2001
Home Depot begins selling residential solar power systems in three stores in San Diego, CA. A year later it expands sales to 61 stores nationwide.
HelioVolt is founded to pursue research and sales of its founder, Dr. Stanbery’s FASST technology.
TerraSun LLC develops a unique method of using holographic films to concentrate sunlight onto a solar cell. Fresnel lenses or mirrors are usually used to concentrate sunlight, but TerraSun claims that holographic optics are more selective, allowing light not needed for power production to pass through the transparent modules so they can be used as skylights.
British Petroleum and BP Solar announce the opening of a service station in Indianapolis that features a solar-electric canopy. The station is the first U.S. "BP Connect" store, a model that BP intends to use for new or revamped BP service stations. The canopy contains translucent photovoltaic modules made of thin-films of silicon deposited on glass.
2002
PowerLight Corporation installs the largest rooftop solar power system in the United States — a 1.18-megawatt system at the Santa Rita Jail in Dublin, California.
First Solar launches production of commercial products.
Solar Power Industries is formed
President George W. Bush installed 'building-integrated photovoltaics' or BI-PV solar electric generators at the White House for personal safety and national security.
2004
AstroPower files for chapter 11 and is purchased by General Electric initiating GE’s entrance into the solar manufacturing industry. AstroPower blamed its bankruptcy on competitive pressures, international sales problems, slow solar power adoption, and internal factors.
In March, California Governor Arnold Schwarzenegger proposed Solar Roofs Initiative for one million solar roofs in California by 2017.
On June 1, Kansas Governor Kathleen Sebelius issued a mandate for 1,000 MW of renewable electricity in Kansas by 2015 per Executive Order 04-05
2005
Kyoto Protocol enacted.
US government passes the EP Act, which created the first residential tax credits for solar energy in almost 20 years, and significantly expanded the commercial tax credits. These credits started on January 1, 2006 and have expanded markets for all solar technologies.
2006
White House unveils the President’s Solar America Initiative (SAI), a major new R&D effort to achieve cost-competitive solar energy technologies by 2015 across all market sectors.
The SAI:
• Accelerates the time frame for solar power to be cost competitive by five years.
• Significantly increases funding for cost-shared, industry-led research partnerships.
• Places a new focus on manufacturing and production R&D barriers.
• Aims to deploy 5–10 GW of photovoltaic capacity by 2015, enough solar electricity to power roughly 2 million homes.
Iowa Thin-Film Technology renames itself as PowerFilm and goes public on the London Stock Exchange.
In June, the Western Governors Association adopted the Clean and Diversified Energy policy for the West with the goal of creating 30,000 MW of “clean and diversified” energy by 2015.
November 15 – SunPower Corporation acquires PowerLight Corporation.
December 5 – New World Record Achieved in Solar Cell Technology - New Solar Cell Breaks the “40 % Efficient” Sunlight-to-Electricity Barrier
2007
On July 30, a new world record achieved in photovoltaic efficiency-42.8% efficiency achieved by University of Delaware.
September 7 – GE acquires Golden, CO thin-film photovoltaic manufacturer PrimeStar Solar, Inc.
2008
Senators Maria Cantwell (D-WA) and John Ensign (R-NV) create the Clean Energy Stimulus Act of 2008 to extend the commercial Investment Tax Credit (ITC) for solar and fuel cell projects for eight years.
IV. Financial Trends
As the United States and the world work harder to minimize the use of greenhouse gases, renewable energy sources have taken on a larger role in the economy. In 2001, renewable energy made up 13% of the energy supply in the United States, with photovoltaic power only contributing about 1% of the 13% (solarbuzz). With continued research and development focused on manufacturing more efficient photovoltaic cells, the price of solar power has continued to decrease. In 1982, the price of solar power was $27 per Watt peak (Wp); as of 2006, the price of solar power has dropped to $4 per Wp (solarbuzz). This dramatic decrease in solar power price along with the world’s drive to decrease greenhouse gas emissions continues to spur the photovoltaic industry.
In 2006, the photovoltaic manufacturing industry totaled over $10 billion in sales (First Solar). From 1995-2005, the photovoltaic industry’s sales have grown at a 40% compounded rate, but jumped to a 60% increase in 2006 (First Solar). If this 60% growth continues, the industry could reach over $65 billion in sales by the year 2010. For the fiscal year 2006, diversified companies within the industry saw revenues reach over $100 million, with smaller companies reaching just over $60 million. These revenues increased from 2005 when diversified companies totaled around $44 million and around $20 million for smaller companies (S&P). However, because of the high capital expenses required to begin manufacturing photovoltaic cells and modules, many companies did not realize a net profit until 2006.
