The rise of Big Solar

: Image via Wikipedia

The price of solar panels is falling fast enough to hurt Western manufacturers, but it is not yet low enough to make the sun a competitive source of electricity

SOLAR power has become an unlovely adolescent. It used to be a sweet little thing, shiny and new and full of promise. One day it will doubtless grow into a solid citizen, quite possibly a person of substance. At the moment it is stuck in between; no longer a child to be coddled and pampered, but not yet able to pay its own way. This presents a challenge both for the governments who want to see it grow up big and strong, and the companies that have been making money out of its progress to date. No one doubts that it will continue to grow; the question is who will suffer most from the growing pains.

Solar energy is popular because it is clean and abundant. The problem is that it remains expensive. According to recent calculations by the International Energy Agency, power from photovoltaic systems (solar cells) costs $200-600 a megawatt-hour, depending on the efficiency of the installation and the discount rate applied to future output. That compares with $50-70 per MWh for onshore wind power in America, by the IEA’s reckoning, and even lower prices for power from fossil fuels, unless taxes on greenhouse-gas emissions are included. The costs of solar are dropping; in some sunny places it may, in a few years, be possible to get solar electricity as cheaply from a set of panels as from the grid, and later on for solar to compete with conventional ways of putting electricity into the grid. But for the moment there would be no significant market for solar cells were it not for government subsidies.

Given that there are subsidies of various sorts in various places, some of which have been very generous, there is a market, and a fast-growing one. According to Bloomberg New Energy Finance, a research firm, there will be demand for 10.5 gigawatts of new photovoltaic-energy systems in 2010, up from just 1.7GW in 2006. The consistent engine of growth over those four years has been Germany’s feed-in tariffs, a guaranteed price for solar power that makes every panel installed in the country a profitable investment, at the expense of electricity consumers. For a fair part of that time, global supply was only just keeping up with demand, and prices for solar modules—the assemblies of cells that you might put on a roof, in a field or on a patch of desert—stayed fairly stable.

Last year, though, prices began to drop. One reason for this is that the supply of silicon, from which most photovoltaic cells are made, has increased. Another is that more and more Chinese companies with low costs are coming into the market. When the California Solar Initiative, a scheme for getting solar panels onto roofs, got under way in 2007, just 2% of the modules used were Chinese. In the fourth quarter of 2009, according to Nathaniel Bullard of New Energy Finance, the figure was 46%. Yingli Solar, a Chinese manufacturer which has been making cells for less than a decade, expects to ship a gigawatt’s worth in the coming year.

The lower the price of a module, the more attractive a feed-in tariff looks. As prices came down, installations of solar cells in Germany shot up. The country accounted for roughly half of new installations around the world last year. As a result, the feed-in tariff has been reduced, and will be reduced again this summer, dampening demand and favouring low-cost producers. Q-Cells, Germany’s largest wafer manufacturer (the wafer is the step between the refined silicon and the finished solar cell) has seen its market value drop by half over the past year. Margins for cell producers seem to have fallen even more dramatically. An increasing number are outsourcing production to China.

Some companies, such as Germany’s SolarWorld, which does everything from refining silicon to installing panels, have respected brands that allow a bit of premium pricing. But for most, solar panels are more or less a commodity, which favours big producers with access to cheap capital. “Cost of capital is now king,” says B.J. Stanbery, an industry veteran who founded a novel solar-cell manufacturer called HelioVolt.

Solar energy Starting from scratch

The king seems to live in China. According to Mark Pinto, corporate technology officer of Applied Materials, which is the biggest supplier of machines to make solar cells, half of the world’s production capacity is already in China. Manufacturing capacity, he says, will grow faster than his company had expected this year, and two-thirds of the growth will be in China. The company has just opened a new research and development centre in Xi’an.