The Solar Industry Shakeout For Solar Companies That Survive, There's a Lot of Promise Ahead

Solar’s troubles started in the fourth quarter of last year. Congress had dithered over the question of extending subsidies, and governments in Spain, Japan and elsewhere pulled back on their incentive programs. Those policy decisions plus the housing market bust took a toll on demand.

Solar manufacturers worldwide will produce some seven gigawatts worth of solar modules this year, but about half of that supply “will be left with no place to go,” according to Harry Zervos, Ph.D., a technology analyst with IDTechEx.

The decline might have been bigger if manufacturers of crystalline silicone photovoltaic panels hadn’t responded by slashing prices. The crystalline silicone wafers are the most established technology for converting sunlight into electricity, and continue to hold more than 80% of the worldwide market. The top 20 or so companies manufacturing them are in a better position to survive than the legions of startups. But the technology is more expensive and bulkier than second- and third-generation solar, which have aggressively eroded crystalline’s market share.

And the price cuts from crystalline companies have set the stage for a leaner, meaner solar industry.

Eric Wesoff, a senior analyst with Greentech Media, has compiled a list of about 250 solar startups. “Very, very, very few of them are going to be viable companies in three years,” he says.

Several are wrestling with technology challenges. Startups such as Innovalight and Nanosolar, for instance, have attracted loads of venture capital and good press but have yet to come out with commercially viable products. “Few of these companies will come to market at all or with products that are technically and price-competitive,” Wesoff says.

But it appears there’s going to be plenty of demand for the companies that do survive. Ted Sullivan, senior analyst at Lux Research, a consulting firm that tracks the solar industry, expects worldwide sales to fall to 5.3 gigawatts this year, compared to 5.5 gigawatts last year, but he forecasts 8.2 gigawatts in worldwide sales in 2010, thanks largely to government incentive programs in China and the U.S. By 2013, total solar sales will reach 18.5 gigawatts, Sullivan says. The analyst believes financial pressures will slow thin film’s momentum, but not by much. He has downgraded Lux’s forecast from 28% to 24% market penetration worldwide by 2013.

When it comes to the more far-fetched hopes of the solar industry—such as the use of inkjet printers to embed solar cells in building and clothing materials—Wesoff cautions: “If you can’t produce hundreds of megawatts from your factory, you’re not making a contribution.”