The Shakeout of Solar Power?

Emerson’s Douglas Morris of the alternative energy industry team highlights the challenges facing solar power panel manufacturers.

Emerson's Douglas MorrisOn a number of occasions, we’ve discussed issues facing renewable power, but the recent announcements about companies struggling within the solar industry merit comment. The two technologies in this discussion are solar photovoltaic (PV) and concentrating solar power (CSP).

There are three primary contributors to the problems facing solar power. The first is the abundance of natural gas, which is making it cheap for utilities to replace their coal-fired capacity with a source that is both lower in emissions and suitable for base-load power. As companies make this switch, they are focusing less on renewable sources.

From http://en.wikipedia.org/wiki/Photovoltaics

From: http://en.wikipedia.org/wiki/Heliostats

Also contributing to a lower level of solar investment is the general global economic environment. Governments around the world are struggling with their own balance sheets and since the industry relies heavily on subsidies to make the economics of solar projects work, it is becoming harder for companies to commit to solar as governments pare back support. Finally, specific to PV, the cost of production has dropped precipitously, so much so that the purchase price of panels each month is most often cheaper than the previous month.

So what does all of this mean? It’s creating a bit of a shakeout environment within the industry. Here are a couple of recent announcements. From an April 12 Wall Street Journal article, U.S. Solar Developer Withdraws Its IPO, it noted that BrightSource Energy, which builds CSP plants, decided to cancel its initial public offering (IPO). Also reported:

Signs that the IPO market was turning away from alternative-energy companies emerged last month, when Enphase Energy Inc., which makes electrical inverters for solar-panel systems, proceeded with its IPO, but had to sell its shares for half their initial target price. Enphase sold 8.97 million shares for $6 each, down from the company’s earlier price range of $10 to $12. The company’s backers agreed to buy 2.5 million of the shares.

Haircuts like this have been routine in the solar-power market, as falling prices and a global oversupply of solar panels have hurt solar-panel makers and their competitors and suppliers. U.S. solar-panel maker and solar-farm developer First Solar Inc. FSLR -7.01% has seen its stock plummet from about $145 a year ago to $22 at Thursday’s close. Shares in other solar firms have slumped and some have filed for bankruptcy.

From an April 17 Wall Street Journal article, First Solar Cuts 2,000 Jobs, it reported that First Solar Inc, which manufactures PV planned this magnitude of staff reduction:

First Solar Inc., once the dominant U.S. solar-equipment maker, is slashing its work force by nearly a third and shutting a factory as it contends with a solar-panel glut that the company called “the new market reality.” Much of the solar-power industry around the globe is struggling as the market for clean energy has been upended by uncertain government support and fierce competition from low-priced, well-financed Chinese manufacturers that have grown quickly. First Solar’s solar-panel business, which is focused on large solar installations that feed electricity to power companies, is dependent on government subsidies awarded to such developments.

By no means am I predicting the demise of solar as it’s a very important long-term solution to the global energy portfolio. It is clear, though, that the energy business can be very volatile and cheap natural gas is changing the rules for the power industry. I would expect solar companies to continue to modify their organizations through downsizing and consolidation to adjust to current market realities.

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