The photovoltaic manufacturing industry has experienced some volatility over the years. Those companies that have been able to withstand the difficult solar market include large companies like General Electric (GE), British Petroleum (BP), Sanyo, and Kyocera. The most likely explanation for the success of these companies is their ability to diversify their operations, thus supplementing the company’s profits. Companies such as AstroPower, Shell Solar, United Solar Systems, PowerLight, and Solarex, which specialize in photovoltaic manufacturing, have all either gone bankrupt and liquidated their assets, merged with another company, or found themselves bought out by a larger company. Evergreen Solar, a company that specializes in photovoltaic manufacturing and has been in existence since 1994, has yet to realize a profit. In 2002, Evergreen reported a net profit margin of -195.71%. For the fiscal year 2007, Evergreen’s net profit margin improved to -23.76% (S&P). While this is not consistent for every photovoltaic manufacturer in the industry, the increasing trend appears to be representative of the industry. First Solar, another solely photovoltaic manufacturer, reported a net profit margin of -13.63% in 2005. However, in 2006, First Solar reported a net profit margin of 2.94%, one of the few photovoltaic manufacturers to report a profit for the past ten years (S&P). Figure 2 below depicts the net profit margins of diversified companies in the industry, while Figure 3 depicts net profit margins of companies mainly focused in photovoltaics.
Figure 2
Figure 3
Perhaps the reason for First Solar’s ability to report a net profit is due to their ability to lower manufacturing costs to $1.40 per watt. The industry has not been as successful in reducing operating costs. The photovoltaic manufacturing industry averaged gross profit margins of approximately only 20% and reported operating margins of -17.32% from 2003 to 2005 (S&P). These low margins indicate just how expensive and capital intensive a photovoltaic manufacturing operation is, thus emphasizing the difficulty for companies in the industry to recognize a profit.
In order to overcome the burden of the extreme operating costs, companies seek various forms of financing. The companies that focus solely on photovoltaic manufacturing record debt to equity ratios well above 100, while companies that are more diverse in their operations-except GE-show debt to equity ratios between 4 and 16. See Figure 4.
Figure 4
Interestingly, most companies have low asset to equity ratios, between 1 and 7, implying that most of these company’s assets are covered by the equity within the company (S&P). Therefore, the amount of capital that each company must obtain in order to operate is substantial enough to require the company to take on large amounts of long-term debt. The high leverage of the photovoltaic manufacturing companies only increases the difficulty to procure loans, or other forms of financing, while increasing the interest expenses associated with financing operations.
Both the federal and state governments can alleviate the photovoltaic manufacturing industry’s financing burden by offering tax credits, grants, and investments in photovoltaic energy research. Since the Kyoto protocol was put into force in 2005, many government initiatives to promote photovoltaic energy use have been started; namely, the EP Act of 2005 which gives tax credits to companies that integrate solar energy into their operations, the President’s Solar America Initiative, that funds photovoltaic companies in order to increase the amount of solar energy used within the U.S., the Solar Roofs Initiative which aims to have one million homes with solar roofs in California, and the Clean Energy Stimulus Act of 2008, which will extend commercial tax credits for more research in solar energy. Until 2005, when these initiatives became active, the photovoltaic industry experienced very stagnant growth. Since these initiatives, demand for manufacturing of photovoltaic cells has increased dramatically. While it is difficult to know just how much of an influence these initiatives will play in the future financial success of the industry, the future looks promising if recent trends (See Figure 5) continue.
Figure 5
Photovoltaic Domestic (US) Shipments, 1997-2006
Source:
V. Strategy
Currently, the photovoltaics industry is relying on a focused differentiation strategy. Success for industry members has been traditionally tied to demand from customers desiring an environmentally friendly or renewable energy source. The photovoltaics industry markets itself as being environmentally friendly. The fact that they do not consume fuel, or produce emissions after they are manufactured, is part of their marketing message. This is appealing to those looking to reduce pollution and the potential risks of global warming. Photovoltaic products are also marketed as having fewer externalities than other renewable energy sources. As part of the message, industry members tout differences from other renewable energy sources; photovoltaic panels do not disrupt natural river flows, disrupt natural views of nature, or produce CO2 like hydroelectric, wind turbines, and biomass energy sources. Building integrated photovoltaic (BIPV) technologies and independent photovoltaic panels are becoming attractive for these reasons.
