STRATEGY 738 – SUSTAINABLE ENERGY FUTURES

Growth drivers in the U.S.

Photovoltaic Market
A comprehensive analysis of the current domestic
PV industry
Joshua Bloom, Paul Gruber, Shyam Vishwanathan
4/21/2009
 TABLE OF CONTENTS

Introduction…………………………………………………………………………...pg. 1

Technology…………………………………………………………………………….pg. 1-2

Solar Markets……………………………………………………………………........pg. 3

Global Markets…………………………………………………………………pg. 3

U.S. Markets……………………………………………………………………pg. 3-4

Major Players…………………………………………………………………...pg. 4-5

Industry Trends……………………………………………………………………….pg. 5

Technology Battle………………………………………………………………pg. 5

Convergence……………………………………………………………………pg. 6

Cost Parity……………………………………………………………………...pg. 6-7

Government Subsidies………………………………………………………………..pg.7-9

Other Factors…………………………………………………………………………pg. 9

The Economy: NRE Prices and Supply……………………………………….pg. 9-10

Ecology: Climate Change………………………………………………………pg. 10

Policy: National Security……………………………………………………….pg. 10-11

California Case Study………………………………………………………………...pg. 11

Conclusion: Growth Factors and Challenges……………………………………….pg. 11-12

References………………………………………………………………………..........pg. 13
Introduction
In 1954, the first silicon photovoltaic (PV) cells were developed at Bell Labs; it could harness

6% of sunlight energy and convert it into electricity. Costs decreased dramatically throughout

the 1970s, from about $100 per kilowatt-hour to $20. Still, in 1977, the entire world’s

production of PV cells was enough to light just 5,000 one-hundred watt lightbulbs.i It was not

until the 1980s and 1990s that the industry, thanks to its own technological initiatives, began

producing big jumps in efficiency.1 Since 2000, the industry has witnessed the entry of many

solar companies – most of them small to medium size; the price of solar energy has reached

remarkable lows of around $0.30 per kilowatt-hour, while its efficiency has grown hugely to

over 22%. The industry has seen a large-scale consolidation of solar firms. U.S. government

policies and renewable energy incentives have begun to play a more major role in reducing the

costs of solar energy, though a cap-and-trade scheme would greatly aid this endeavor. This

paper focuses on solar PV technology, because it has shown very strong growth – around 50%

over the past 5 years – and has been more widely developed than other forms of solar in the U.S.

market.ii This paper explores the question: what are the major drivers for growth of PV solar

energy in the U.S.

Technology
Electricity is derived either through PV cells or concentrated-solar systems, which use solar

heated water, oil, salt, or some other good conductor of heat to create steam, spin turbines, and

create electricity. Silicon is the major component for PV cells, acting as a great semiconductor

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Efficiency: in the case of solar, it is the % of solar energy converted into electricity.

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in the process of creating electron flow from sunlight. The two types of silicon are single

crystalline and polycrystalline. Thin-film PV cells have emerged in recent years; currently, they

are less efficient than PV, but they are flexible and can be manufactured and installed in a

simpler fashion than PV panels, which require more materials. The six current types of thin-film

cells are:

• Amorphous Silicon
• Cadmium Telluride
• Copper Indium Diselenide
• Copper Indium Gallium Diselenide
• Gallium Arsenide
• Thin-Film Silicon

Of these thin-film bases, only Amorphous Silicon, Cadmium Telluride, and Copper Indium

Gallium Diselenide have been used in any production capacity.

The crystalline silicon PV segment can be considered a variable cost industry with silicon being

the major cost. The reduction in demand for end products in the semiconductor industry, such as

PC’s, has reduced the price of silicon and helped this segment to decrease prices overall. On the

other hand, the thin-film PV segment can be considered a capital intensive, fixed cost industry.

This is because polysilicon bases are very inexpensive but require significant capital

expenditures to manufacture. The thin-film PV industry is looking to achieve substantial

economies of scale and will be able to do so when companies have PV installation orders on the

gigawatt scale. The current economic situation has taken a toll on this capital intensive segment

due to a freeze in credit markets and a reduction in private equity. Due to the recession, several

start-up solar companies have had to put a hold on their expansion plans, and some have had to

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close down manufacturing operations due to a lack of demand. Industry consolidation is

occurring at this point as larger players look to buy up key assets such as manufacturing

facilities, patents, and project pipelines from struggling start ups.

