Summary
As other countries continue to thrive on the solar boom, the United States is falling behind in solar cell capacity and adoption of panels and plants. China surpassed Japan and Germany in 2007 as the top world producer of solar cells, and may eventually develop a monopoly over time. The question will be how consumers absorb the cost of solar power over time in each respective country.
Analysis
China has overtaken Germany as the top world producer of solar cells, and other eastern countries are following this pattern, according to a recent report published by Solarbuzz. After many years of Japanese and German dominance in the sector, China last year produced solar cells with a capacity of 1,200 megawatt, against the 875 MW made in Germany. China's share of the world market increased from 15 to 28% in from 2006-07, according to data compiled by sector magazine “Photon.” In 2007, Chinese producer Suntech increased production by 110% and is now proclaimed as the largest solar module producer globally.
Major photovoltaic (PV) makers in Taiwan plan to increase capacity to more than 2GW, while those in India scale-up to 1GW, by 2010, according to reports from “Solid State Technology” partner Nikkei Microdevices and the Japanese consultancy Tech Biz. Interestingly enough, much of the solar capacity is not being sold in producer countries China, Taiwan and India, but being exported to countries like Germany, where state subsidies for installing solar capacity on the roofs of homes, offices and other buildings are significantly higher, explaining the success of Chinese solar cell companies.
However, one particular American-based company, SunPower is also capitalizing on the current solar boom in Germany, Italy and Spain. They now have more than 200 dealers serving residential and commercial rooftop markets globally, aggressively expanding their solar cell production by more than 150% in 2008 compared to 2007. In Asia, they have expanded their presence with their first volume shipments into Japan and shipment of components to Samsung in Korea. This scale, combined with lower silicon costs, higher efficiencies, thinner wafers and on-going quality and cost improvements in their factories, will generate a unit cost reduction. During the first quarter of 2008, they continued to exceed manufacturing targets across both of their fabs and panel manufacturing facilities, using a combination of short, intermediate and long-term polycrystalline silicon (poly-silicon) supply agreements and a variety of incumbent suppliers as well as new entrants, which is an increasing trend for single crystalline silicon panel architecture. However, this company only projects that solar cell production is secured with contracted silicon through 2010, which is a paltry figure considering their competitors are signing 10-year agreements at this time. Also, SunPower is basing their revenue projections on silicon supply costs declining by approximately 10% during 2008 compared to 2007, which is not guaranteed as poly-silicon supply is still strained, evidenced by current high spot prices. The companies which will be able to generate significant cost reductions will accomplish them directly via higher cell efficiency and thinner silicon wafers. These factors will be more critical for meeting their target financials of 30% gross margin, 10% operating expenses and 20% operating margin, on a non-GAAP basis, by the first quarter of 2009.
On the other hand, Germany still retains Q-Cells, based in Wolfen, Germany, as the world's biggest maker of the photovoltaic cells used in solar panels. It surpassed Sharp of Japan last year and announced big jumps in sales (up 59%) and profits (up 69%) in late March. In Germany, renewable energy sources now account for 6.7% of energy consumption, up from 5.5% in 2006 and 3.5% in 2003. The industry's turnover was $32.9 billion in 2007, up 10% on 2006 and nearly four times the figure for 2000. The share of electricity generated from renewable sources reached 14.2%, a big jump from 11.7% in 2006, owing in part to stronger-than-usual wind mill activity last year. Several major renewable energy companies believe that related process equipment will become a highly notable sector of the country's manufacturing industry, alongside cars and machine tools. Employment in the renewables industry is projected by Roland Berger consultants to increase from 250,000 in 2007 to around 710,000 in 2030, matching the jobs in car production by that time.
Currently, most of Germany's electricity comes from coal-fired and nuclear plants, but the former are unpopular due to their relatively high greenhouse-gas emissions, and the latter because of the fear of a catastrophic accident (ie. Three Mile Island). Thus, in 1991 Germany adopted a law, now known as the EEG, which encourages investment by cross-subsidizing renewable electricity fed into the grid. The law is popular with those who support the rapid transition of new clean technology; it has been proclaimed as one of the best laws of its kind worldwide. It states that electricity produced from renewable sources must be purchased by utilities according to a generous "feed-in tariff" that sets higher-than-market rates and fixes them for 20 years. For example, roof-mounted photovoltaic systems installed in 2007, may be able to sell power at euro0.49 per kilowatt-hour, or about seven times today's wholesale price, until 2027. Therefore, the fixed rate allows investors to estimate returns; thus, removing uncertainty over financing in the long-run.
The utilities that purchase power at these higher rates pass the extra expense back to their customers in the form of higher electricity bills. This added an average of 1 euro cent per kilowatt-hour to the price of electricity last year, increasing the typical household electricity bill by 5% a month. For the country as a whole, the cost was up 38% on the year before. Proponents of solar energy hoped that the increased demand for panels would help manufacturers reduce unit costs, making solar more competitive in the long run. In contrast, the current solar boom has led to a shortage of the high-grade silicon used to make the cells, as spot prices have risen by 20x since 2003. Also, there is the problem of storing solar energy for use on cloudy days and at night amidst the lack of sunny days in that country. Overall, the hope is that Germany's clean-tech industry will be able to survive without any subsidies and the burden passed on to consumers, while reducing cumulative carbon emissions.
As other countries continue to thrive on the solar boom, the United States is falling behind in solar cell capacity and adoption of panels and plants. While Congress and the President continue to converse over high oil and gas prices, other countries continue to capitalize on the 62% overall growth of the industry the last couple years. It will likely take the next administration to provide the appropriate stimulus and incentives for increased capacity and conversion in the US to renewable energy sources such as solar power. This is a race that will be more difficult to compete in than other technologies, since once panels from foreign counties are entrenched in a market, they will likely last ~20 years before being replaced.