Due to high manufacturing costs and high consumer prices for photovoltaics, the industry has been unable to compete with other energy sources based on cost (Fast Solar Energy Facts). Residential customers have an initial unsubsidized cost of $8 to $10 per watt, but it is important to note that photovoltaics do not have the same monthly input costs for production as other sources. Electricity costs from photovoltaic panels in residential, commercial, and industrial sectors have typically been about five times the cost of electricity on a kilowatt-hour basis when accounting for costs over the expected lifespan of the panels (Solar Prices). Historically low demand, resulting from high initial costs in consumer pricing, has made it difficult for companies to achieve economies of scale. However, recent government incentives in Germany, Japan, and the United States have helped spur demand to the point where companies are beginning to realize beneficial economies of scale. Additionally, recent advances in thin-film photovoltaics, have led to lower production costs. One thin-film producer is touting production costs of $1.40 per watt (www.firstsolar.com).
Much of the success in the photovoltaics industry has been a result of government subsidies. All photovoltaic manufacturers have a long-term strategy of achieving costs that compete on an unsubsidized basis with retail energy markets. Companies hope to do this by achieving economies of scale, R&D, manufacturing practices such as lean, and negotiating with suppliers of expensive raw materials for long-term procurement and large purchasing leverage.
Demand in the last couple of years has far outstripped supply of photovoltaics. Many companies are experiencing a one to two year backlog in production and are working diligently to expand facilities. Some have experienced ten fold or more increase in sales in the last five years. With demand increasing, companies are working to increase production capabilities that will take advantage of economies of scale. By producing more panels, companies should be able to spread overhead and production costs over larger revenues, lowering the average cost per unit and providing more profitability for the industry.
Companies are investing a significant portion of their sales in R&D. The industry hopes to be able to use production materials more efficiently, especially the most expensive materials. Some companies are attempting to use silicon-which makes up 94% of the market more efficiently, while others are using technologies that use less expensive materials than silicon. Research is being done to increase the overall efficiency of panels as well. With efficiency currently ranging from 6% to 40% companies hope to be able to decrease cost per watt. Increases in longevity are also a goal of R&D, which should improve the payback to consumers for photovoltaic purchases (FAQ terrestrial).
Advances in manufacturing efficiencies through continuous improvement, identical plant replication practices, and locating plants in lower cost areas of the world are all part of the industry’s strategy of lowering costs. Vertical integration has been a strategy for many in the industry. By producing raw materials themselves, particularly silicon, companies have been able to reduce their costs of goods. Some companies have gone another route and entered into partnerships with suppliers to help fix their costs of goods ().
Companies that can grow faster than the industry growth should be able to increase market share and improve their position among their rivals. If companies are unable to grow at the rate of the industry, they will lose market share. Growth strategies in the industry include: making acquisitions, building new manufacturing facilities, and vertical integration. Clever acquisitions can increase both capacity and competency. It is also a method for potential entrants to buy into the industry. Companies are investing heavily in new manufacturing facilities; many times they are exact replicas of facilities and production lines in their current facilities. Vertical integration helps companies secure enough raw materials to allow them to meet new production capacity goals.
VI. Manufacturing
The manufacturing of photovoltaic cells is diverse in the photovoltaic power industry. Many participants have developed their own proprietary manufacturing processes to construct their own proprietary technology. Several technologies of manufacturing photovoltaic systems exist in the industry. These technologies arguably represent the past and future of the photovoltaic manufacturing industry. Methods used in the industry include: 1. Monocrystalline and multicrystalline production, 2. String Ribbon Technology, 3. Copper Indium Gallium Selenide (CIGS), and 4. Thin-film Technology. The ability of a company to utilize the most cost effective manufacturing method will lead to a competitive advantage. Being the low cost manufacturer is essential to success in the photovoltaic manufacturing industry.
Regardless of the technology used in the manufacturing process, there exist uniform manufacturing steps for all companies within the industry. These steps include silicon crystal growing or casting plants, photovoltaic cell manufacturing, module assembly, and systems assembly. Silicon crystal growing or casting plants refers to producing the silicon for photovoltaics. This involves converting sand into silicon bricks and finally into wafers. Photovoltaic plant assemblies take the finished silicon wafers through a high technology semiconductor process to create working photovoltaic cells. Module Assembly refers to combining the silicon wafers into a laminated photovoltaic module. The final step, Systems Assembly, refers to the mechanical and electrical component of the finished product. Although some companies have vertically integrated all steps, typically, companies specialize in one or two steps. This analysis is focused on companies involved in the second and third steps of the manufacturing process.
