Sunburn: Global Surge in PV Panel Production Drives Strategic Change in Solar Industry

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The dramatic expansion of Chinese photovoltaic (PV) manufacturing capacity has killed several solar manufacturers and forced developers to switch technologies. Soon, it may create sizable benefits for electric utilities and their customers.

Prices for PV arrays dropped by an estimated 40% in 2011 as Chinese manufacturers scaled up production and captured market share around the world. China's share of global PV manufacturing is estimated to be 60% and growing. Global PV supply rapidly outran demand in 2011, causing Germany and Italy to scale back their PV incentives and forcing several solar companies to close their doors. The PV manufacturers and developers that remain face a future clouded by heavy debt loads, low stock prices and less-attractive power purchase contracts. For more on the expansion of Chinese PV manufacturing, see the October 11, 2011, article - China's Solar Panel Manufacturing Industry Takes Global Lead Amid Solyndra, Other Problems.

Some segments of the solar industry have responded by filing anticompetitive complaints against Chinese PV manufacturers, alleging that they are selling the panels below cost. Last month, the U.S. International Trade Commission (ITC) (Washington, D.C.) found merit in the complaint and launched a full investigation. The panel will look into whether Chinese government subsidies allow manufacturers to "dump" their product in the U.S., undercutting fair competition. The agency has the power to recommend imposing tariffs on Chinese PV panels to offset the effect of these alleged actions. A full ruling is expected by late 2012.

Separately, the U.S. Commerce Department (Washington, D.C.) also is investigating the business practices of Chinese PV panel manufacturers, including the way they ship their product to the U.S. That agency's preliminary report is due in March.

China has denied the allegations.

Whatever decisions Commerce and the ITC make will come too late to help solar companies that closed their doors throughout 2011, costing thousands of employees their jobs. During 2011, the following solar firms ceased operation:

• BP Solar (London, England), a unit of BP plc (NYSE:BP) (London)
• Solyndra LLC (Fremont, California)
• Evergreen Solar Incorporated (NASDAQ:ESLR) (Marlborough, Massachusetts)
• SpectraWatt Incorporated (Hopewell Junction, New York)
• Solar Millennium AG (Erlangen, Germany)
• Solon SE (Berlin, Germany)

For more on the collapse of Solyndra, see September 19, 2011, article - Solyndra Bankruptcy Creates Political Problems for Obama Administration.

The value of one of the surviving PV firms, First Solar Incorporated (NASDAQ:FSLR) (Tempe, Arizona), fell by 80%, about $11 billion, during 2011 as the oversupplied PV market led to a staff reduction, a lowered outlook for future profits and the sale of several projects.

One of the consequences of China's rising market power in PV manufacturing is that several planned concentrating solar power (CSP) projects switched to PV technology during the year. Last year, the California Energy Commission (Sacramento, California) approved nine CSP plants for the Golden State, according to the San Jose Mercury News. So far, five of those nine CSP projects--Beacon, Blythe, Calico, Imperial Valley and Palen--have announced that they are switching their technology to PV. Similar technology shifts are said to be happening in other states with abundant solar resources, like Arizona and Nevada.

"2011 was a make-it-or-break-it year for CSP to take advantage of a combination of incentives from the American Recovery and Reinvestment Act (ARRA)," said Shane Mullins, Industrial Info's vice president of product development for the Power Industry. "The majority of CSP projects still under development are now moving forward as PV projects due to the financial community's low tolerance for risk."

In the U.S., about 210 megawatts (MW) of new utility-scale PV generation finished construction during the third quarter of 2011, a dramatic jump over first-quarter and second-quarter 2011 PV completions, according to a December 14 report, "U.S. Solar Market Insight: Third Quarter 2011," published by GTM Research (Boston, Massachusetts) and the Solar Energy Industries Association (SEIA) (Washington, D.C.). The report said that the U.S. could bring up to 400 MW of utility-scale PV generation online in the fourth quarter of 2011. By contrast, the U.S. saw only about 50 MW of new utility-scale PV generation completed during the second quarter of 2011, and about 35 MW came online during the first three months of 2011, the report said.

Regulators are becoming aware of PV's growing attractiveness vis-à-vis CSP. Some are pushing utilities to drop CSP projects in favor of PV projects, or negotiate better power purchase agreements (PPAs) with renewable power developers. This past November, the California Public Utilities Commission (San Francisco, California) had a heated public discussion over the wisdom of permitting Pacific Gas & Electric (San Francisco), a unit of PG&E Corporation (NYSE:PCG) (San Francisco) to sign a 25-year PPA with a CSP developer for a 250-megawatt (MW) project. The CPUC eventually approved the PPA, with Commissioner Mike Florio voting against it. "The PPA unnecessarily saddles ratepayers with extraordinary above-market costs--$1.25 billion," Florio said in remarks reported by the Mercury News. "We could probably get almost 500 MW of renewable energy for the price we're paying for this 250 MW."

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.