Haas Opinion


Sunny Side Up

Recent solar headlines—including the Solyndra bankruptcy and U.S.-China solar trade dispute—have raised doubts about the long-term viability of the solar photovoltaic (PV) industry. However, a shift in the manufacturing base to China and even bankruptcies are signs that the solar industry is maturing and evolving from a technology-focused industry to one that is more fully integrated into global energy markets.


Clouds on the Horizon


Between 2006 and 2011, sales of solar panels expanded more than tenfold to well over 20,000 megawatts per year, and the global average selling price of panels decreased from more than $3 to just over $1 per watt peak. Aided by government incentives, rapid market expansion transformed the industry by bringing along a wave of innovative business models, accelerating price drops, and opening many new markets. Simultaneously, panel manufacturing shifted from Europe, Japan, and the U.S. to China and Taiwan, where more than half of all global production now occurs. Starting around 2009, government solar incentive programs began to ramp down globally—in part a reaction to the rapid decline in prices—and the recession reduced the willingness to pay for renewable energy. But with production continuing to expand at record rates, Solyndra and many other companies couldn't compete when global prices fell so sharply.


Challenges Ahead


The coming years will likely present many challenges. On the supply side, the solar industry will need to work down substantial inventory and wait for global demand to catch up with the massive amount of production in place. Many solar manufacturers will face tough times, with prices below many firms' cost of production. On the demand side, the industry continues to rely on supportive policy environments, which could be cut back amid growing fiscal conservativism. Looking forward, it may no longer be possible to build a solar business plan that relies on subsidies. The challenge today is to create a viable path toward competing with wholesale electricity prices.


Bright Outlook


Still, there are reasons for optimism. First, solar systems already make economic sense in sunny locations like Southern California with high electricity prices. In fact, the rapid price decline that challenges panel manufacturers simultaneously means solar is more affordable for project developers and customers. Second, the wave of solar projects over the last five years has helped make utilities and financial institutions more comfortable with solar technologies, resulting in more opportunities and even lower project costs. Third, solar offers unique advantages, including no moving parts. Solar PV's ability to convert sunlight to electricity on the spot makes it ideal for a wide range of applications, from a light post to a 100-megawatt desert system. Fourth, continued cost reductions are feasible with low-tech solutions, including leaner mounting systems and more efficient installations. Finally, governmental agencies continue to invest in both PV technologies to drive down costs and complementary technologies (such as battery storage) to enable solar systems to provide more value. So, as solar continues to make headlines in the coming months and years, the challenge is to see the story from a broader perspective. What may seem like bad news at first glance may actually be a sign of a maturing industry and an energy source that is here to stay.


Data in the article came from Navigant Solar Services.




Shannon Graham, MBA 03, and Sheldon Kimber, MBA 07, decided to write this article after serving on a panel together last fall in which they both discussed concerns about well-educated people reaching mistaken conclusions about the solar industry.



Graham is associate director, energy, at Navigant. She advises clients making strategic investments in renewable energy.



Kimber is chief operating officer of Recurrent Energy, a solar developer and generating company. He leads North American project development and oversees all project engineering and execution.



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