RICHARD BLACKWELL The Globe and Mail Saturday, Jul. 14 2012, 8:00 AM EDT
Joe Soto had good reason to leave his job at an auto parts supplier last year to work at Siliken SA, a global solar energy equipment maker with a new plant in his hometown of Windsor, Ont.
Since his wife was also employed in the auto sector, the couple, with two young children, figured it would be better if they weren’t both in the same turbulent industry. And Siliken was riding a frenzy of investment in alternative energy.
This new energy, with wind and solar, it was the biggest thing out there at the time and it was supposed to be something huge for Canada,” said Mr. Soto, 36, who was the warehouse logistics co-ordinator. “It was something that was supposed to take off.”
It hasn’t worked out that way.
Siliken closed its Windsor factory in May, the victim of suddenly soured markets for alternative energy equipment in Ontario. Mr. Soto lost his job as the company consolidated with other operations in Mexico. He was fortunate to find new work in construction, albeit with less pay.
The sector’s problems extend far beyond Ontario. Globally, the solar power industry is a mess.
Just two years ago, solar energy was basking in exponential growth and surging investment, as it promised to be the future of energy. Now it’s picking up the pieces of a colossal bust.
The spectacular downward spiral at solar product manufacturers has left a trail of destruction. Many companies have failed outright, and those that have survived have seen their stock prices plummet as much as 90 per cent.
A tidal wave of growth and investor enthusiasm in the decade up to 2010 was spurred by government subsidies – especially in the United States, Germany, Spain and Japan. Companies that were able to produce solar cells and panels, despite a global shortage of solar-grade silicon, were buoyed by high prices and massive demand.
But the rush of new entrants, especially from low-cost Chinese manufacturers, pushed panel prices down sharply, squeezing margins across the board. Reductions in solar subsidies in Germany, Canada and elsewhere made matters worse, and a moribund global economy didn’t help. Industry revenues, which more than doubled from 2009 to 2010 to about $82-billion worldwide, rose just 12 per cent in 2011 and are expected to level off in 2012, according to research group NPD Solarbuzz.
Still, industry players are looking beyond the carnage and see better days ahead. There is a growing view that the shakeup is part of a natural economic cycle that accompanies disruptive technology, not unlike the tech bust early last decade when scores of well-funded but ultimately unsuccessful companies died and set the stage for a resurgence among the stronger players.
Solar energy executives say falling panel prices – the very problem that hurt them so badly – will eventually allow solar to be competitive with other forms of power. Companies that survive, by cutting costs or merging with others, will be in a position to resume dramatic growth.
The solar industry’s ability to prosper has broad competitive implications for other energy businesses, especially if costs of conventional power sources such as nuclear, oil and gas rise, while solar offers an increasingly price-competitive alternative.
In the meantime, however, the litany of bad news has hit players big and small:
The California rooftop panel maker Solyndra collapsed last fall and put 1,000 people out of work, two years after receiving a $535-million loan guarantee from the U.S. government. At the end of June, another recipient of U.S. loan guarantees, Abound Solar, applied for bankruptcy protection and suspended its operations.
In April, Arizona-based First Solar Inc., one of the largest panel makers in the world, announced the layoff of 2,000 workers and the closing of a plant in Germany. And Germany’s own giant Q-Cells, once the world’s biggest solar-cell maker, reported a huge loss in April then filed for insolvency. It has sold off assets in a bid to survive.
In Canada, Day4 Energy Inc., a once-promising solar panel maker in Burnaby B.C., in June was sold to senior managers in exchange for its debt and a small payment after being delisted from the TSX in the spring.
The rise and fall of Arise
One of the early bright lights of the Canadian solar sector, Arise Technologies Corp. of Cambridge, Ont., spiralled into bankruptcy this past spring, its Ontario assets sold off and its flagship German plant shuttered.
The company, which went public a decade ago, had its fingers in a number of solar markets. It installed solar rooftop systems in Canada, developed a new technology to make panels, and even planned to make its own purified silicon feedstock for solar cells.
Its biggest move was to build a panel plant in Germany, where it was attracted by financial support from the government, skilled workers, and the hottest solar market in the world.
A few months after the plant was finished in 2008, however, the recession hit and lower energy prices soured interest in the solar sector. There was a brief resurgence in 2010, but when Chinese factories began to churn out panels and create a glut on world markets, the solar industry – and Arise – began its downward spin.
