates. Using the manure from a dairy farm is a good example.
In these situations it makes perfect sense to pair a small biogas plant with a distributed solar system. SunPower (NASDAQ: SPWR ) specializes in high-efficiency distributed solar systems, and it sees some of its greatest success in resource-starved countries like Japan. In the fourth quarter of 2013 SunPower's shipments to Japan increased almost 100% year over year, and the nation accounted for 24% of its overall quarterly volume.
GE is not the only company that produces biogas turbines. Siemens AG (NASDAQOTH: SIEGY ) is also active in the market. Still, GE has an advantage in the realm of smaller industrial turbines.
Europe's problems weigh on Siemens. The German manufacturer is stuck in the middle of the European Union and its low-growth curse. Siemens is a big exporter and is active in many countries, but its overall profit margin of 6.2% and EBIT margin of 9.2% are much lower than GE's profit margin of 9.1% and EBIT margin of 18%.
What will the future look like?
Distributed power is on the rise, and GE is positioning itself to benefit from this for decades to come. Siemens is also active in the market, but GE has a large share of the smaller industrial turbine market. These smaller turbines are a great fit for distributed biogas energy production.
GE's partnership with First Solar will help it develop complete green energy solutions that incorporate solar and biogas. SunPower has advantages in the distributed energy market, but its majority owner Total does not have GE's history in the turbine business.
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