Solar Shuffle

New data suggest that 2011 will encompass both the best of times and the worst of times for the U.S. solar industry. Although the amount of installed solar power is on an accelerating trajectory and some companies are doing well, plunging prices have put domestic manufacturers of solar modules on a perilous path.

Analysts predict the U.S. will push aside European countries to become the fastest-growing location for new solar power installations. The growing domestic demand, in addition to a strong export market, will help keep many U.S. factories in operation, though traditional polycrystalline silicon module producers may not be among them.

Nor will start-ups Solyndra and Evergreen Solar. Their photovoltaic technologies did not depend on polysilicon. But they were sharply undercut on cost by Asian producers of traditional polysilicon modules, and both recently filed for bankruptcy.

Still, experts say there is good news elsewhere in the U.S. solar supply chain. For example, amid the hubbub surrounding the $535 million loan guarantee granted to Solyndra by the Department of Energy, DOE Secretary Steven Chu announced that a utility-scale project sponsored by Sempra Energy will receive a $337 million loan guarantee. The 150 MW of photovoltaics will be located outside of Phoenix. By comparison, all U.S. utility installations in the first half of 2011 added up to just over 86 MW.

The project is emblematic of a growth spurt for U.S. solar installations. “A first-half slowdown in major European markets (most notably Italy and Germany) combined with continued strength in the U.S. has already led most photovoltaic manufacturers and developers to seek opportunities in the U.S. market, with many in the industry expecting it to be the largest market in the world within a few years,” says a report by the Solar Energy Industries Association (SEIA), a U.S. trade group. Germany has been shrinking its solar subsidies, and Italy has instituted a cap on payments for solar installations.

The U.S. surge would be a major rearrangement for the industry; historically, it has claimed a mere 5–7% of global market share for installations, says SEIA Vice President Tom Kimbis. By 2015, SEIA estimates, the U.S. will have a 17% market share.

Getting there means that high U.S. growth rates, a recent phenomenon, should continue. In 2010, the U.S. installed 887 MW of grid-connected photovoltaics, more than double the amount installed in 2009, according to SEIA. It expects another doubling of new capacity to 1,800 MW in 2011. The year got off to a strong start, with 268 MW installed in the first quarter and 314 MW in the second. Cheaper module prices—down 30% from the start of the year—will have their biggest impact in the second half, SEIA says.

Analyst Stefan de Haan of electronics market research firm IHS iSuppli agrees that the U.S. will become a leading location for solar power, and says that state incentives have been a significant driver of demand. “We always expected the U.S. market to really gain momentum this year, and this assumption was based on much less drastic price drops,” he says.

The price decrease, de Haan explains, was caused by manufacturing overcapacity toward the end of 2010 and weaker than expected demand at the beginning of this year. SEIA reports that U.S. solar production has already slowed in response, dropping 11% to 333 MW from the first to second quarters of 2011.

For solar module manufacturers, the low prices will cause pain for all but the most efficient and vertically integrated Chinese firms, de Haan stresses. “There is a clear strategy for aggressive price policy to force the market to consolidate,” he says. “All suppliers in high-cost countries—the U.S., Europe, and Japan—are struggling tremendously.” Second- and third-tier Chinese producers are facing bankruptcy as well, he notes.

Another, longer term trend bringing down prices has been the decreasing cost of polysilicon, a major component of traditional photovoltaic modules. That market is also experiencing overcapacity and market consolidation, but for polysilicon, it’s the U.S. that has the advantage.

Compared with manufacturing modules, de Haan says, making polysilicon is more technologically complex. “U.S. producers Hemlock Semiconductor, MEMC, and, soon, Wacker are better than Asian firms in terms of cost, and this will last for a while.”

In fact, SEIA points out, U.S. manufacturing is strong in upstream parts of the solar supply chain, such as polysilicon and capital equipment used to build solar factory lines, as well as downstream segments including inverters and other installation hardware. All together, the U.S. is a $2 billion per year net exporter of solar products.

The middle of the supply chain, however, is suffering. In addition to the Solyndra and Evergreen bankruptcies, two German firms, SolarWorld and Solon, recently announced they would close U.S. factories. SpectraWatt, a spin-off of Intel, filed for bankruptcy in August. Its assets were auctioned off late last month.

One outlier is integrated manufacturer Calisolar. The company announced in early September that it would build a $600 million polysilicon facility in Lowndes County, Miss. Calisolar makes its own multicrystalline silicon solar cells, but it plans to sell a large portion of the new plant’s output to other manufacturing customers.

California-based thin-film solar module maker First Solar is integrating in the other direction. In addition to making and selling its low-cost cadmium-telluride modules, the firm has transformed itself into an engineering, procurement, and construction contractor for utility-scale projects. In late September, it said it would be the technology and engineering provider for a 130-MW facility in Imperial County, Calif., run by Tenaska Solar Ventures.

“U.S. solar manufacturing is down, but not out,” SEIA’s Kimbis insists, adding that leading Chinese firms will want to manufacture in the U.S. “Competition in the global solar market is fierce, but it’s good for American consumers because it brings lower costs.”