Solar industry distracters are constantly beating the drum against government solar incentives. These supposedly free market purists, fill the airwaves bloviating that solar could never replace fossil fuel as an energy source. Many of you will remember not so long ago when computers became publicly available followed by the internet. Guess who drove that technology? It was collaboration between private business and the government that still exists today.
The partnership of government and small business has driven America’s timeline of progress as a technological world leader for a generation now. Solar development is no different. Since the betrayal of the American tax payer by Wall Street bankers, more U.S. solar companies are finding the path to the global solar market is through the government. We bailed out the financial markets over the past two years but the financial market has failed to reinvest in local community business.
San José California-based SoloPower expects to hear next month whether its application to the Department of Energy’s solar loan guarantee program will come through. In a story in CNET news by Martin LaMonica. Without the loan, private money, and incentives from its home town of San José, California, SoloPower would be looking to ramp up overseas, said CEO Tim Harris. “Globally we’re competing with the Chinese, and the government there has put billions of dollars into four solar companies in the past few months,” said Harris. “It’s a brutally tough environment to raise money…so you have to work all the avenues.”
The story at Solo Power solar companies, near Santa Cruz, which makes a flexible solar collector designed for rapid solar installation, is also playing out at many other green-tech solar companies, which need to get creative about how they bankroll their transition from product development to commercialization.
Before the financial crisis, solar challengers were able to build manufacturing facilities using private money venture capital, private equity, and hedge funds. These sources still exist, but private investors are being pickier about how they place their bets, said Ted Sullivan, solar analyst at Lux Research. Raising money on the public markets with an initial public offering was possible a few years ago, too, but is very difficult now, said Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance. Banks, meanwhile, are unlikely to finance the first factory for a solar company if the technology is relatively new and untested. That leaves government programs, such as low-cost loans, and state incentives for economic development to help fill the financing gap in many cases.
Even when solar start-ups do manage to land a loan or municipal tax break to build a factory, they still face intense global competition on the price of solar power. Many industry observers expect that many solar photovoltaic companies will go out of business in the face of so many suppliers, as some already have.
“Many of the solar companies that do not get the low-cost government loans will go out of business, as will many of the companies that do receive them,” said Sullivan. “As has been demonstrated amply in the past, governments are bad at picking specific winners.” But the “cream of the crop” will survive and probably thrive if they can use their money wisely, whether some of it’s from governments sources or not, he added.
Solar thin-film technology created dozens of solar companies decade to pursue low-cost solar power, often by using new thin-film materials for solar cells. Many of these thin-film companies are at the point where they have developed the technology and are now seeking to produce at larger scale.
But over the past few years, the price of the incumbent solar technology panels made with polycrystalline silicon cells has fallen steadily as a number of Chinese manufacturers have ramped up their operations and the silicon shortage of a few years ago has gone away. That means upstart solar companies with lower cost than silicon need to enter the market fast or they risk losing any technology advantage they have.
So far, the DOE’s solar loan guarantee program has given money to two solar photovoltaic manufacturers to build factories, including one to Abound Solar, which last week finalized a $400 million loan guarantee. One condition for the loan was an extra $110 million in equity from private sources. Combined, the financing will allow it to expand its current Colorado plant and build a new factory in Indiana capable of cranking out 640 megawatts a year worth of thin-film solar panels.
“It was absolutely critical for us as a company to be able to scale up and be competitive. It enabled us to put this manufacturing capability in the U.S., which is good because the market is growing and the number of jobs it’s going to create,” said Russ Kanjorski, vice president of marketing at Abound Solar. He would have liked the loan guarantee process to go quicker than the two years it took, but the process included a rigorous evaluation on business and technical levels, he added.
The first solar PV company to access the loan guarantee program, which was created in 2007, is Solyndra, which used a $535 million loan, guaranteed in case of default by the DOE, to build a second factory to make its solar collectors designed for commercial flat rooftops. Solyndra’s solar PV technology and manufacturing process is unique thin-film solar cells are coated onto long glass tubes in a highly automated process. But the loan has been heavily criticized in solar industry circles because it’s still unclear whether Solyndra’s product can compete on price globally. Last month, the company shut down its first factory, which produces products at a higher cost than its second plant.
The executive director of the DOE solar loan guarantee program said that thin-film solar technology gives the U.S. a chance to compete against low-cost silicon panels from China. Shutting down Solyndra’s first solar factory was needed to make sure it could grow and still compete on price, he said.
“Manufacturing of any kind is always challenging in this country let alone solar, but if we’re going to have a successful clean-tech sector, we’ve got to have manufacturing capacity,” said Jonathan Silver, the executive director of the DOE loan guarantee program.
Some solar start-ups are bypassing government incentives and seeking money from other deep-pocketed sources: large corporations. California Silicon Valley-based Stion Solar Companies decided to license its thin-film solar technology to Taiwan Semiconductor Manufacturing Company (TSMC), which invested $50 million in the Stion. The arrangement allows it to get its technology to market through a manufacturing partner in Asia while giving it money to finance product improvements.
Lux Research’s Sullivan sees more corporations investing in solar start-ups with disruptive technology, either through equity investments, licensing, or acquisitions. “It may not be as sexy as creating the next First Solar, another independent solar giant, but the technology is getting to market,” he said.
There are also incentives offered by government programs in other countries. Germany, Japan, and China have aggressively developed the domestic solar industry not for environmental reasons but because those countries are trying to improve their energy security and meet anticipated demand for solar power worldwide, Sullivan said.
In an effort to stimulate exports, the China Development Bank has made $40 billion in credit available to six solar companies in the past six months, said Zindler from Bloomberg New Energy Finance. The U.S. stimulus program made billions of dollars available to stimulate clean-energy technologies, but the U.S. can’t match the amount of money China has made available through these low-cost loans, he said. “Chinese solar companies are grinding down the cost by building plants the size the world has never seen before and deploying unbelievable amounts of capital to do it,” Zindler said.
In the U.S., the solar industry scored a victory with the passage of the tax bill last week because it included a one-year extension to a grant that replaces a tax credit subsidy. But it’s unclear what the long-term direction on renewable energy policy is in the U.S., which creates questions over how strong demand will be for solar, Zindler said.
The Republican gains in the recent election mean that extending subsidies for solar could be tough one year from now, but solar could be part of a large energy bill that includes incentives for natural gas and nuclear, Zindler said. “The presumed broken government super gridlock is a bit overblown only because solar energy policy is actually less partisan than other things it’s more regional,” he said. “So you could cobble something together with new members of Congress that appeals to regional energy interests.”
Many green-technology companies are counting on regional solar programs that encourage energy manufacturing. San Jose solar Companies, said Harris, are looking to states that are getting creative about luring solar companies to their regions. He’s still awaiting word on the DOE solar loan guarantee program, but he thinks he can pull together the funds to build a planned 100-megawatt-per-year solar plant, which could be expanded to 400 megawatts.