Facing a challenging political landscape, solar firms continue to add unprecedented amounts of photovoltaic capacity to the nation's power supply at increasingly lower costs. But with a federal tax subsidy for solar producers set to expire, a glut of manufacturing capacity and an ongoing trade dispute between the U.S. and China over alleged "dumping," firms are beginning to brace for a massive industry consolidation.
At the 2012 Solar Power International conference in Orlando, Fla., on Sept. 10-13, there was much optimism in the sessions despite the reality outside. On the bright side, for instance, the Solar Energy Industries Association (SEIA) released a report on Sept. 10 that showed firms installed 742 MW of solar systems in the second quarter of 2012, or more than double that of the same period in 2011. In fact, it was the second-highest quarter on record.
On Sept. 13, however, in a move widely viewed as part of the political campaign season, the U.S. House of Representatives passed H.R. 6213, known as the "No More Solyndras Act." Named for a loan-backed solar-panel producer that filed for bankruptcy in 2011, the measure would slash federal loan guarantees for renewable-energy projects. The bill, which contained exceptions for current projects, is not expected to win approval in the Senate.
Conference speaker Tony Clifford, CEO of Standard Solar, Rockville, Md., noted the industry's closing window of opportunity to become cost-competitive, as federal subsidies and state incentives are likely to dry up regardless of who wins the election in November.
The big subsidy, the federal solar investment tax credit (ITC), provides a 30% tax credit for residential and commercial projects, says SEIA. To qualify, projects must be completed by Dec. 31, 2016.
Beyond that date, the solar industry's forecast gets cloudier, says David Eppinger, vice president with engineer-constructor Fluor, Greenville, S.C. "Without additional stimulus, it's hard to see that [solar] would achieve the kind of growth that's happening now," he says.
That growth is considerable, providing conference attendees a real sense of industry momentum. SEIA's September report forecasts that 3.2 GW of photovoltaic (PV) will be installed in the U.S. during 2012, or about 71% more than in 2011. Additionally, utility-scale projects are ramping up—for example, the second quarter of 2012's 447-MW total marked a peak for these installations.
"If we can be cost-competitive at the retail level in 10 or 12 states by 2016, I don't think there will be anything stopping this industry," Clifford adds. "It will have reached its tipping point."
Aaron Chew, a research analyst with Maxim Group, New York City, says the cost of solar, unsubsidized, would have to decline to between 10¢ and 15¢ per kilowatt hour to remain competitive. If the industry misses that price point, solar would become unsustainable, he adds.
Prices of solar modules continue to decline steadily. Prices from tier-one Chinese firms are coming in at under 70¢ per watt, and German and U.S. products cost just above that figure. But in order to become truly competitive, firms will need to lower other costs related to installation, permitting and utility interconnection, says Clifford.
Essentially, he adds, solar must be competitive with fossil fuels by 2016 or face a lights-out situation when the ITC subsidy goes away. "If the installed cost of solar sticks at 1.3 to 1.5 times the cost of grid power [in 2016], there's a very real possibility our industry will not move forward in a meaningful way when the ITC runs out," Clifford observes.
Another major step in increasing cost efficiency is a widely expected industry consolidation. Numerous speakers at the conference estimated the number of solar producers at between 300 and 500 firms, and nearly all the speakers predicted that number will shrink to somewhere between 10 and 20 by 2016.
Consolidation would address the oversupply of solar manufacturing capacity. Many at the meeting, including Clifford, are viewing this as a good thing.
"The only cure for oversupply is consolidation," Clifford says. "To continue down the cost curve and get system pricing to where PV is cost-competitive with the grid, the [industry] needs to consist of multibillion-dollar companies that can profitably address global markets."
Right now, the market for solar projects is "pretty robust" for construction and engineering firms, says Fluor's Eppinger. That strength was evidenced by the company's Sept. 17 announcement of its award of a design-build-operate-maintain contract for a 170-MW solar photovoltaic facility in Southern California for LS Power.
"Projects are finally reaching financial close and moving ahead," Eppinger says. But with the ITC's sunset in 2016, "I expect, probably in the 2015 time frame, new awards will slow down."