The most important material for making photovoltaic cells is silicon. Although there are other photovoltaic technologies that rely on other semiconductors, like amorphous silicon, cadmium telluride, copper indium diselenide, and organic cells, silicon remains the dominant raw material used within the industry. Crystalline silicon technology is the earliest form of manufacturing and continues to be the dominant technique in the market, representing approximately 94% of solar market sales in 2005 (Fast Solar Energy Facts). Conventional crystalline silicon technology involves sawing thin wafers from solid crystalline silicon blocks. Crystalline silicon products are known for their reliability, performance and longevity. However, factors such as high waste from wafer cutting, complex processing procedures, high energy requirements, and high initial capital expenditures have limited the ability of these manufacturers to decrease costs and maximize outputs.
Monocrystalline production requires taking a seed of single-crystal silicon and placing it in contact with the top surface of molten silicon. Atoms of the molten silicon solidify in the pattern of the seed and extend the single-crystal structure. The final product is a thin monocrystalline wafer (How BP Makes Solar). The complementary silicon production technique is multicrystalline production. This is a casting method where pieces of silicon are melted in large ceramic crucibles to form an ingot, or brick of silicon. Each ingot is cut into smaller bricks, which are cut into wafers. The wafers go through a series of chemical coatings and metallization processes to complete the assembly. Ultimately, both methods produce silicon wafers that are consolidated to form a photovoltaic cell (How BP Makes Solar). Companies using these techniques include BP Solar, Kyocera, Solar Power Industries, GE, Sanyo, Sharp, Shell Solar, and SunPower.
Another manufacturing technique in the industry is String Ribbon technology developed by Evergreen Solar. Conventional silicon techniques such as monocrystalline and multicrystalline manufacturing are based on energy intensive processes used to melt the silicon into ingots and then cut the ingots into silicon wafers. String Ribbon technology uses surface tension to form silicon wafers. The making of a string ribbon wafer is like making a soap bubble. Instead of a ring forming the bubble, this technology uses two parallel wires to form a thin-film of silicon. With this proprietary technique, two heat-resistant wires are pulled vertically through a silicon melt, and the molten silicon spans and solidifies between the strings (String Ribbon). This technique creates a thin silicon wafer and minimizes the typically energy intensive process.
A fourth manufacturing technology is Copper Indium Gallium Selenide (CIGS). This technology represents a competitive advantage for the main developer of this technique, HelioVolt. Copper Indium Gallium Selenide (CIGS) is the best solar-absorbing material (Thin Film). With high yields from their substrate, HelioVolt is able to claim higher watts per cost when manufacturing this technique. In addition, this technique allows solar film to be applied to many different materials, such as glass, steel, metal, composites and some polymers. This places them in a good position for the emerging building integrated photovoltaic (BIPV) products market, where photovoltaic cells are incorporated into building materials.
The final method for photovoltaic cell manufacturing is thin-film technology. While most major photovoltaic power manufacturers currently rely on crystalline silicon technology for their photovoltaic cell production, thin-film technology allows for decreased costs due to less consumption of raw materials. Thin-film technology involves depositing several thin layers of silicon on a substrate to make a photovoltaic cell. Although thin-film techniques generally use materials more efficiently than traditional crystalline manufacturing techniques, the high capital costs, low manufacturing yields, lower conversion efficiency, and reduced product performance and reliability have hindered the adoption of this technology. Despite these obstacles, thin-film technology manufacturing represents a potential method for the production of photovoltaic cells in the photovoltaic manufacturing industry. Companies in the industry using this technology include Energy Conversion Devices (ECD), EPVSolar, and PowerFilm Technologies.
Despite these manufacturing technique differences, general trends in the industry have emerged to facilitate manufacturing. The ability to produce photovoltaic cells cheaply is integral to success in this industry. The strategies used in the industry include cost reductions enabled by increased line efficiencies, vertical integration, improved economies of scale, and expansion of manufacturing capacity to low-cost manufacturing locations.
Companies use lean manufacturing and other continuous improvement strategies to streamline their manufacturing. Because this is an emerging industry, plants are engineered with state-of-the-art technology to increase efficiencies and eliminate waste. This forward thinking strategy is aligned with the technology and industry mission. Vertical integration is accomplished by producing wafers, cells and panels in one location. These silicon products can be sold individually or integrated into a finished photovoltaic module or customized system. Although some industry members purchase silicon ingots from outside manufacturers, the optimum situation is to perform all the necessary steps of producing photovoltaic cells at one location and within one company. Economies of scale and low-cost manufacturing are achieved through reproducing identical plants throughout the world in order to meet the rising demand. Participants in the industry have assembled plants around the world, not only to be in close proximity to demand, but also to seek competitive edge through low-cost manufacturing.