Solar Markets
Global Market
The global solar photovoltaic market recorded 5.95

gigawatts of additional installations in 2008, as

reported in the MarketBuzz 2008 research report.iii In

2008, the U.S. installed just 360 megawatts. In

addition, the global market generated $37.1 billion in

revenues in 2008. As can be seen in the table on the

right, the global solar industry has grown at incredible

rates in terms of PV production over the past 12 years.

Also seen in the table representing global PV

production by company in 2006, the U.S. players are at

the bottom of the list in terms of global market share.

U.S. Solar Market

The U.S. solar industry leads the world in thin-film production, which is a small niche in terms

of global production. The domestic solar industry has experienced significant growth over the

past decade, driven primarily by state renewable portfolio standards which have increased

demand. A Frost & Sullivan Research report projects that the U.S. Solar market will grow at a

CAGR of 30.1% until 2014. In 2007, the U.S. solar PV cell market was valued at $3.5 billion

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which was a year over year increase of 52%.iv,v In an SBI report, it is projected that the solar PV

industry will be worth $9.8B by 2012.vi The constraints on industry growth are high capital,

installation costs, and lack of storage systems (i.e., battery technologies) to help control energy

outflow.

The U.S. solar market is currently experiencing a decrease in demand; many small

manufacturing firms are struggling. For example, Energy Conversion Devices, based in

Rochester Hills, Michigan, recently halted solar cell production for two weeks and laid off 70

workers.vii Another example is OptiSolar, which recently shut down production, laid off 200

employees, and is thinking about selling the business. To help keep the emerging industry afloat,

the Obama administration included in their budget proposal roughly $3 billion dollars for public

investment in plug-in hybrid technology, solar technology, and air projects.

Major Players
First Solar is the largest U.S. PV company. Its market cap is currently $11.76 billion, and its

2008 annual revenues were $1.24 billion. In comparison, the other major players such as

Evergreen Solar and Sunpower currently have market caps of $367 million and $2.18 billion

respectively and had 2008 annual revenues of $111 million and $1.4 billion respectively.

Recently, First Solar acquired OptiSolar’s project pipeline which included roughly 1.8 GW in

solar installation contracts. This acquisition has established First Solar as the dominant PV

manufacturer in the U.S. First Solar already had over 1 GW of utility scale solar contracts in its

pipeline; analysts predict First Solar to achieve economies of scale in production by 2011 or

2012. Once economies of scale have been achieved, First Solar’s PV panels will be cost

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competitive with other sources of electricity generation. California-based SunPower and

SolarCity are fast growing manufacturing and installation companies, particularly for the

distributed generation, residential and commercial markets. Another player, Solyndra, which

already has $1.2 billion in the project pipeline, recently received the Department of Energy’s

(DOE) first loan guarantee under the Energy Policy Act of 2005 for $525M to build out its

second large cylindrical PV array.

Industry Trends
Technology battle
The current PV market has two competing technology materials. First Solar, the dominant

player, uses a cadmium telluride product while several other companies use a silicon base to

manufacture PV cells. The manufacturing equipment for silicon-based products already exists

due to the overlapping uses of silicon for manufacturing semiconductors. However, the use of

thin-film technologies has gained significant market share, and in 2006 thin-film represented

30% of domestic solar production, as compared to silicon-based production of 70%.

Convergence
The semiconductor industry has experienced a significant reduction in demand due to the current

economic contraction and its dependence on computer sales. The need for PV cell

manufacturing can be an opportunity for semiconductor manufacturers to diversify their product

portfolio. In addition, these companies already have the manufacturing capabilities to quickly

transition to manufacturing silicon based thin-film PV cells. There will likely be convergence

between these two industries in the near future. For example, Applied Materials, a

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semiconductor equipment supplier has already begun to supply equipment to solar

manufacturers. In addition to the opportunities for semiconductor companies, flat panel display

manufacturing uses a similar process to silicon thin-film PV manufacturing. Companies such as

Sharp (a leading manufacturer of flat panel displays) have already begun to ramp up solar cell

manufacturing, and have a huge edge on start-up solar companies in achieving economies of

scale due to their large existing manufacturing capabilities. In another recent notable acquisition,

National Semiconductor acquired Act Solar as their major move into the solar production arena.

Cost Parity
The tipping point for PV will

occur when cost parity is Cost

achieved. This is a factor of

increased efficiency (or Tipping point

performance) and decreased Performance

cost. PV is currently priced in Time/Effort

the range of 25 to 35 cents, as compared to average retail electricity rates between 8 to 12 cents.

