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A Bad Year for Solar Energy

By virtually any yardstick, 2011 was probably a year the PV solar panel industry may like to forget. First and foremost, of course, there was the Solyndra case, which quickly morphed into a major political issue that will likely be continually revisited during the upcoming U.S. presidential campaign. Beyond its political ramifications, the Solyndra incident may eventually come to symbolize the public’s wavering enthusiasm for large-scale public funding support for the solar energy industry. Indeed, combined with recent difficulties within the ethanol industry, many may now question the economic viability of alternative energy in general, which despite its seemingly eternal promise has yet to displace traditional forms of electrical power generation such as fossil fuels.

The China Challenge

Two factors frequently cited in the demise of Solyndra are the economic downturn in Europe (which currently represents the largest single existing market for solar energy) and cheap silicon-based PV panels produced by China. The first issue will likely become less of a driver as Europe’s economy improves. However, China’s heavily-subsidized solar panel industry may present significant ongoing challenges. On the face of it, cheaper solar panels appear to be a boon to consumers, who may choose to adopt this technology more widely as up-front costs are significantly reduced. (The price of panels has come down some 70% over the past few years, with a whopping 30% to 40% reduction within the past year alone.)

Unfortunately, existing solar panels are still not particularly efficient at converting sunlight to electricity, with most performing only marginally better than products offered over two decades ago. As a result, large-scale electricity production based on PV solar requires a great deal of expensive infrastructure, largely negating the cost reduction of the panels themselves. Thus this technology remains heavily challenged to compete with fossil fuels on a cost per kilowatt basis (although some have recently challenged this assumption, a point we’ll discuss shortly).

Some industry observers feel that municipal-scale solar panel based energy generation requires a major technological breakthrough in conversion efficiency before it can truly compete in the open energy market. This in turn will involve significant research into ways to improve panels — research that will likely require substantial resources and funding, especially if the new technology entails a radical overhaul to the existing manufacturing infrastructure to mass-produce panels. Without public funding, it’s hard to imagine many solar panel companies being able to absorb such costs for as long as it may take to develop and commercialize these improved technologies, especially when competing with cheap products produced in China. Yet thanks at least in part to the Solyndra episode, supporting this research at the taxpayer’s expense may be a politically unpopular proposition for the foreseeable future.

Rays of Optimism

This is not to say that solar is without its champions. Recently, researchers in Australia announced that the decrease in solar panel pricing has in fact reduced the cost of solar generated electricity to the point where it is reasonably competitive with other technologies (thereby approaching so-called “grid parity”), and that reports to the contrary are based on obsolete data. And to be sure, in smaller-scale systems that do not require substantial infrastructure, cheaper solar panels would appear to be more directly translatable into cheaper electricity.

Further, these researchers argue that unfavorable assessments of PV solar energy’s cost-competitive may not take into account recent improvements in the technology’s conversion efficiency. These improvements could reduce the number of panels required per site, while also commensurately reducing the amount of expensive infrastructure required to connect the panels into a coordinated power generation facility.

Another potential bright spot for solar energy’s future could be the emerging African market, for which the falling prices for panels could be a critical driver. As a region, Africa appears to possess a number of important factors that favor the adoption of solar. For instance, many areas within the continent offer very favorable climatic conditions, with high percentages of sunshine. At the same time, many Africans live in relatively remote, rural communities who may be underserved by — or completely disconnected from — central power grids. Such areas could make excellent targets for locally generated solar energy systems, especially those that lack the resources and/or infrastructure to build, support, and supply other power production options that may require constant refueling or maintenance.

These factors have helped drive the adoption of solar energy in a number of African nations, including Morocco, South African, and Namibia. These and other countries within African may comprise an attractive market that could represent a significant revenue growth opportunity, one that could offset any lingering economic or political uncertainty in the Western markets.

Beyond 2011

It remains to be seen whether the events of 2011 represent a true watershed for the future of solar energy, or whether it is simply a temporary setback caused by an unfortunate series of concurrent anomalous events — a “perfect storm” of bad news for the solar panel industry, as some watchers have described it.

It seems all but certain that in the upcoming months the U.S. public will be frequently reminded about the Solyndra controversy (and more specifically, about the Obama administration’s role in it) as the 2012 presidential race heats up. If polls indicate this issue resonates with voters, Solyndra — and perhaps by extension, solar energy in general — may become something of a political “hot potato,” with a potentially chilling effect on public funding for solar energy research as a byproduct of this debate. And without this funding, it may be increasingly difficult for private enterprise to conduct the long-term development necessary to produce more efficient panels, especially when simultaneously attempting to squeeze a profit out of a market already glutted with relatively cheap products from China.

It’s also quite possible that 2011 will have little lasting impact on the overall health of the solar panel industry. According to Solar Energy USA, the U.S. solar energy market continues to grow, with the number of jobs in this segment increasing nearly 7% between mid-2010 and mid-2011, despite the industry’s recent troubles. This source claims that the American solar energy industry now employs over 100,000 jobs and counting.

In either case, it would probably be instructive to reflect on the events of the past 12 months, and carefully consider how to best minimize any ongoing impact — in terms of delay or even derailment — on solar energy’s otherwise seemingly limitless promise.

Dick McCarrick
Dick McCarrick is an analyst with Foresight Science & Technology.
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4 thoughts on “A Bad Year for Solar Energy

  1. Yes, it’s bad if the Chinese gov’t puts money into supporting solar… but it’s necessary for our US gov’t to supply ‘seed’ and expansion money to get solar ubiquitous.
    How about using the oil tax breaks to help fund it?
    Whatever, the real solution is in developing low cost, high power density electrical storage (e.g. batteries)

  2. If this is a bad year for solar energy it is the best year yet for consumers, the system i bought i year ago for £16500.00 can now be bought for £8500.00, if this carries on solar will be as cheap as coal and a damm site cleaner.

  3. I agree with Mark. In addition, I take issue with several statements in the article:

    “the public’s wavering enthusiasm for large-scale public funding support for the solar energy industry” – show me the data that supports this statement. I have seen the results of numerous polls that contradict this, with large majorities of respondents clearly in favor of public funding support for the solar industry; including large majorities among each sub-group of democratic, republican, and independent voters.

    “many may now question the economic viability of alternative energy in general” – I also don’t believe that the majority of opinions on this point have significantly changed due to any recent news.

    “large-scale electricity production based on PV solar requires a great deal of expensive infrastructure, largely negating the cost reduction of the panels themselves” – this is completely false. In order for there to have been any ‘negation’ of module price cuts, the cost of land and infrastructure would have had to increase by significant amounts. But land costs, for example, have actually declined in many markets due to the current economic picture – they have not increased. Therefore, no ‘negation’ can have occurred.

    “municipal-scale solar panel based energy generation requires a major technological breakthrough in conversion efficiency before it can truly compete ” – I also do not agree with this statement. Competition is driven largely by overall cost per kWhr – not by efficiency of individual components. While greater efficiencies would indeed reduce the related infrastructure and land costs, the overall kWhr price is also influenced by other factors. Some of those other factors include price reductions due to volume manufacturing, reductions in permitting and other administrative costs, etc. – all without any efficiency increases.

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