Technology

Ain't no sunshine

Tough times for solar—and the pols backing it.

briefing

Flanked by lawyers, Brian Harrison, president and CEO of Solyndra Inc. and W.G. Stover Jr., senior vice president and CFO of Solyndra Inc., “plead the Fifth” when testifying before the House Oversight and Investigations Subcommittee on Capitol Hill, Friday, September 23, 2011. (Photo: Melina Mara/The Washington Post/Getty Images)

Does the high-profile demise of the California photovoltaic cell manufacturer Solyndra portend the collapse of a heavily subsidized solar energy bubble? Will governments, investors and green-minded consumers, who put their faith in the sun’s power to help wean us off our fossil-fuel addiction, back away from another technology that promised too much—in jobs and profits as much as in renewable energy—and failed to deliver?

In early September, Solyndra ceased operations, laying off 1,100 staff and dooming the U.S. government’s hopes of recovering more than half a billion dollars in loan guarantees offered to the company as part of the 2009 stimulus plan. For the White House, which promoted Solyndra as a renewable-energy darling, it looks bad, no question. The comedian Jon Stewart, more apt to poke fun at people on the right of the political spectrum, spent a good five minutes at the top of The Daily Show last month gaping in disbelief at the Obama administration’s favours to the company. Fred Upton, a Republican congressman from Michigan and chairman of the Energy and Commerce Committee, put his finger on the larger issue facing governments worldwide at a recent hearing: “Was Solyndra just one bad bet by an administration rushing to claim credit for the first loan guarantee, or is it the tip of the iceberg?”

Solyndra was a disastrous investment for the U.S. government, pushed through by executive order over the reservations of bureaucrats. Just weeks after President Barack Obama appeared at its plant for a photo opportunity in May 2010, the company was experiencing cash-flow problems that caused it to cancel a planned initial public offering. All the while, the price of photovoltaic equipment was plummeting as a result of cheaper competition, mostly from Chinese manufacturers. Unlike other companies, Solyndra had insufficient market advantage to hold its prices firm. Its total sales rose through the fall and winter, but at prices below what the equipment cost to produce. An FBI investigation and hearings on Capitol Hill are now probing whether there was fraud at the company amid the business failure.

It’s fair to say the broader solar sector is in turmoil too—and investors have learned the hard way about the industry’s issues. Shares in Kitchener, Ont.–based Canadian Solar Inc., which topped US$30 at the start of 2010, now trade under $5 on the Nasdaq exchange, for example. Meanwhile, a scene reminiscent of the Solyndra affair unfolded last month in Ontario where Eclipsall Energy Corp. was found to have halted operations just days after Liberal premier Dalton McGuinty made a stop there in his campaign for re-election. (The company said it was a temporary stoppage related to its supply chain.) In an otherwise tepid Ontario election, McGuinty’s 2009 legislation meant to make the province a leader in wind and solar generation—at ratepayers’ expense—emerged as a defining issue.

And right now solar’s looking like a dubious bet. Two other American equipment makers, Evergreen Solar and SpectraWatt, sought bankruptcy protection in August. Even the stronger U.S.-based panel makers are facing setbacks. First Solar, listed earlier this year by Forbes as America’s fastest-growing tech company, announced it would not accept a US$1.93-billion loan guarantee to build a massive solar farm in California because it could not meet the Department of Energy’s requirement to begin construction by Sept. 30. Solon decided to shut down its Tucson, Ariz., manufacturing plant and focus on building solar farms and generating power. Ascent Solar, meanwhile, accepted a financial lifeline from China’s TFG Radiant Group.

Even Germany, long the leader in the solar industry and the model for politicians like McGuinty, is seeing major producers lay off workers and its global market share shrink. National champion Q Cells, until recently the world’s largest photovoltaic manufacturer, posted a huge loss in the second quarter. Compatriots Phoenix Solar saw Q2 revenues dip 60% from the year before. To make matters worse, executives at a couple of solar firms, Conergy and Solar Millennium, are under suspicion of fraud, insider trading and other wrongdoing.

Some analysts saw this turmoil coming years ago—though they now say it doesn’t herald the demise of an industry built on the sand of artificial government supports. If anything, they see the current upheaval being about cutthroat competition that will hasten the onset of “grid parity”—the day when solar can compete on a level playing field against other energy sources.