Arise closed the German facility in 2011, unable to get sufficient financing to expand and upgrade in order to make high-efficiency cells. The rest of the company held on until early this year, when it went bankrupt and was delisted.
Ian MacLellan, the founder and former CEO of Arise, said the downturn in solar – and the death of his company – was precipitated by a series of parallel events that hit almost simultaneously. These included the 2011 financial crisis in Europe, which eroded governments’ ability to subsidize the sector, and China’s heavy investments in solar panel production, which pushed down prices just as Western firms were experiencing financial difficulty. For Arise, and many other firms, the final blow was when North American financiers withdrew their support from solar companies. “The bank was not willing to support our expansion plans, and in fact it just wanted its money back,” Mr. MacLellan said.
But the underlying cause of all this upheaval in the solar industry – the precipitous decline in solar panel prices – is also a signal that there is reason for brighter days in the future.
“Prices are coming down … and that has a positive impact on our business,” said Chris Stern, co-founder and vice-president of business development of Pure Energies Inc., a company that installs solar panels on homes in the Toronto region.
With panels now much cheaper to buy, the economic case for installing solar power is improving dramatically, Mr. Stern said. Eventually, he said, the Ontario subsidies that support his business will be unnecessary and solar will be competitive with other forms of power generation, opening up a vastly bigger market.
As panel prices fall, the power they generate becomes cheaper too. Already, solar power is competitive with nuclear or gas-generated power in some parts of the world.
In areas where there are no existing power grids – in parts of Africa, India, Asia and the Middle East – solar is also already viable, as it is in places where the grid is mainly powered by small diesel generators. In sunny Hawaii, electricity, now mainly generated from oil, costs more than 25 cents per kilowatt-hour, while solar power can be generated for as little as 15 cents per kwh.
Even in the southwestern United States, solar is now closely competitive with newly-built power stations fuelled by coal or gas, according to a recent report from consultants McKinsey & Co.
The report predicts that the cost of installing commercial-scale rooftop systems will fall another 40 per cent by 2015, making them economical, without subsidies, in many markets.
Stefan Heck, McKinsey’s clean technology practice leader, said many people still have a mental picture of the solar industry that is rooted in the 1970s, when solar power was roughly 20 times the price of other forms of electricity and required huge government subsidies. “Having a 10 to 15 per cent [annual cost] improvement compounds quite quickly,” he said. “People underestimate how much that can change things.”
Mr. Heck said many people also mistakenly think of grid parity – the point where the cost of solar power becomes equal to other forms of power production – as a singular event that will be reached at a particular time. But the price of electricity varies widely, he noted, and so grid parity is reached in different markets at different times.
Another key factor is the amount of sunlight hitting the ground, and that varies sharply around the globe, creating a vast range of economic conditions for solar depending on the location.
Still, the McKinsey report projects that many more solar companies will face difficulties and even collapse in the coming years, as global manufacturing capacity increases and subsidies shrink. However, the report says, these are “natural growing pains, not death throes,” and they will set the stage for more stable, and far more expansive, growth in the solar industry after 2015.
Mr. MacLellan, the former Arise executive, also remains optimistic about the industry as a whole. “We all knew that at some point there would be a massive amount of consolidation, similar to what happened to the automotive industry in the 1920s or the personal computer industry in the [1990s],” he said. “What has happened is that solar has gone mainstream, and when [industries] go mainstream they consolidate.”
In the next few years, he predicts, the manufacturing portion of the industry – like its automotive and computer predecessors – will be dominated by very large companies that can generate economies of scale. Meanwhile, downstream users – those buying and installing panels to generate power – will benefit greatly from lower and lower prices. “Solar in the next 10 or 20 years will become totally ubiquitous,” he said.
In Canada, where power prices are relatively cheap, unsubsidized solar power is still a long way from grid parity.
So why, then, is Ontario paying a huge premium for solar-generated power? Under the “feed-in-tariff” (FIT) provisions of the province’s Green Energy Act, the province forks over as much as 55 cents a kilowatt-hour for solar power generated on domestic rooftops, more than five times what it pays for most other forms of electricity. It requires solar (and wind) power producers to source about 60 per cent of their equipment in the province.
The idea, the McGuinty government says, is to promote the shift to renewable power sources, and to kick-start manufacturing of green power products in the province – with the view that Ontario could eventually become a key international supplier of solar and other renewable products.
