If you are not in the solar industry and are only observing it calmly from the outside, count yourselves fortunate. People actually in the industry are waking up in a sweat as they ride the roller coaster to the future, because the solar industry is shifting this year like a pendulum. In fact, I’ve never before been at a conference where the market was shifting as quickly as this one is. The presenters are practically breathless with the effort they are extending to figure it out.
For producers of solar supplies, 2007 marked the end of the glory days, as margins are coming down from 30-40% as demand temporarily sinks. Even if solar were cost effective, which it still isn’t, no one can buy today, because we have a scarcity of asset financing capital, stifled debt markets that push up the cost of borrowing, and as a consequence, module prices that are falling constantly as overcapacity and inventory build. As a buyer, making a purchasing decision is like trying to catch a falling knife.
As a manufacturer, it’s more like trying to figure out whether you will be in the business tomorrow. Photovoltaics in the future will not have margins like they did in 2007 as polysilicon commoditizes. Companies like 3 M are trying to drive costs out of material to make solar competitive. At the same time, policy changes throughout the world whipsaw these companies simultaneously with the recession.
For the past five years, solar has been riding high on the hog: there has been a shortage of solar panels as demand for them grew 50% a year, especially in countries like Germany and Spain, where government policies drove large numbers of solar installations that even led to a polysilicone shortage. At one time, Germans were responsible for 50% of global demand, as Germany installed 1500 MW of solar power, all subsidized by German taxpayers. But the German taxpayer is burdened as much as he can stand, so those subsidies appear to be over for now. Both Germany and Spain have stopped buying.
As a result, the industry now has flipped quickly from a supply constrained industry to a demand constrained industry.
Although the United States is looming as the next big market for solar, as Obama makes the push for green jobs and energy independence through ARRA, no one knows how this will work quite yet. We know there will be a 30% subsidy for solar installations, and a 30% tax credit for manufacturing them. And that you can “double dip,” taking advantage of state and federal incentives at the same time.
But there is also a mandate to manufacture in the US, and to develop green jobs. So all the leaders in the field who invested in capacity abroad may find themselves threatened. And all the most automated factories, often called “lights out” factories because no on a works there but robots, may be ineligible for ARRA funds. New plants built in the US may purposely forego the latest manufacturing process technology to get the Obama money.
Thus incentives may not align with the capacity for quite a while, and valuable time may be lost toward making us energy independent..
But if we do get to the point where solar is selling for $1.50 a watt by 2012, which is what people expect can be accomplished, the US market can then install 2GW a year, which is a pretty solid market
Unlike many other technologies, which have deployed through sheer market forces, solar policies on the upstream side and the downstream side have historically dictated demand and shifted the balance of trade. Right now, the US is fully self-sufficient in the balance of trade in solar. But that will change because of the Recovery dollars.
As an example, ARRA changes the incentives for installing solar systems from a 30% investment tax credit (who needs it this year anyway) to an outright cash grant. Everyone can use that. This addresses the issue of tax inequity and makes it possible for government buildings to get paid back quickly install PV systems and collect energy to run themselves and perhaps even sell back to the grid. But shovels have to be in the ground for these projects by 2010, and they have to come online by 2017.
To complicate things further, when these installations create green jobs, we will have the problem of supply shortage again. The industry will shift back to lack of capacity, especially for solar modules. One of the speakers suggested that today might be the time to get into the business of assembling of solar modules in every state throughout the US, thereby generating local green jobs and lowering the transportation costs for these modules.
This conference, aptly called “Navigating the Shakeout,” is a two-day summit that brings together all the players in the solar energy industry to trade war stories and prognostications. I come away thinking that it’s not easy to plan when the government(s) keep getting into your business.