The PV industry has come a long way to decrease costs, but it currently cannot compete with

non-renewable sources without favorable policies such as renewable portfolio standards, tax

credits, and/or subsidies. However, as discussed in a market research report from an SBI

research report, there are several factors that are helping drive down solar electricity prices. The

price of silicon, the major material input, has significantly decreased as other key industries, like

the semiconductor industry, face weakening demand. Also, thin-film PV cells, which are the

lower cost input as compared to silicon, are increasing in market share in the U.S., and this

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technology will further drive down costs. In addition, economies of scale will occur as PV

manufactures achieve project pipelines in the gigawatts.viii First Solar is the first US firm to

achieve gigawatt scale through its project pipeline and is using the thin-film input of cadmium

telluride in their PV cells. Most solar analysts predict that solar energy, on average, will reach

grid parity with non-renewable sources, such as coal, between 2010 and 2015. This projection is

not taking into account technological breakthroughs, which are likely given the recent

commitment to R&D subsidies by the government, or cap-and-trade.

Government Subsidies

Most participants in the solar energy market consider government subsidies for R&D and

sales as necessary for its successful development and increased usage. Indeed, the PV energy

business is still largely dependent on government intervention, and most U.S., European, and

Japanese projects are subsidized. The picture below describes some of the key government

incentives currently available in the US.

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 Government Incentives

Direct Incentives Indirect Incentives

Rebates Sales Tax

Tax Credits
& Deductions Exemptions
Grants/Publi Low-Interest Loans Property Tax
c
Incentives
Feed-in
Local Permit
Tariffs
Fee Waivers
Federal tax incentives favor commercial scale installations: Federal incentives come in two

flavors: (1) accelerated depreciation, and (2) a 30% investment tax credit. The accelerated

depreciation schedule allows depreciation of the solar PV system over a five year period, helping

to reduce taxable income over that period. The 30% business energy tax credit for solar PV

systems is an upfront 30% tax benefit applied against the cost of the system. These federal tax

incentives make large, commercial scale systems very attractive for profitable entities.

State level incentives vary widely: at the State level incentives are typically based on rebates

that offset the cost of the installation. Rebates typically range between $2/Wp to $4/Wp,

accounting for roughly 30% of the total installed system cost. However, state level incentives

vary widely and sometimes differ within each state (e.g. by county). A good reference for a state

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by state summary of incentives can be found at www.dsireusa.org under the Library link. A

broad view of US state level incentives are shown in the figure below.

Other Factors

Several other factors affect the growth of the solar markets positively. These include the

economy (rising prices and falling supply of competing nonrenewable energy sources); the

ecology (primarily climate change); and politics (mainly national security).

The Economy: NRE Prices and Supplies

The first positive factor helping the growth of the solar market growth is economic in nature—

namely, that all nonrenewable energy (NRE) sources face future price rises, with no end in sight to the

upward trajectory. This was extremely evident with oil and natural gas prices during the 2008 uptick in

prices. As for coal, its price structure is stable for now, but its ecological cost is rising. Certainly any

implementation of clean coal technologies (carbon capture and sequestration) will force up coal prices.

Similarly, nuclear power prices are bound to rise as old plants are decommissioned and new plants built.

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 NRE sources also face supply limits. Some analysts argue that supply walls are already being hit

in oil and natural gas. Concerns have also been expressed about coal availability through the rest of the

century—especially if more coal is burned to make up for shortfalls in oil and gas. As for uranium,

shortages are projected to begin occurring around 2050, according to the International Energy Agency.

Given that NRE sources are facing an inevitable future of price rises and supply limits, all renewable

energy (RE) sources—and particularly solar (for reasons to be discussed)— stand to benefit as NRE/RE

price structures begin to equilibrate and RE becomes more readily available than NRE sources. NRE price

rises and supply limits thus indirectly favor solar growth.

Ecology: Climate Change

A second factor favoring solar growth is ecological in nature. This factor is primarily tied up with

the phenomenon known as “global warming”—referred to more objectively as “climate change” and

more subjectively as “climate chaos.” In a nutshell, climate change theory links the massive and

unchecked release of greenhouse gases (GHGs) with the ultimate creation of hell on earth. Accordingly,

the solution to this problem is a global switchover from NRE to non-GHG-emitting RE sources, such as

solar. This will at least mitigate the worst effects of global warming.

Politics: National Security

A third factor also favoring solar gowth is political in nature, involving national security.

Dependence on foreign energy supplies leads to nation-state vulnerability. Add in inevitable

future NRE price rises and supply limits, and the vulnerability inherent in dependence on foreign

energy supplies is amplified.

