Once poised for growth, solar industry headed for shakeout

Photo via Shea Homes Technicians complete installation of a solar power system on a home being built in La Quinta.

SAN DIEGO -- The solar industry, whose future seemed so bright just a few months ago, suddenly looks like it's headed for a shakeout.

Falling oil prices, supply issues and the evaporation of financing for solar projects have moved in like clouds over the industry, just as it was poised for unprecedented growth.

Even as new solar factories opened in places such as Austin, Texas, and Atlanta in recent weeks, several big solar companies in China and Canada warned that they'll pull back on expansion plans and preserve cash after customers canceled projects and credit markets dried up. Shares of many publicly held solar companies have fared even worse than the overall stock market.

Industry analysts, meanwhile, are now predicting that there may soon be a worldwide glut of solar panels and silicon -- the key ingredient for solar cells -- amid the industry's recent buildup.

Hundreds of solar factories have opened around the world in recent months, including Suniva Inc.'s solar cell factory in Norcross, Ga., which started production in November, and HelioVolt Corp.'s thin-film solar equipment plant, which opened in Austin in October.

The industry-wide expansion comes just as oil prices are falling again and the recession has consumers and businesses watching every penny, making solar less attractive than cheaper traditional power sources such as oil, coal and gas-fired power plants.

"I have no doubt (solar's) time is coming -- but at the energy costs we're seeing today, (it) has a very hard time competing," said Miroslav Begovic, a solar and electrical engineering expert at Georgia Tech in Atlanta.

Even with declining prices for silicon and other materials, tax incentives and advancements in technology, the cost of generating juice from solar is still two or three times the cost of generating electricity through traditional sources, Begovic said.

In a recent report, market research company iSuppli predicted that as a result of the recent buildup of the solar industry, the supply of silicon for solar panels will outstrip demand by 2010, driving down prices sharply.

Of course that could be good news for consumers waiting to install solar power systems, which today can cost between $13,000 and $30,000 for a typical house before government rebates.

"If you're a consumer, this is a good thing," said Wen Kuo, a research associate with Lux Research in New York.

That's not necessarily the case, however, for manufacturers of solar equipment.

Kuo and other industry observers predict that some solar companies will go out of business in coming months. Others will likely see slower revenue growth, just as they need funds the most.

And everybody in the industry will probably have to adjust to meet the changing marketplace.

Some makers are focusing on the silver lining.

"The market for solar energy is vast and rapidly expanding; further, this market is very price-elastic, so falling prices are a good thing to stimulate demand," said Haresh Patel, vice president of sales and marketing for Heliovolt.

"Companies that can reduce manufacturing costs, create new and novel products, and open additional markets around the globe . . . are going to come out on top," he said.

At Georgia-based Suniva Inc., founder Ajeet Rohatgi said his company is better off than others because its solar cells are more efficient and economical than most on the market today.

None of Suniva's customers has canceled orders, he said.

"But we are seeing a lot more panel manufacturers coming to us asking for lower prices," said Rohatgi, who started Georgia Tech's photovoltaic research program in 1985 and still teaches there.

Last month, Suniva opened its first solar cell production line and simultaneously announced plans to install a second line next year to double the capacity of its new Norcross factory.

Rohatgi last week said the expansion is still planned, but that there may have to be some adjustments depending on market conditions.

"We'll see how it goes," he said. "There's no question this new change in the economy is going to have some effect, and all manufacturers will have to make some adjustments."

In recent weeks, it's almost as if the solar industry's near-term future flipped like a switch.

In October, the industry was celebrating Congress's extension of a federal investment tax credit that gives homeowners and businesses a 30 percent credit on the cost of their solar power system. Supporters said the tax break extension would dramatically boost the industry.

In November came the presidential election of Barack Obama, who has pledged a green-energy economy and support for solar and other renewable energy sources.

But at the same time, there were the meltdown of financial markets, a plunge in oil prices and the sudden rise in silicon supplies as new factories came online.

Last week, the solar industry got in line behind banks and insurance companies and automakers to ask Congress and Obama for even more help.

Among other requests, the industry is asking the government for bigger tax credits and new incentives and grants for solar equipment manufacturers, creation of a national renewable energy standard that would require the country to get a set percentage of its energy from solar, and $10 billion in government spending for solar installations on federal buildings and lands.

"The growth of solar energy will not happen quickly enough without the right federal policies to stimulate the market and remove fundamental barriers that prevent solar from competing in the electricity marketplace," Rhone Resch, president of the Solar Energy Industries Association, said in a statement.

With or without new help from the government, nobody is discounting solar's long-term potential -- especially given Obama's interest in renewable energy, the continued volatility of oil supplies and other fossil fuels and global warming.

But after basking in the glow of a bright future just a few months ago, the solar industry may once again have to dim its expectations and promises for a while.

"There's still a lot of room for this industry to grow," said analyst Kuo. "But (companies) will have to weather this storm."