VII. Distribution
Distribution is achieved through distributor locations. All of the industry members require consumers to purchase through photovoltaic distributors. End users include commercial and residential users. Industry members also sell to project developers, system integrators, and operators of renewable energy projects for commercial, grid-connected photovoltaic power plant applications. These represent large projects for the photovoltaic industry. All of the studied industry participants are capable of making photovoltaic systems to satisfy these demanding projects; although, some companies do not target the residential user with less than 30 kilowatts of power requested. In addition, some companies are not targeting BIPV systems. Based on their respective technologies, participants have limitations to market their products.
Most industry members sell their products throughout the world. The foci of these sales are principally in regions where government incentives have facilitated photovoltaic power adoption. Typically, companies form joint ventures with distributors in these countries with specific expertise and capabilities in a given market segment or geographic region. In addition, the expansion of manufacturing facilities into the global market creates additional customer relationships and continues to diversify the customer base.
VIII. Research and Development
Research and development in the Photovoltaic Manufacturing Industry is a key success factor for participants. The ability of companies to develop their own technology gives them the ability to produce products in a low cost method. R&D represents the foundation of the industry. The charts below document R&D expenses for several photovoltaic manufacturing industry members. The average dollar amount spent on R&D from 2002 to 2007 is $13.6 million USD. This dollar amount represents on average 26% of the respective companies’ revenues. From 2002 to 2007, R&D expense had a 65% increase. Although these companies do not represent the entire photovoltaic industry, other members are involved in other industries skewing their R&D expense dollar figures.
Companies in the photovoltaic manufacturing industry devote a substantial amount of resources to R&D with the objective of lowering the per watt cost of photovoltaic electricity generated by photovoltaic systems. This strategy seeks to obtain a cost per kilowatt that competes on a non-subsidized basis with the price of retail electricity in key markets in the United States, Europe, and Asia. As subsidies for photovoltaic systems decline throughout the world, the demand for these systems will also decline. The strategies for lowering the per watt cost include increasing the electricity conversion of photovoltaic cells, system optimization, and efficient material use.
The first objective involves the conversion efficiency of photovoltaic cells. This process requires maximizing the number of photons that reach the absorption layer of the semiconductor material to be converted into electrons. Although silicon is the dominant material to accomplish this objective, there are other materials with greater ability to absorb solar radiation and convert it into electricity, such as CIGS mentioned previously.
The second focus of R&D is system optimization. This involves reducing the cost and efficiency of the other components in a photovoltaic system. Because photovoltaic systems are complex electrical products, there are other components involved in the assembly. These include steel for the mounting brackets, silver for transferring electrical current, glass to enclose the cells, and wires to deliver the power generation to the electrical grid or battery storage. To decrease these module assembly and installation costs, the industry must design effective processes for production of these components.
Thirdly, efficient material use involves developing more efficient uses of the raw material silicon. This is an imperative for the growth of the industry, due to the limited supply and increasing cost of silicon expected in the near future. The photovoltaic manufacturing industry must adhere to these foci for R&D departments to ensure the industry continuously improves its operations and seeks to decrease costs.
An additional aspect to the R&D of the industry is partnerships. The industry has developed programs and partnerships with universities and national laboratories. Partnerships in photovoltaic manufacturing R&D have produced unprecedented cost sharing, research collaboration, and publishing that represent a model for research (US Solar Industry). The industry collaborates on R&D with the National Renewable Energy Laboratory and Brookhaven National Laboratory. Also in 2006, an industry partnership with the University of Delaware began a $53 million research program to double the efficiency of photovoltaic cells by 2008. The majority of the funding, roughly $33 million, will come from the Defense Advanced Research Projects Agency (DARPA). This award is the largest in the history of photovoltaic research (US Solar Industry).
Despite this collaboration, the capital involved in these partnerships depends upon funding from the federal government. Similar to the subsidies present to facilitate the purchase and implementation of photovoltaic systems, the industry would be detrimentally affected by decreases or elimination of funding for these research programs. These partnerships decrease R&D overhead in the industry by utilizing the intellect and infrastructure of these research facilities and personnel.
IX. Industry Competitors
The photovoltaic industry competes with all energy suppliers. However, geothermal, wind, hydroelectric, biomass, and tidal are the industries that compete as renewable energy sources. Other competitors include oil, natural gas, coal, and nuclear industries. Relative market share is illustrated in the following figure adapted from the Energy Information Administration (Annual Energy Outlook 2008).