“This is the bubble part of it,” says Matt Feinstein of Boston-based Lux Research, over the phone from Shanghai. Feinstein ?has long been predicting a shakeout among higher-cost American and European equipment makers. The whole value proposition of firms like Solyndra, he says, lay in technology that avoided the heavy use of silicon, the same material used to make semiconductors. In high demand for smartphones and tablet computers, silicon was in short supply a few years ago, and had become very expensive for high-volume applications like solar arrays. New companies launched using then-cheaper alternatives to polysilicon, like cadmium telluride.

But as Lux and others foresaw, the supply of silicon subsequently increased, and the price fell, making polysilicon-based manufacturers much more competitive again. These were overwhelmingly based in China, not because of low labour costs ?(photovoltaic manufacturing is heavily automated everywhere) or, as some competitors gripe, a low, government-backed cost of capital, but, Feinstein explains, because the huge semiconductor industry was already concentrated there. “It’s the existing infrastructure for those kinds of technologies,” he says, that gives Chinese equipment manufacturers such as Yingli and Trina Solar a big advantage.

What’s bad news for their competitors, though, isn’t necessarily bad news for the sector in general. The cost of decking out a 100-square-metre roof on a German home with solar panels has dropped to about €22,000 from €28,000 six months ago. For companies developing and operating solar farms, the cost of panels has plummeted approximately 40% in 12 months. As Feinstein wrote on Lux’s analyst blog, “Downstream participants like SolarCity, SunRun, and Verengo are expanding operations in the U.S. Installers, developers, and integrators are poised to capitalize on U.S. market growth, and in doing so, will succeed where Solyndra failed.”

Moreover, it’s too soon to count U.S. equipment manufacturers out entirely. Solar technology will continue to evolve. Alongside the much-hyped First Solar, a new crop of startups with names like Stion and Solopower are focusing on thin-film technology, which generates electricity from flexible sheets that can potentially be wrapped around buildings rather than mounted on top. Most importantly, they promise to undercut the projected 2013 benchmark price of solar panels of just over US$1 per watt.

That cost is down from almost $5 a watt in 2006, according to Commerzbank. Even considering the installation and other non-panel expenses, a recent study of 100,000 American home installations showed the cost of a residential solar electric system declined 43% between 1998 and 2010. And the pace of price drops is picking up; they fell another 11% in the first half of 2011. So while governments throughout the developed world are cutting subsidies and preferential feed-in tariffs that promise businesses and homeowners a premium rate for any solar-generated power they sell back into the electrical grid, the microeconomics of installing solar panels on your roof aren’t necessarily getting worse. Indeed, Feinstein says, when European countries introduced their feed-in-tariffs, they were meant to be scaled back as the cost of generating power from the sun went down. Not doing so made erecting solar panels so lucrative that farmers were building barns specifically for the purpose.

Besides, the growth in the solar industry henceforward is expected to be tilted toward developing countries. China alone has a target of building 49 gigawatts of new capacity between now and 2020, Agence France-Presse reports, roughly equalling the world’s current installed solar capacity.

Clearly China has bought into the nascent industry theory: that by generating demand for a sunrise industry, a country or region can come to dominate it, more than justifying the cost to ratepayers and taxpayers. If any kind of targeted subsidy pays off in economic development, it’s to industries on the cusp of commercialization.

But there are dissenters. “The theory is that if new industries that are not competitive are subsidized they will eventually mature and be able to function on their own,” said University of Guelph economist Glenn Fox at a conference last June, citing studies suggesting clean energy policies in Denmark, Germany and Spain are a drag on economic growth. “The problem with that theory is that kids never grow up and leave home.”

A rising chorus of political opposition in the West believes that in solar and other renewables, governments have picked a loser. They argue that economies rattled by sovereign debt fears and threatened with recession can’t afford to bankroll the conversion to a new, more expensive form of energy.

In Ontario, the PC opposition vowed to dismantle McGuinty’s Green Energy Act if elected, though it would mean cancelling a $7-billion, 25-year contract with South Korea’s Samsung that promised the creation of 200 jobs at a solar panel plant in London, Ont., and 16,000 jobs in total. Countered PC leader Tim Hudak in a radio interview, “Higher hydro bills kill jobs.”

Still, the solar industry, and the world market for it, is big enough to get along without Obama in the White House or the Liberals in Queens Park. The competition is now so fierce that in mid-September, investment firm Jefferies & Co. even cut its ratings on Chinese manufacturers Trina, Suntech and JA Solar. That’s a sign of an industry getting more ready to more ready to stand on its own two feet, not less.