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Two countries with tragic memories of energy vulnerability are Japan and Germany. Both are

now world leaders in solar power production and installation. Other forward-looking countries

rapidly ramping up in solar include Spain, China, Taiwan, India, and several other European and

Asian nations. It is likely the United States will embrace a similar solar path once it fully realizes

that its national security is threatened by energy dependence.

California: Leading the Way in Solar

In 2006, California passed the California Solar Initiative, which is a 10-year, $3.2 billion

program with the goal of installing 3 GW of new solar energy. The program is overseen by the

California Public Utilities Commission and provides incentives to customers in the territories of

Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. These three

regions account for over 68% of California’s electricity demand. The program has both

incentives for utility scale PV and solar thermal technologies as well as residential incentive

programs such as the Multifamily Affordable Solar Housing Program. California is currently

home to 70% of US solar installations.ix Companies like SolarCity lead the market in financing

and installation of residential, commercial, and governmental solar power systems. California is

the best example of a state in the U.S. which helps consumers understand their solar options.

California’s aggressive policies towards solar technologies have helped stimulate the industry.

Conclusion: Growth Factors and Challenges

Costs of current non-renewable energy sources are likely to rise in the future. If a cap-and-trade

system is implemented or a carbon tax, coal power plants will have to raise their costs to the end

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customer. This will allow solar to achieve price parity sooner than estimated. In fact, it is

estimated that a tax of $30 per ton of carbon dioxide would enable the solar industry to reach

grid parity. Another major growth factor is increased private sector investment. Venture Capital

investment increased from $400 million in 2006 to $1.2 billion in just the first eight months of

2007.x Private sector funding is both a catalyst and a deterrent for solar sector growth; due to the

recent credit crisis, private sector funding has decreased substantially. The future growth of the

solar industry depends on solar companies’ ability to achieve financing. At the moment, the

DOE is saving the day with their federal loan guarantees to renewable energy companies.

Another catalyst for growth in the solar sector is represented in the industry’s supply chain,

which is well developed, with manufacturers, marketers, system integrators, installers, and

retailers all currently in place. The other big argument for solar electricity is that the fuel used is

free, which means it is an investment that increases its value over time, as payback periods

expire. Comparatively, non-renewable energy sources have a finite life and decrease in value

over time. Also, once installed, solar electricity has fixed operational costs that eventually will

yield a stable return. There is a lack of data on consumer consciousness and habits with regard

to solar, but informal reporting on this reveals that consumers may not be aware of the solar

options available to them. “A shortage of information about solar technologies and little

consumer awareness” is the number one obstacle identified by the DOE’s Solar Energy

Technologies Program.xi The two overarching challenges to solar’s growth in the U.S. are

financing and increasing demand, which are being increasingly addressed by government

established incentives for solar companies and consumer, loan guarantees for companies, and

consumer awareness programs.

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References

i
U.S. Department of Energy. Highlights from DOE: Timeline. 15 Apr. 2009
<http://www1.eere.energy.gov/solar/solar_time_1900.html>
ii
Economist. “The Future of Energy: Another silicon valley?” Jun 19th 2008. print edition. Accessed Mar. 2009
<http://www.economist.com/specialreports/displaystory.cfm?story_id=11565636>
iii
MarketBuzz 2008. Annual Solar World Photovoltaic Industry Report. Apr. 21, 2009
<http://www.solarbuzz.com/Marketbuzz2008-intro.htm>
iv
North American Residential Solar Power Markets. Rep. Dec. 2007. Frost & Sullivan.
v
North American Non-Residential Solar Power Markets. Rep. Dec. 2007. Frost & Sullivan.
vi
Cappello, David. The U.S. Solar Energy Market in a World Perspective. Rep. Mar. 2008. SBI research.
<www.sbireports.com>
vii
Michigan Business Review. “Energy Conversion Devices to Lay Off 70 as Demand Weakens.” March 18, 2009;
accessed Apr 10, 2009
<http://www.mlive.com/businessreview/oakland/index.ssf/2009/03/energy_conversion_devices_to_l.html>
viii
Cappello, 2008.
ix
California Public Utilities Commission. 21 Apr. 2009 <http://www.cpuc.ca.gov/NR/rdonlyres/090852E1-6290-
4C1F-8E97-02F60A9CDE8D/0/CSI_Handbook_January_2009final_2_.pdf>.
x
Cappello, David. Renewable Energy Investment in the U.S. Rep. Nov. 2007. <www.packagedfacts.com>.
xi
U.S. Department of Energy. Solar Energy Technologies Program. “Market obstacles to solar deployment” March,
2009. <http://www1.eere.energy.gov/solar/market_transformation_program.html>

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