Figure 8
Fossil fuel and nuclear energy sources come from finite sources. Global supplies of coal, oil, gas, and uranium are decreasing in supply. Current estimates are as follows: natural gas approximately 180 billion tons coal equivalent, mineral oil/shales/liquid gas approximately 300 billion tons coal equivalent, natural uranium approximately 50 billion tons coal equivalent, and coal (all forms) approximately 600 billion tons coal equivalent. The estimated yearly energy consumption is almost 14 billion tons coal equivalent and expected to increase (Energy Reserves). On the other hand, global supplies of photovoltaic cells, wind turbines and hydroelectric turbines are increasing. Biomass (wood and waste) generation is also becoming increasingly popular as a substitute to fossil fuel generation (conventional thermal). With diminishing resources such as fossil fuels or naturally occurring uranium, one expects that long term prices will only continue to increase, in turn leading to increased electricity prices from those sources. Photovoltaics are becoming cheaper over time, averaging 4% per year decrease over the past 15 years (ModulePrices).
Below in Figure 9 is the historical and projected use of energy sources through 2030 (Annual Energy Outlook 2008). Energy consumption from non-hydroelectric renewable energy sources is expected to climb. With finite sources of fossil fuels and uranium being used at faster rates, prices should climb accordingly.
Figure 9
World energy consumption is projected to increase by 59% from 1999 to 2020 (Fast Solar Energy Facts). With demand for electricity predicted to increase, and conventional thermal sources diminishing, the energy sector looks ready for a shakeup. Many of the traditional fossil fuel companies are investing heavily in photovoltaics, including BP, Shell, and Chevron (Cell Manufacturers).
X. Key Success Factors
Currently the greatest key to profitability for photovoltaic manufacturers is the existence of government subsidies from governments of some of the most developed countries. Long-term success is dependent upon the industry’s ability to reduce costs to the point where companies can compete with other energy sources.
Cost reductions from research and development, improved manufacturing processes, economies of scale, and reduction of raw materials prices are key success factors for long-term survival in the photovoltaics industry. R&D that decreases manufacturing costs, increases panel efficiency, reduces raw materials usage and/or waste, or generates new technologies that can lower production costs are necessary for success. Cost reductions through economies of scale are a key factor, but this is predicated on demand. The acquisitions of raw materials in quantities that do not inhibit increases in production are also keys to the survival of photovoltaic companies.
Companies that are not able to scale up production rapidly and cheaply will be left behind in the rapidly growing industry. A growing industry can also mask poor management, and good managers can help maintain strong positions when the industry matures.
XI. Buyers
The bargaining power of buyers in the photovoltaic manufacturing industry is currently strong. Buyers in the industry range from residential and commercial customers to large electrical solar generation power plants. This range of buyers has different attributes and requirements on the industry. Because subsidized photovoltaic energy costs from $4.81 per watt retail for buyers in April 2008, the large capital expense of purchasing a photovoltaic system is very cost prohibitive (Solar Module Price Highlights). Because of these high initial costs, buyers are likely to use substitutes until photovoltaic energy can compete with conventional energy on an unsubsidized basis.
Another indication of the strength of buyers is their size. The largest buyer in 2006 was the commercial segment, which represented 33% of the total market. Over 110 large projects were connected in 2006. These projects represent large photovoltaic systems generating 1,744 megawatts of power in 2006 (US Grid Connect). Because the main purchasers of photovoltaic systems purchase in large quantities, they augment their bargaining power within the industry.
With the increased trend in “green” branding, bargaining power of consumers will weaken as companies and individuals seek to improve their image. This attempt to convey an image of “green” will increase the demand for photovoltaics. With this increased demand, the prices companies and consumers are willing to pay will increase; thus, weakening buyer’s bargaining power as a force in the industry.
XII. Suppliers
The strength of the bargaining power of suppliers is very strong in the photovoltaic manufacturing industry. Silicon is the main raw material for the industry and there are prohibitive costs associated with switching to alternative materials. Due to rising global demand for silicon, this input is in short supply, giving more leverage to suppliers to charge exorbitant prices. In addition, there are very few providers of raw silicon used by the photovoltaic manufacturing industry. These reasons describe the strength of the supplier’s bargaining power in the industry.
Crystalline silicon is the leading commercial material for solar cells and is used in most technologies, including monocrystalline and polycrystalline, ribbon, and thin layer photovoltaic manufacturing. It is the primary material for 94% of the photovoltaic systems manufactured today (Fast Solar Energy Facts). Strong demand for photovoltaic systems in 2005 to 2006 outpaced supply and decreased available inventories at the seven major global silicon suppliers (US Solar Industry). There is currently an industry shortage of silicon. This shortage poses several risks to the industry including possible limits to revenue growth and decreases in gross margins and profitability due to increases in cost of goods sold.
