US photovoltaics industry may be too small for Obama’s big solar energy plans

As the Obama administration begins to invest billions in increasing solar power, the domestic manufacturers of photovoltaics (PVs), or solar cells, have nowhere near enough capacity to supply the necessary solar panels. Led by Energy Secretary Steven Chu, who has a passion for advancing renewable energy, the Department of Energy has set a target of adding 5 to 10 GW of new PV-generating capacity by 2015. To help the PV industry grow that fast, DOE is asking Congress to boost its cooperative R&D program with domestic PV producers by 83% in fiscal year 2010, to $320 million. The goal is to make solar power more competitive with electricity generated from coal or nuclear fuel, DOE says. But even if costs can be lowered enough, US manufacturers still will be hard-pressed to grow quickly from the less than 500 MW of PV-derived electricity they can now supply annually to the kind of demand that DOE wants to induce.

DOE’s solar R&D program is complemented by $4.5 billion that has been appropriated through the American Recovery and Reinvestment Act for R&D, demonstrations, standards development, and other activities needed to begin installation of a modern “smart” electricity grid. Officials say the new grid will be required in order to accommodate the geographically broad distribution of solar- and wind-generation sites. The agency also has tens of billions of dollars in loan guarantees available to help finance new renewable energy installations, including solar.

US is a small player

The US share of the world’s PV production output has plunged from 75% in 1980 to less than 10% last year, said Robert Margolis, a senior analyst at the National Renewable Energy Laboratory. On the demand side, Europe had 80% of the world’s new PV power installations last year, according to the European Photovoltaic Industry Association (EPIA). Spain alone added 2.3 GW of new solar generation last year—41% of the new installations worldwide; the 2008 additions brought Spain’s cumulative solar production capacity to 3.0 GW. Despite a climate that’s less than optimal for solar generation, Germany leads all nations in terms of installed PV-generating capacity: 5.8 GW, including 1500 MW added last year, according to the Solar Energy Industries Association (SEIA). The US overtook Japan last year in new PV-generating capacity, but Japan still leads the US in cumulative capacity with 2.1 GW.

The DOE solar R&D program is working to help domestic manufacturers gear up and lower their production costs. Research is focusing on “full system solutions with the highest potential to reach cost competitiveness by 2015,” according to agency budget documents. Over the past three years, DOE’s Technology Pathway Partnerships program provided $168 million for cooperative R&D efforts. The 50 US companies that participate put up another $189 million. More than a dozen universities and several national laboratories are also involved in the program.

US PV production has grown in recent years—by 60% last year alone, according to the SEIA—but that growth is from a small baseline. Domestic expansions are expected to continue. Sanyo Electric Co Ltd, for instance, will open a plant in Salem, Oregon, later this year to produce the polysilicon solar ingots and wafers that are the building blocks of PVs. And First Solar Inc is expanding the yearly output of PV components from its Ohio factory by 57 MW, raising the plant’s capacity to roughly 192 MW per year.

Big expansion in Europe

A recent survey of EPIA member companies found that they expect their PV production capacities to grow between 20% and 30% annually from now through 2013. Growth has been spurred by government policies and incentives, including binding targets established by the European Union, which require member states to produce 20% of their electricity from renewable sources by 2020. In the US, no comparable renewable target exists, though energy legislation now being crafted will likely include one. To date, 28 states have enacted their own renewable targets, but they vary widely in size and timetable.

Other nations have so dominated PV production that some industry observers are suggesting that more concerted US government action will be needed for the beleaguered domestic industry. John Kelly, senior vice president for research at IBM, recounted how the industry-government consortium Sematech rescued the US semiconductor industry from near collapse in the mid-1980s. Like today’s PV industry, US semiconductor manufacturers then faced fierce competition from low-cost and subsidized foreign manufacturers. National security concerns led the Department of Defense to put up $100 million to form Sematech, with matching funds from industry. Today the US again has a highly competitive semiconductor industry and Sematech now welcomes members from throughout the world.

Roger Little, whose Spire Corp has been in the PV business for 20 years, believes that it’s too late for a Sematech-like approach. He laments that Solar World AG, the largest US manufacturer of PVs, is actually German, and imports all the equipment it needs for building solar modules. That equipment is the market niche that Little’s firm had staked out for many years. While Spire does sell some of its machinery abroad, Little says he faces “ferocious” Japanese and German competitors wherever he goes. “I’m scared to death of foreign competition in my backyard.”

Little predicts that the growth of US PV manufacturing will be constrained as the demand soars. Given that a new production plant requires 18 months or more to build, there’s little question that imports will be taking the lion’s share of the US market in coming years—possibly as much as 4 GW of the expected new demand, Little predicts. For Little, limits on imports are the only solution. China, which wasn’t in the PV business three years ago, already has a production capacity equal to that of the US. A 2008 study by the European Commission’s Joint Research Centre says that by 2012 China may well become the largest PV manufacturer, capturing more than one-quarter of the world PV market.

Incentives have spurred growth

Nations that have rapidly embraced solar power have done so with the help of subsidies and incentive programs. A tariff program used in Germany and Spain provides producers of renewable energy substantially higher rates than those charged by suppliers of conventionally generated power. Both countries are beginning to roll back their tariffs.

Stimulating demand for PVs may be the most important action that government can take to nurture the US industry, said Eric Peeters, global executive director of Dow Corning Corp’s solar solutions division. He noted that greater demand for PVs will spur companies to make the investments needed for higher-volume manufacturing processes, which will bring down unit costs. “The solar industry is very young and immature, which means that it is very inefficient,” Peeters said, pointing out that half the polycrystalline raw material used to make PVs is lost as scrap during the manufacturing process.

Demand for PVs can be stoked, Peeters said, with mechanisms such as renewable energy mandates for the utility side and tax credits, rebates, and other incentives for the consumer side.