This is an important transition strategy for Ontario’s manufacturing economy, argues John Gorman, president of the Canadian Solar Industries Association. The subsidies will create an industry that will thrive as solar expands around the world, he said.
Ontario’s solar industry – which now comprises dozens of companies making everything from panels to power inverters to the racks that hold them – exists solely because of the FIT program and its local content rules, Mr. Gorman said. Grid parity is “absolutely coming” to Ontario, likely within six years, he insists. When it does, the companies that have settled in the province will no longer need government support.
Among the companies that have set up a manufacturing base in the province is Canadian Solar Inc., a firm that – while based in Canada – made all of its solar panels in China until Ontario introduced its local content requirements. “We specifically built our factory in Guelph because of the program and the Ontario content [rules],” said Milfred Hammerbacher, who runs the company’s Canadian arm.
He acknowledged that the global drop in panel pricing has made it “a real struggle” for his company and others, but Canadian Solar is hedging its bets by getting involved in the downstream end of the solar business – it is investing in solar projects instead of just supplying panels to developers. That gives the company an outlet for its production, and adds some stability to pricing, Mr. Hammerbacher said.
The key to the industry’s success will be its ability to compete with other forms of power generation, Mr. Hammerbacher said. “For the first time in our industry, we have some very, very large markets where we are better than parity with the current form of electricity generation. We don’t need any subsidy to compete in those markets. That is a tremendous step for the industry.”
With files from reporter Renata D’Aliesio
NOTABLE SOLAR FAILURES
– Solyndra, an upstart California solar panel maker that got more than $500-million in loan guarantees from the U.S. government, filed for bankruptcy protection last fall.
– Colorado-based photovoltaic module maker Abound Solar suspended operations at the end of June, and filed for bankruptcy protection early in July. It had also got U.S. loan guarantees.
– Arise Technologies of Waterloo, Ont., once a rising star in the Canadian solar technology scene, went bankrupt in April. Three years ago, it opened a solar cell manufacturing plant in Germany with much fanfare, but it closed in October, 2011, when financing dried up. The rest of the company soon followed.
– Evergreen Solar, a Massachusetts-based solar panel maker, filed for bankruptcy protection last August, blaming cutthroat competition from Chinese panel makers.
– SpectraWatt, a solar cell maker, filed for bankruptcy protection last August. Many assets were sold to Canadian Solar Inc.
– BrightSource Energy, a California company that plans to build solar thermal plants (which concentrate the heat of the sun’s rays to run electrical generators), withdrew an $183-million initial public offering in April, citing weak markets for green technology companies.
– Three other German solar companies, Solon SE, Solar Millennium AG and Solarhybrid AG, have filed for insolvency in the past few months.
– First Solar, the U.S.-based solar cell maker that specializes in “thin-film” panels, laid off 30 per cent of its employees and closed one of its factories in Germany in the spring. It cited cuts to European solar subsidies.
THE LIMITS OF THE SUN
Like wind, solar power is a variable source of electricity. It disappears when the sun goes down.
That means that even as solar panels get cheaper and more ubiquitous, there will be limits to the proportion of power demand they can satisfy.
Stefan Heck, who leads the clean technology practice at consultants McKinsey & Co., says the limit depends very much on each individual market, its sun conditions and power needs.
Still, “we can get to 30 per cent without any major changes in how we do things … that’s an easy initial upper bound,” he said. Some jurisdictions could get to 60 per cent solar power, if their power grid was upgraded to handle variability, and there was a buffer system that could store power for a few hours until needed, he added.
Getting to 100 per cent is theoretically possible, because there is enough silicon on the planet to make the required cells, and enough space on fields and rooftops to hold the panels. However, that would require massive amounts of electricity storage – – and the technology is just not there yet, Mr. Heck said. “I don’t think it is realistic to go to 100 per cent solar.”
Electricity storage is still impractical at a large scale, he said, because it adds so much to the cost of the power. Currently, the least expensive is pumped hydro storage, where water is pumped into a reservoir when electricity is cheap and available, then used to run turbines when the sun goes down (or the wind stops blowing). But there are clearly geographical limitations to this technology.
While there is ongoing research on batteries, they are still very expensive and won’t likely be a practical solution for at least another decade, Mr. Heck said. In the meantime solar can be an effective part of a wider energy mix, and is particularly valuable to handle peak daytime loads due to air conditioning and cooking, he said.