Solar Energy Still Has Some Partly Cloudy Days Ahead

The solar outlook, over the last 12 months, has gone from encouraged to worried (November election) back to encourage. Wall Street appears to be running Main Street, but it should be the other way around in America. From PACE financing being cut off by Fanny Mae, to the remaining tough credit markets, solar shines through the clouds by creative American entrepreneurs.

First Solar was recently picked by China to build what promises to be the world’s biggest solar electricity plant: a solar farm in Inner Mongolia providing 2 gigawatts of power (that’s big!). The solar electrical output of the solar plant will be about twice the size of a large coal plant or average nuclear power station. But the Chinese facility will take years to build. The next month following the announcement, Wall Street analysts downgraded First Solar’s stock after the company missed its third-quarter revenue target. “I think the Wall Street perspective is pretty short-term,” says First Solar companies Chairman Mike Ahearn.

That’s true, but it’s also true that, while solar photovoltaic cells that turn sunlight into electricity may play a potentially vital role in weaning the world from fossil fuels, a transition will take decades and the business metrics surrounding the solar power industry currently are anything but bright. After a period of rapid expansion, panel manufacturers today are reeling from a pronounced supply surplus, falling prices and stagnating sales. In 2009, industry revenue plunged by nearly 40% to about $25 billion from $40 billion the previous year, according to BankAmerica Merrill Lynch alternative-energy analyst Steven Milunovich. Solar-panel output far outstripped demand last year; manufacturers made 66% more product than they were able to sell.

The global solar panel glut has been building for a number of years as hundreds of solar cell and panel start-ups, attracted by a potential boom in alternative energy as oil prices climbed and by custom government solar energy subsidy programs, swarmed into the market. Because the industry’s barriers to entry are relatively low crystalline solar cells are rudimentary semiconductors that are comparatively easy to make the number of solar-panel and photovoltaic suppliers mushroomed nearly tenfold from 2002, when there were about 80 solar panel manufacturers, to somewhere between 500 and 800 today.

In China and Taiwan, whole solar energy sectors sprouted almost overnight. Stefan de Haan, an analyst for iSuppli, says solar industry profit margins, as high as 40% in 2008, have been devastated as a result, falling close to zero last year for many companies. “Everyone wanted 20% market share,” says de Haan. “Oversupply was the consequence.”

This burst in solar manufacturing capacity would have been tough to absorb even in the best of times, but the global recession has compounded the industry’s growing pains as cash-starved customers shelved ambitious solar power plans. Another blow came early last year when Spain changed the way it subsidizes solar power projects. The country had been the world’s biggest backer of “feed-in tariffs” that encourage the spread of green technology by requiring utilities to pay prices well above the commercial electricity rate for power generated by the sun. But Spain slashed the amount of solar electricity eligible for such rates by about 80%, slamming manufacturers who had ramped up for Spanish growth. In 2008 the country accounted for 2,600 megawatts of the world’s 5,362 megawatts of solar electricity installations; last year it eked out 300 megawatts.

Spain’s solar decline leaves Germany as the world’s top market for solar electricity. Germany last year installed about 2,500 megawatts of solar out of the world’s 5,158. But the country is hardly a safe haven from the fierce price warfare that has broken out as too many solar companies compete for too few customers. Prices for the most common solar modules have fallen from $4 per watt to $2.20 per watt, according to de Haan. Germany’s Q-Cells, the world’s fourth largest maker of photovoltaic solar cells, lost $1.4 billion through September, including the cost of axing 500 jobs in August. Another prominent vendor, German solar cell and module maker Conergy, lost $115.6 million through the nine months ending Sept. 30. The price war is even heightening trade tensions with China, home to roughly half of all solar manufacturers (four of the top 10 solar panel makers are Chinese, including No. 2 Suntech. In September, German solar industry association began investigating whether Chinese solar producers are dumping products.

Yet solar panel companies from California to New York are increasingly optimistic that, with technological advances and improvements in solar cell manufacturing efficiency, it won’t be too long before “solar grid parity” the point at which solar power is equal to or cheaper than conventional energy sources is reached, especially if oil prices remain high. Manufacturers of the common solar crystalline variety of solar cells continuously leap-frog each other with claims of improving their product’s efficiency (measured by the percentage of solar energy put into a cell that emerges as electricity).

Last month, Norway’s REC, together with Dutch research institute ECN, unveiled a 17%-efficient solar module, trumping Suntech, which a few months earlier had hailed its creation of a 16.5%-efficient module. Other manufacturers, like First Solar, are improving on a type of solar-cell technology known as “thin film,” in which an energy-generating substance usually a compound called cadmium telluride is layered onto a glass, plastic or steel substrate. Thin-film cells are generally less energy-efficient than the crystalline variety but are potentially much cheaper to manufacture. If the thin film solar technology continues to improve, solar power could achieve parity within five to 10 years, says Peter Thiele, executive vice president of Sharp’s energy-solutions division in Europe.

Or even sooner, if solar pv panel prices continue to fall while oil prices rise. Observers say solar sales growth is rebounding as buyers respond to increasingly cost-effective solar power. Venture capital is starting to flow to the industry again after a severe slowdown, according to San Francisco research firm Cleantech Group. “Yes, we’ve seen major market disruptions, but solar panel price decreases are driving rapid growth across many markets,” says Chris Porter, a consultant with Boston-based Photon Consulting. Industry leader First Solar’s profits for the third quarter actually increased to $153 million from $99 million in the same quarter a year earlier, despite missing its targets.

Analysts aren’t expecting a recurrence of the recent solar boom years any time soon. Weaker players will likely disappear or merge with stronger rivals in the coming year. For the survivors, this will be a good thing they’ll start to recover some of the solar pricing power lost to overcapacity, and as the industry consolidates, fewer but larger solar manufacturers will begin to enjoy greater economies of scale, which should help solar companies profit margins. Source, Time Article by Mark Halper.