Who will survive the solar energy shakeout?

The recession is squeezing solar energy firms. These four could thrive.

By , Correspondent

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    SunPower Corp. solar panels at Nellis Air Force base in Las Vegas.
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Until the big chill, the solar energy was red-hot, tearing along with a decade-long growth rate that averaged 50 percent a year.

Then the global recession hit – and the fizzling of subsidies in Spain and a credit crunch – which squeezed financing for many solar projects. Production slowed at plants making panels that turned sun into electricity. Prices fell sharply.

So now, despite climate-change legislation in the United States and a push for cleaner energy worldwide, a global industry shakeout looms, many analysts predict. And not a small shudder. They anticipate an earthquake of consolidation likely to leave only strong competitors standing.

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Currently, some 250 companies around the world make solar photovoltaic modules.

“In five years, there probably can be only a couple of dozen of them,” says Travis Bradford, president of the Prometheus Institute for Sustainable Development in Chicago. “At most.”

Which companies will be the winners? The ones with deep pockets, cutting-edge technology, and a rigorous focus on cutting costs. They’ll need to be big enough to build a brand name and demonstrate staying power. As close observers explain, customers want to know that the solar-energy companies they buy from today will be around to honor their warranties in the future.

Although opinions differ on who the winners will be, four names keep popping up: First Solar Inc. and SunPower Corp., both based in the US; Sharp Corp., headquartered in Japan; and SunTech Power Holdings in China.

In their own way, these firms have already distinguished themselves in a crowded field. If they do emerge as winners, their host countries can probably bank on building networks of solar-energy related suppliers around them, analysts say.

Various kinds of solar technologies exist – from simple hot-water heaters for homes and pools to multiacre installations that can generate electricity on a utility scale. But it is photovoltaic (PV) technology, which turns sunlight directly into electricity, that’s the fastest-growing technology – and is already the largest component of the solar market in the US, according to the American Solar Energy Society, in Boulder, Colo.

Here’s a look at the four potential winners in the coming shakeout.

Leader in thin films

Within the PV industry, First Solar has been the model for how to succeed with innovation, many observers hold.

“There’s no doubt in my mind that First Solar offers the industry’s best quality management and the best quality product at the best relative value,” says Matthew Patsky, portfolio manager of Winslow Green Mutual Funds, in Boston.

Formed in 1999, the Tempe, Ariz., solar company burst onto the scene with a type of thin-film technology called cadmium telluride. Although less efficient than traditional silicon-based PV panels, thin-film modules cost substantially less to produce. Last year, First Solar had $1.2 billion of sales and a $348.3 million profit. (That 2008 profit level was more than double the prior year’s earnings.)

“Thin films came into production during the boom period in the industry’s growth, which allowed for higher-risk new technology. But First Solar was the only one to establish itself successfully during that boom,” says Ken Zweibel, director of the George Washington University Solar Institute in Washington, D.C.

While competition has been rising in the thin-film sector, First Solar has continued to sustain its leadership, analysts say. It “is the only company in the world that’s been able to produce solar modules at less than $1 per watt,” says Shyam Mehta, senior solar analyst at GTM Research, a market-research firm based in Cambridge, Mass. “And [it] is on its way to producing solar electricity at rates competitive with electricity from fossil fuels.”

First Solar has reported that in this year’s first quarter, its manufacturing cost had fallen to an industry-leading 93 cents per watt. All the while, it’s been enjoying eye-popping profit margins and is operating at full capacity.

Efficiency, efficiency

If First Solar can boast about cost, SunPower Corp. offers efficiency. Its products have the industry’s highest degree of “conversion efficiency,” meaning how much sunlight they convert into electricity. Incorporated in 1985, the San Jose, Calif., company claims its solar panels are up to 50 percent more efficient than conventional solar panels and 100 to 300 percent more efficient than thin-film modules. That means its installations require “substantially less room on a roof to get the same amount of electricity,” says Julie Blunden, SunPower’s vice president of public policy and corporate communications.

Starting next year, the company plans to offer a “Generation 3” solar cell with a 23.4 percent efficiency, reports GTM Research.

To be sure, the company did post a roughly $4.8 million net income loss on $214 million of sales in this year’s first quarter. That was a “tough” period “for everybody because prices came down so fast,” says Brion Tanous, solar energy industry analyst at Merriman Curhan Ford, an investment firm in San Francisco. However, he notes that the bulk of analysts expect SunPower to bounce back to profitability soon. (It was due to release its second-quarter results on July 23.)

“We have made commitments to our investors and customers that we would lower our cost of solar-system installation 50 percent between 2006 and 2012,” Ms. Blunden says. “By 2010, we’ll be two-thirds of the way” toward that goal.

A solar giant

Sharp Corp., based in Osaka, Japan, is relying on its size and experience to survive in the business long term. It began mass-producing solar cells 46 years ago, initially to electrify Japanese lighthouses. For most of this decade, it claimed to be the world’s biggest producer of crystalline silicon cells and, by 2007, to have produced 2 gigawatts’ worth (1 million kilowatts) of solar cells – one-quarter of the world’s total PV output.

Clearly, Sharp benefits from the overall corporation’s mega size.

“From its parent, it has an extraordinary amount of resources,” says Mr. Bradford of Prometheus. The electronics giant “can deploy engineers and process capital on a scale that none of the rest of these companies can.”

Expanding beyond more traditional solar offerings, Sharp is pushing aggressively into thin films. According to published reports, it aims to secure a bigger than 50 percent market share of this sector by 2012. Already, it has an annual production capacity of 160 megawatts of amorphous silicon-based thin-film panels and is scheduled to open a new 480-megawatt-per-year plant in Sakai City, Japan, next March.

A low-cost leader

Based in Wuxi, China, the $1.9 billion SunTech Power Holdings Co. Ltd. enjoys some indisputable advantages: a huge supply of low-cost labor and a supportive banking system. “Our real strength is our ability to deliver products at very low cost that are also very high quality,” says Steve Chadima, SunTech’s vice president for external affairs.

Founded in 2001, it has grown with lightning speed, it says, to become the “largest supplier of solar panels in the world” with 1 gigawatt of PV cells and module production capacity. Taking on the high-efficiency market, the company is steadily converting to the use of a new technology it calls Pluto. The technology allows solar panels to convert 19 percent of sunlight hitting its monocrystalline panels, and 17 percent of sunlight with the polycrystalline panels, into energy.

To be sure, SunTech has incurred substantial debt used to fund its rapid expansion. But observers believe that issue shouldn’t dim SunTech’s long-term prospects: Looking into the future, China’s domestic demand for solar energy is widely expected to surge. If so, SunTech could be well-positioned to capture market share in China.

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