By Mike Koshmrl and Seth Masia
Oct 4, 2011 — During August, three homegrown photovoltaic (PV) module manufacturers failed and two European manufacturers decommissioned their U.S. production lines. All told, the United States lost 20 percent of its panel manufacturing capacity.
By far, Solyndra’s fall was the loudest. In September 2009, the Fremont, CA-based thin-film manufacturer received a $535 million loan guarantee from the U.S. Department of Energy (DOE) to ramp up to a 450-megawatt (MW) factory. Solyndra’s was the first section 1705 loan guarantee awarded, and the first to backfire. The bankruptcy triggered a congressional investigation into whether the timetable on Solyndra’s loan guarantee application was accelerated. Search warrants were issued, and the FBI raided the spanking-new and shuttered Fab 2 factory and Solyndra executives’ homes.
For a time in September, solar received unprecedented front-page ink. The media storm around Solyndra brought light to dramatic, unforeseen declines in the cost of PV, China’s influence on the market and doubt over the United States’ ability to compete.
Solyndra offered a novel product, a cylindrical cadmium-indium-galium-(di)selenide (CIGS) thin-film panel. The product’s economic viability depended on the price of pure polysilicon —the raw material for competing crystalline-silicon (c-Si) PV technologies. Four years ago, when the cost of polysilicon approached $250 a pound, Solyndra’s silicon-free product was a hot commodity, attracting venture capital connected to Richard Branson, oil baron George Kaiser, the Walton family, and investment bank Goldman Sachs. By late 2007, the Bush Administration DOE had moved to develop a conditional loan guarantee commitment.
By the time Solyndra’s application was approved in March 2009, under the Obama Administration, polysilicon prices had dropped by nearly 85 percent. They never bounced back and global c-Si PV prices fell off, throwing a wrench in the thin-film business model. There is no evidence Solyndra ever sold its panels at cost. According to filings for a cancelled initial public offering, Solyndra was producing its panels for $4.00 a watt and selling them for $3.24 a watt as recently as June 2010. With competing factories moving toward $1.00 a watt PV, a best-case-scenario for the Fremont factory was $2.00 a watt.
Those market conditions set in much faster than expected. Some indices have spot prices for modules down 40 percent since January. “What happened earlier this year is that this massive [module] oversupply situation led to prices plummeting,” said Shayle Kann, managing director of solar for GTM Research. “And we haven’t seen any recovery in prices yet. It’s [a] continued difficulty for every manufacturer globally, but it’s hitting those that can’t compete on price first.”
Kann expected more factory closures, both in the United States and abroad, over the next six months to two years. By and large, the so-called “shakeout” has been attributed to China’s influence on the global market.
It’s not that Western manufacturers can’t make competitive, well-made products. The problem is that they can’t get competitive financing. Western investors and banks are simply unwilling, and probably unable, to compete with the Chinese government’s vigorous investment in solar manufacturing. It means that Chinese factories ramp up faster, achieve economies of scale more quickly, and flood the market with cheap, commoditized c-Si. A Sept. 25 Mercom Market Intelligence Report laid out the raw numbers.
Since January 2010, Chinese banks have offered Chinese solar companies a staggering $40.7 billion. For perspective, U.S. solar manufacturers have received $1.4 billion in DOE loan guarantees since 1705’s inception (Solyndra’s allotment was the largest). The Chinese manufacturer Suntech disputed the figures cited by Bloomberg and Mercom, but declined to give an interview for this story.
China’s investments are paying off. GTM Research data shows that China had a 30 percent market share in module production in 2007. In 2010, China’s 11 gigawatts (GW) of production capacity accounted for nearly 60 percent of the total market. Meanwhile, the United States had not breached 2 GW of capacity.
Established companies with market-leading technologies of their own should survive — witness First Solar and SunPower. But startups like Solyndra and mid-market players like Evergreen, SpectraWatt and BP Solar won’t be able to keep pace. It’s a threat that Bryan Ashley, chief marketing officer for Suniva, lives with everyday. “It’s very, very difficult to compete these days — even in the American market — with some of the pricing we’re seeing,” Ashley said. “Talk to Sharp and Solar World and they’ll tell you the same thing.
“You’re not going to see very many U.S.-based PV manufacturers in 18 months. It’s pretty much going to change the whole landscape of the industry,” Ashley added.
China’s front-end approach is not a new phenomenon. In the 1960s and 1970s, Japan invested heavily in consumer electronics and flooded world markets with cheap products that worked well. American factories making televisions, radios and related equipment, including Zenith, RCA and Motorola, eventually closed their U.S. plants and either distributed Asian goods under their own labels, or sold their brands to Asian companies. Japanese manufacturers, of course, were later undercut in turn by Taiwanese, Korean and now mainland-Chinese factories.
It also happened in auto manufacturing. Only the best-established American automakers were able to survive in the face of high-value competition, first from post-war Germany and later from Japan and Korea. GM needed rescue by the federal government. Chrysler needed two federal bailouts, and new ownership by two successive European auto companies. The recent bankruptcies do not mean that the solar business isn’t viable and healthy, any more than the disappearance of Zenith and RCA means that television is a dying swan. It does mean that the Western financial system is seriously challenged by Chinese state capitalism.
It’s difficult to gauge how many more bankruptcies are in the queue. A number of startups appear to be precariously positioned. SoloPower, another CIGS thin-film manufacturer, is scheduled to open up a 400-MW factory in Portland, Ore., by the end of the year. Like Solyndra, it received a DOE loan guarantee ($197 million). In a September interview with The Oregonian, SoloPower CEO Tim Harris declined to discuss his costs. “We all knew prices would be going down. Clearly they’ve gone down faster than we would have forecast,” Harris told the paper.
At this point, the United States’ module manufacturing struggles are unique. Factoring in all components, we actually run a solar trade surplus — even with China. The Solyndra mayhem, ironically, coincided with the release of a promising GTM Research trade assessment. The report found that the United States exported $5.6 billion in solar goods and equipment in 2010 — good for a $1.9 billion trade surplus. That’s nearly three times 2009’s surplus of $720 million. Our positive balance of trade with China, chief trade partner-and-rival, exceeded imports by something between $250 million and $540 million.
On the downstream side, the flooded market brings us cheap solar equipment and demand for labor to install it. According to a September Lawrence Berkeley National Laboratory report, PV prices fell by 17 percent in 2010. With current market trends, prices are headed for another year of impressive reductions. In its “National Solar Jobs Census 2011,” the Solar Foundation found that the industry added 6,735 workers between August 2010 and August 2011 — a 6.8 percent growth rate. During the same 12-month period, jobs in the overall economy grew by just 0.7 percent.
Is the sorry state of module manufacturing a harbinger, or an outlier? Without political action, it’s in danger of being the former. The success of China’s front-end investment, designed to achieve critical mass and break-even quickly, is making some rethink our national emphasis on end-use incentives. We didn’t build the railroads by rebating transport costs to farmers: we built them with front-end financing. Tennessee and Michigan appear to have figured this out, and have laid out incentives to get factories built, as a priority over forcing utilities and ratepayers to subsidize PV installation. If Solyndra had gotten the investment it needed to ramp up quickly three years ago, it might not be looking for a way to resume operations now.
Solar is obviously a viable business globally. Western governments and businesses need to decide if they’re willing to be sellers as well as buyers of the technology. Do Americans want the manufacturing jobs, or just commissions on the sale of goods made elsewhere? What kind of economy do we want?
Mike Koshmrl is associate editor and Seth Masia is deputy editor of SOLAR TODAY (solartoday.org), the magazine of the American Solar Energy Society.