Despite the power of suppliers in the industry, the silicon commodities market is responding with new silicon capacity dedicated to the photovoltaic industry. Plans have been announced to triple global silicon supply by 2010, with most of that specifically dedicated to the photovoltaic industry. To augment this increased production, photovoltaic cell producers are using silicon more efficiently in their production in response to the shortage and increased costs (US Solar Industry). Additionally, companies are vertically integrating to provide their own silicon supply for their photovoltaic manufacturing.
XIII. Potential Entrants
There are four types of potential entrants that could be attracted to the photovoltaic manufacturing industry. These entrant types are namely:
- Global energy companies that are mainly focused in petroleum-based products looking to diversify their energy products portfolio and garner positive public relations from entering the industry. BP Solar is an existing example of this type.
- Global semiconductor and electronic products producers that are looking to expand their product line to include photovoltaic cells and modules. Sanyo Electronics, Kyocera and Sharp Electronics are current examples of this area.
- Start-up companies that focus mainly on photovoltaic supplies, products or installation as their core competency. SunPower, Evergreen, and HelioVolt are examples of this entrant type.
- Renewable energy companies which are focused in other alternative energy industries as well as solar. Electronic Conversion Devices is an example of this entrant type.
While capital investment is the greatest barrier to entry into the industry, especially for start-up production companies, larger, multi-national, or global companies generally have resources at their expense to enter into the industry easily. Independent start-up companies could overcome capital obstacles by beginning as suppliers or installers at either end of the supply chain, before integrating or entering into the more capital-intensive photovoltaic cell and module manufacturing. The table below (Figure 10) summarizes potential entrant types, with current examples, and identified potential entrants.
Figure 10
XIV. Other Stakeholders
Major stakeholders in the photovoltaic energy industry are the legislative bodies controlling tax incentives and regulations within each country. Similar to other renewable energy industries, such as wind energy, the feasibility and profitability of large-scale, capital-intensive industrial photovoltaic projects often depends on pre-determined tax incentives. Tax incentives can even affect the viability of individual residential purchases. Within the United States, tax incentives are structured differently in each state (Feeding the Grid, 2007). Nationally the 2005 energy bill, EP Act 2005, provided the largest boost to the industry with the photovoltaic industry growing at least 40% each year since. Currently, an extension of the investment tax credit (ITC) is being debated and voted on by Congress. If this initiative is not passed, growth could slow significantly within the industry inside the U.S. The extension cost is estimated to be $700 million over ten years, 1% of the $40 billion in subsidies the oil industry receives each year (Hanis, M., 2008, pg. 1).
Currently, less government funding is allocated to research and development of photovoltaic power worldwide to overcome industry technical challenges such as conversion efficiency and storage capability. Figure 11 below shows an international research focus on more conventional electricity forces.
Figure 11
Funding patterns of governments worldwide show that funding priorities do not necessarily match utilization projections. Photovoltaic energy sources are expected to garner smaller portions of funding and utilization in the future (Revkin & Wald, 2007). Figure 12 below depicts future utilization of photovoltaic and other energy sources.
Figure 12
To influence government stakeholders, photovoltaic companies are setting aside competitive issues to form alliances that lobby the case of photovoltaic energy and provide input for the future structure and development of the industry. The Solar Alliance consists of over 25 companies (including major players such as BP Solar, Kyocera, and Sanyo) that are focusing on four key success factors called the “four pillars” in order to encourage photovoltaic energy use. The alliance offers recommendations on the pillars: 1. Incentives, 2. Net metering, 3. Interconnection standards, and 4. Utility policies determined to be essential in furthering the industry (The Four Pillars).
The Solar Energy Industry Alliance (SEIA) is closely affiliated with the Solar Alliance, and follows current events and strives to shape policies affecting the industry (Solar Energy Industry). This lobby struggles to remain competitive with other energy lobbies. Coal or petroleum lobbies often operate with budgets of tens of millions of dollars, while the photovoltaic lobby struggles with resources in the tens of thousands of dollars (Revkin & Wald, 2007).
As with almost any industry, the consumer is a stakeholder that should not be ignored. In spite of photovoltaic’s small footprint in worldwide energy production, high customer acceptance rates could prove helpful for the industry. A survey of 1,000 Americans, performed by a trade association of the nuclear industry, found that 27% of consumers thought photovoltaic energy would be used the most for generating electricity in 15 years (Revkin & Wald, 2007). This was the largest percentage chosen by respondents as compared with other energy choices. Customer preferences could become more augmented to energy companies and legislators alike with continued increases in energy costs.
XV. Conclusion
The photovoltaic industry has struggled to get a foothold since its inception. Recent advances in technology, along with government subsidies, have allowed companies to gain traction. Many companies still struggle to become profitable, with high amounts of debt leveraging and low demand at current production and retail prices.
The greatest macroenvironmental influences on the industry are government subsidies and incentives, the “green” movement, and technological advances. Government subsidies and incentives are keeping many within the industry financially solvent and help fund research and development. If subsidies were to expire, the industry would experience a substantial downturn in short-term manufacturing profitability, while losses in R&D funding would transfer additional overhead to the companies and potentially delay long-term gains and cost cutting technological advances. However, societal values and attitudes may prove to be a larger influencer in the macroenvironment of the industry, especially with the increased emphasis to become environmentally friendly and “green”.
In examining Porter’s model to understand the microenvironment, the two strongest influences within the photovoltaic industry are suppliers and substitutes; in contrast to competitive rivalries that predominate the microenvironment of other industries. The strength of the suppliers is realized through the shortage of silicon, which is the raw material used in 94% of production in the industry. The supplier’s power will continue until photovoltaic manufacturers can utilize silicon more efficiently, use substitute materials, vertically integrate into silicon production, or lobby for increased silicon production from the industry. Substitutes to the photovoltaic industry include all other energy types, which wield hefty economic, political, and established market-share powers.
While continued hurdles exist for the industry, there are also potential opportunities. Solar power is a relatively untapped resource that can compliment future energy sources. The industry needs to make “quantum leaps” in cost-cutting efficiencies through technology and advanced-manufacturing processes to better compete with substitutes. If the photovoltaic manufacturing industry can decrease costs, the prices for their products will continue to fall. Lower prices will appeal to residential, commercial, and industrial consumers and ensure a bright future for photovoltaics.
XVI. References
Annual Energy Outlook 2008 (Revised Early Release). EIA. April 11, 2008.
Cell Manufacturers. 2008. Solarbuzz. April 9, 2008.
Energy Research (Figure 1). EIA. April 20, 2008
Energy Reserves. 2008. Euronuclear. April 9, 2008.
Fast Solar Industry Facts. 2008. Solarbuzz. 12 April 2008.
FAQ terrestrial. 2008. Spectrolab. April 9, 2008.
Feeding the Grid: 2007 Edition. Solar Alliance. April 12, 2008.
Financial Executives Call on Congress to Extend Pending Solar Tax Credits. 2008. Hanis, M. April 12, 2008.
First Solar Annual Report 2006. First Solar. April 6, 2008.
The Four Pillars of Cost-Effective Solar Policy. Solar Alliance. April 20, 2008.
How BP Solar Makes Silicon for Solar Cells. 2008. BP Solar Global. 12 April 2008.
Module Prices. 2008. Solarbuzz. April 9, 2008.
Revisiting Solar Power's Past. Smith, Charles. Technology Review. June 1995.
Senate Passes Housing Bill with PTC & ITC Extensions Included. Renewable Energy World. April 11, 2008.
Solar Cell Manufacturing Plants. Solar Buzz. April 12, 2008.
Solar Energy Now… (Figure 2). EIA. April 20, 2008.
Solar Energy Wins Enthusiasts but not Money. 2007. Revkin, A.C. and Wald, M. L. April 20, 2008.
Solar History Timeline. 2006. U.S. Department of Energy. April 15, 2008.
Solar Energy Industries Association. 2008. SEIA. April 12, 2008
Solar Module Price Highlights April 2008. 2008. Solarbuzz. 12 April 2008.
Solar Prices. 2008. Solarbuzz. April 9, 2008.
The Solar Power Future. September 2004. SEIA. April 11, 2008.
Solar Thermal and Photovoltaic Collector Manufacturing Activities 2006. 2006. EIA April 20, 2008.
S&P Index Database. February 28, 2008.
String Ribbon-Genius in its Simplicity. 2008. Evergreen Solar. 12 April 2008.
Thin Film CIGS. 2008. HelioVolt. 12 April 2008.
Timeline of Solar Cells. 2008. Wikipedia. March 19, 2008.
US Grid Connect PV market 2007. 2008. Solarbuzz. 12 April 2008.
US Solar Industry: Year in Review. 2006. 2006. Solar Energy Industry Association. 12 April 2008.
U.S. Solar Industry Year in Review 2006. 2006 Sherwood, L., Nelson, L., Morse, F., Wolfe, J., and O’Brien, C. April 12. 2008.
